M0 monetary base:

See monetary base.

M1 money supply:

The M1 money supply = currency + demand deposits in commercial banks + all interest paying checkable accounts + travelers checks.

M2 money supply:

The M2 money supply = M1 + small short term time deposits.

M3 money supply:

The M3 money supply = M2 + larger long-term deposits (e.g., certificates of deposit [CDs]).

macroadjustments:

Imbalances of trade (the current account of balances of payments) caused by disequilibrium may be cured through “macroadjustments” to Aggregate Demand that change nominal GDP (which equals PQ) or, in the longer run, by adjustments to Aggregate Supply.

macroeconomic equilibrium:

Macroeconomic equilibrium occurs when Aggregate Supply and Aggregate Demand are equal so that the economy is balanced. Then, if Aggregate Supply and Aggregate Demand both grow at equal rates, the growth rate of gross domestic product (GDP) will be constant.

macroeconomics:

Macroeconomics is the branch of economics concerned with aggregate variables such as the levels of total economic activity, unemployment, inflation, the balance of payments, economic growth and development, the money supply, and the federal budget. Contrast with microeconomics. Click on the link for further exploration of the differences between microeconomics and macroeconomics. See Macroeconomics and Presidential Elections

made-to-measure:

The phrase “made-to-measure” refers to products customized to accommodate the needs of a particular buyer. Examples include goods involving personal tailoring such as shoes of a sprinter and prosthetic limbs. Also called one-offs, made-to-measure is an antonym for off-the-shelf.

made-work bais:

People exhibit make-work bias when they favor government policies that preserve existing jobs or generate new jobs at inefficiently high costs or with dubious benefits. Protectionist policies intended to prevent imports from competing with domestic firms, thereby boosting inefficient forms of domestic employment, are manifestation of both antiforeign bias and make-work bias. Voters also exhibit make-work bias when they support competition in the form of tax breaks or subsidies to induce firms to locate in the state or municipality granting the subsidies or offering favorable tax rates.

majority rule:

In a majority rule voting system, the winning side of a vote must capture 50 percent plus one vote.

Malthus, Thomas Robert

Thomas Robert Malthus [1788-1834] is categorized as a classical economic thinker, not because of the structure of his theories or their foundations, but instead because of the era in which he wrote.  He was a contemporary of David Ricardo and they were good friends, despite seldom agreeing with each other. Today, Malthus is remembered primarily for his theory of population, which pessimistically forecast a razor’s edge existence as the natural equilibrium for humankind, and which inspired Darwin’s theory of evolution.

Malthusian theory:

Reverend Thomas Robert Malthus, an early nineteenth century English economist, elaborated the dismal notion that in the long run, all workers are doomed to live at a subsistence level that barely permits survival. Malthusian theory is based on the idea that any favorable circumstance that allowed people to live above a subsistence level would be absorbed quickly by population growth, which would drive per capita income back down to subsistence levels. Malthus failed to anticipate how favorably technology would advance to expand the world’s ability to produce food, nor did he anticipate the growth of family planning.

managed care:

Managed care is the provision of health care at a fixed rate per period (the premium) plus occasional small co-payments when specific medical services (e.g., prescriptions) are provided, primarily by a health maintenance organizations (HMOs) or preferred provider organizations. The patient is usually constrained to care provided by health professionals with whom the HMO or PPO has a contractual agreement.

managed float:

In a managed float, the exchange rate of a country’s currency can “float” up or down in response to market forces, but only within boundaries set by the government. The government is pledged to buy or sell currency to keep the exchange rate within the desired boundaries.

managerial entrenchment:

Corporate executives engage in managerial entrenchment, a specific type of principal-agent problem, when they adopt a strategy that increases the costs to stockholders of replacing these decision makers without compensating benefits to the stockholders. For example, a manager might engaged in managerial entrenchment by investing in a project that requires the special expertise of the manager to merely break even, but which will lose money if the manager is not in charge. This would increase both the level of compensation and the job security of the manager, but stockholders would not gain by the corporation’s investment.

managerial slack:

Managerial slack is inefficiency that derives from weak or absent incentives for diligence by managers. Managerial slack combines with principal-agent problems in a bureaucracy to result in excessive costs, wasteful combinations of resources; malingering and idleness among workers; and a lack of innovation. See also X-inefficiency.

margin requirements:

Margin requirement are a tool of the Federal Reserve System that allows the FED to set the legal minimum percentage down payment required for purchases of stock.

marginal cost = marginal revenue:

The condition that marginal cost = marginal revenue (MC = MR) is a requirement for a firm to maximize profit. In most cases, MR > MC for units prior to the MR = MC level of output, so extra output boosts profit or cuts losses. Higher output levels than the MR = MC level entail MR < MC and would not be produced.

marginal cost:

Marginal cost (MC) is the change in total cost associated with producing an additional unit of output; computed by dividing the change in total cost (∆TC) by the change in output (∆Q): MC = ∆TC ∕ ∆Q = ∆TVC ∕ ∆Q. More formally, marginal cost is the derivative of a total cost (or total variable cost) function.

marginal factor cost:

See marginal resource cost.

marginal efficiency of capital:

The marginal efficiency of capital (mec) is the term John Maynard Keynes used to refer to what is now more commonly known as the expected rate of return on investment. See expected rate of return.

marginal physical product of labor:

The marginal physical product of labor (MPPL) is the additional output produced by an additional unit of labor; computed by dividing the change in total output (∆Q) by the change in labor (∆L): ∆Q ∕ ∆L. Marginal physical products can also be calculated for capital (∆Q∕∆K). See also average physical product of labor and open the file APPL and MPPL curves for more discussion.

marginal productivity theory of income distribution:

The marginal productivity theory of income distribution concludes that competitive markets will result in income [Y] being distributed to resource [R] owners in proportion to the values of the marginal productivities of the resources they own. [VMPR = P × MPPR and Y = VMPR×R]. See also Clark-Wicksteed theorem.

marginal propensity to consume:

The marginal propensity to consume (MPC) is the change in consumer spending that follows a small change in disposable income (MPC = ∆C ∕ ∆Yd.). [More formally, the marginal propensity to consume is the first derivative of a Keynesian consumption function.] Note that the marginal propensity to consume + the marginal propensity to save = 1 in a simple Keynesian model.

marginal propensity to save:

The marginal propensity to save (MPS) is the change in saving brought about by a small change in disposable income (MPS = ∆S ∕ ∆Yd.). More formally, the marginal propensity to save is the first derivative of a Keynesian saving function.

marginal rate of substitution:

The marginal rate of substitution is the ratio at which people are indifferent about trading good B for good A, or vise-versa. The marginal rate of substitution is the slope of an indifference curve. See also preference function.

marginal rate of transformation:

The marginal rate of transformation (MRT) is the absolute value of the slope of a production possibilities frontier, and reflects the relative opportunity costs of producing alternative goods.

marginal resource cost:

Marginal resource cost (MRC) is also known as marginal factor cost, and is the additional cost incurred in purchasing the services of an additional unit of a productive input. MRC is computed by dividing the change in total cost of production (∆TC) by the change in input (∆N): that is, ∆TC ∕ ∆N; also computed by dividing the change in total variable costs of production (∆TVC) by the change in input (∆N): that is, ∆TVC ∕ ∆N.

marginal revenue product:

Marginal revenue product (MRP) is thee additional total revenue generated by an added unit of a variable input. MRP is computed by dividing the change in total revenue (∆TR) by the change in input (∆N): that is ∆TR ∕ ∆N; or by multiplying marginal revenue by the marginal physical product of a resource: that is, MR × MPPn.

marginal revenue:

Marginal revenue (MR) is the additional revenue associated with selling an additional unit of output, and is computed by dividing the change in total revenue by the change in output: MR = ∆TR ∕ ∆Q. More formally, marginal revenue is the derivative of a total revenue function.

marginal social benefits:

Marginal social benefits (MSB) are the sum of decision-makers’ marginal private benefits from an activity, plus the marginal external benefits, if any, from consuming additional units of commodities or services.

marginal social costs:

Marginal social costs (MSC) are the sum of decision-makers’ marginal private costs plus any marginal external costs generated from an activity.

marginal tax rate:

The marginal tax rate is the percentage tax collected from an extra dollar of the taxable base. For example, if the tax base is income (or sales), then the marginal tax rate is the amount of tax per each extra dollar of income (or sales).

marginal unit of a variable:

The marginal unit of a variable is the extra or incremental unit of that variable. Open the at the margin file for more discussion.

marginal utility:

Marginal utility (MU) is the added utility or satisfaction derived by a consumer from the consumption of an additional unit of a good. Click on the paradox of value link to read about a comparison between total and marginal utilities. Also, check the link on marginal utility for more information on maximizing and balancing marginal utilities.

marginalism:

Marginalism is the idea that decisions are based on the effects of small changes from a current situation. Open the at the margin file for more discussion.

marginalist revolution:

The marginalist revolution began with the use of calculus in economic analysis, first pioneered in France by A. Jules É. Dupuit and A. A. Cournot, and then popularized by Carl Menger in Austria, Leon Walras in France, and William Stanley Jevons in England. Most specialists in the history of economic thought view the dawn of the marginalist revolution as marking the end of classical economic analysis (Adam Smith, David Ricardo, Thomas Malthus, and John Stuart Mill), and the emergence of neoclassical economic theory as the dominant economic paradigm.

market basket:

A market basket is a collection of goods intended to represent the average goods purchased by the average members of some defined group. Calculating and indexing the changes in the total prices required for purchase of a market baskets is one technique used to estimate inflation.

market capitalization:

The market capitalization of a corporation is defined as the price per share of stock times the number of shares of stock outstanding and is approximates the value of the firm to its stockholders or potential owners.

market clearing:

Market clearing refers to the condition that the quantities supplied and demanded in a market are equal. See equilibrium price and equilibrium quantity.

market concentration ratio:

See concentration ratio.

market demand curve:

A market demand curve is a graphic representation totaling all individual demand curves, and is derived for most common goods by horizontally summing all individual demand curves.

market economies:

Market economies are systems that rely on market interaction of supplies and demands to resolve the economic problem; the price system is used to coordinate the diverse plans of consumers and producers.

market equilibrium:

Market equilibrium occurs when neither shortages nor surpluses exist because at the prevailing price/quantity combination, quantities supplied and demanded are equal. Graphically, this is the point where the demand and supply curves intersect.

market failure:

Market failure occurs when economic problems as resolved by private decision-makers are inefficient, unstable, or viewed as inequitable. A sector of the economy exhibits a market failure when prices do not accurately reflect the true social cost of producing a good. Allocative market failures occur when the price system yields inefficient results, and emerge from (a) the exercise of market (monopoly) power, (b) externalities, (c) public goods subject to nonexclusion and non-rivalry, and (d) asymmetric information – when one party to a transaction has relevant information not possessed by the other bargaining party.

market fundamentalism:

Market fundamentalism is a theory that the relative price of any financial asset reflects the present value of the income stream expected from ownership of the asset, discounted appropriately for the asset’s specific risk, maturity, and tax consequences. See also efficient markets and present value.

market mechanism:

The term market mechanism refers to automatic adjustments of prices and quantities in response to changes in market demands and supplies.

market order:

A market order is an instruction issued by a financial investor to a broker to either buy or sell a security.

market period:

A market period is an analytical interval too short to allow changes in decisions about amounts of output, so that only prices may be varied. This concept was developed by Alfred Marshall, and is sometimes called the immediate period.

market power:

A seller possesses market (monopoly) power if the seller can force prices up by restricting output.  A buyer possesses market (monopsony) power when the buyer can reduce prices by limiting its purchases.

market price:

The market price is the price confronted in the market whether we buy or not.

market risk:

Market risk is the risk to an investor that the entire financial market may plummet, in which case perfect diversification yields the average of the decline in prices across the entire market. The possibility of a stock market crash is an example of market risk. Diversification may reduce specific risk, which is the risk that a particular asset will decline in value, but not market risk. Market risk is also known as systemic risk or systematic risk. See also specific risk.

market share:

Market share is the percentage of an industry’s total dollar sales received by a single firm.

market structure:

The number and relative sizes of firms in a given industry. See also structure-conduct-performance paradigm.

market supply curve:

A market supply curve is a figure derived by horizontally summing all individual supply curves.

market system:

The market system, also known as the price system, relies on private demands and supplies to determine production and the prices of goods and resources. See also capitalism and free enterprise.

market value:

The market value of a good or resource is the replacement cost or current market price of the good or asset, which may differ from accounting value, or book value or historical cost.

markets:

Markets are social mechanisms that enable buyers and sellers to strike bargains and make exchanges of goods and resources.

mark-up pricing:

Some firms seem to mark costs up by a fixed percentage to set their prices, a procedure known as mark-up pricing. Contrast with competitive or marginal cost = marginal revenue pricing, and see also cost-plus pricing and cost-push inflation.

mark-up pricing:

Mark-up pricing is a pricing strategy in which the price charged is a selected percentage greater than average production costs. Mark-up pricing will maximize profit only if the percentage mark-up selected yields conformity to the MR=MC rule. See also contribution pricing.

Marshall, Alfred:

See Alfred Marshall [1842-1924].

Marshall Plan:

In response to the urging of U.S. Secretary of State Alfred Marshall, the Marshall Plan allocated roughly $13 billionas foreign aid during 1947-1950 to help rebuild 17 countries that had been devastated by World War II, funded primarily by the U.S. and Canada.

Marshallian adjustment mechanism:

Alfred Marshall theorized that economic agents adjust quantities (rather than prices) to clear competitive markets that are out of equilibrium. Disequilibrium exists if, at the current quantity being sold, the supply price differs from the demand price so that a market experiences a surplus or a shortage. In a Marshallian adjustment, the quantity supplied will adjust until demand and supply prices are equal. Quantity increases in response to a shortage, and decreases in response to surpluses. Contrast with the Walrasian adjustment mechanism, which posits that the market price will fall if the quantity supplied exceeds the quantity demanded, and that the market price will rise if the quantity demanded exceeds the quantity supplied.

Marx, Karl:

The German philosopher Karl Marx (1818-83) is best known for being the founder of modern communism. His best known works are The Communist Manifesto (coauthored with Friedrich Engels in 1848), and the three volumes of Das Kapital (1867-1894) in which Marx critiqued the nature of capitalism, theorized about the historical stages of economic development, and predicted the decline and fall of capitalism. See also this biographical sketch of Karl Marx and this summary of his theory of economic development.

Marxism:

Marxism is the political and economic philosophy of Karl Marx. Marxism regards capitalism as an unjust economic system where the working class is exploited by the capitalists and characterizes communism as the economic system that will inevitably supersede capitalism. See the biographical sketch Karl Marx for more information.

Maslow's heirarchy of needs:

Psychologist Abraham Maslow hypothesized a hierarchy of needs on the theory that humans are motivated by five categories of needs that are typically prioritized sequentially, in the sense that lower order needs (e.g., food clothing and shelter must be met before higher needs become higher priorities. Maslow’s five categories: First, material needs: (1) Immediate Physiological Needs – breathable air, potable water, edible food, and adequate sleep. (2) Safety Needs –protection from harm and security that future physiological needs will be met. Then post-material needs – (3) Social Needs – friendship, family, love, and sexual intimacy. (4) Esteem Needs – achievement, respect, confidence, and self-esteem. Finally, (5) Self-actualization – morality, creativity, and acceptance of facts.

matching pennies:

This is a type of zero-sum game in game theory in which two players apply mixed strategies by randomly choosing between two possible moves.  Both players must flip their pennies to either heads or tails before simultaneously revealing their choice to each other.  If both players’ moves match i.e. both make the same choice (heads or tails) then one of the players wins (+1 for one, -1 for the other); however, if their moves don’t match, then the other player wins (-1 for one, +1 for the other). Thus, this is a zero-sum game, as one player’s gain precisely equals the other player’s loss. Moreover, this game has a mixed-strategy Nash equilibrium as both players choose heads or tails at random, and lack any incentives to change their strategies.  See also game theory, mixed strategies, Nash equilibrium, and zero-sum game.

materialism:

In philosophy, materialism refers to a perspective that physical and chemical laws perfectly determine the course of events, both in the past and into the future. See also determinism and Laplacean demon.

materialistic:

Social philosophers often use the term materialistic to describe the behavior of people who consume vast amounts of goods and services and seem insatiable in their acquisition of material wealth.

maturity:

The maturity of a bond or other obligated payment is the due date of the final payment that retires all obligations for payment.

maximizing behavior:

Maximizing behavior occurs when Homo sapiens strive to maximize pleasure and to minimize pain. Many economic models assume that individuals almost automatically make efficient calculations at the margin that can be expected to yield optimal outcomes. See also marginalism.

maximum maximorum:

See bliss point. See also optimum optimorum.

measure of economic welfare

The measure of (net) economic welfare (MEW) was an early attempt to adjust gross domestic product data by deducting from GDP items that do not contribute to economic welfare and adding items that do, but which are not counted in GDP. The MEW, developed by, among others, James Tobin (a Nobel Prize winner) was a 1960s precursor of the United Nations’ Human Development Index (HDI), and the Genuine Progress Indicator (GPI) published by the non-profit agency Redefining Progress.

measure of value:

The use of money as a measure of value (also known as unit of account) is the function performed by money as a common denominator through which the relative prices of goods are stated. This reduces the information costs associated with exchange.

mechanism design theory:

Mechanism design theory is a modern structureà conduct à performance [SCP] paradigm. Mechanism design theory involves building models of how differences in the information available to various potential transactors and differences in their incentives [structure] yield specific types of institutional mechanisms [conduct, in the form of, e.g., structured negotiations or auctions or markets], thereby yielding stable or unstable equilibria and attendant efficiencies or inefficiencies [performance]. For more information, read this structureà conductà performance link, and see also game theory.

medial orbitofrontal cortex:

The medial orbitofrontal cortex is the part of the brain than weighs pleasure or pain associated with some stimulus. Research by neuroeconomists has established that the price paid for an item or service unconsciously influences the pleasure people derive from it. The intensity of pleasure or pain as interpreted in a person’s medial orbitofrontal cortex is influenced by how choices are presented – the architecture of choice. Put simply, the more one pays, the more something is worth. Thus, for example, a more costly medicine may more effectively alleviate pain than a cheaper but chemically identical generic substitute if the patient is aware only of the relative prices of these medications. And an oenophile may derive more joy from drinking a more expensive wine than a less expensive wine – even if two glasses contain wine fermented from grapes off the same vine and fermented in the same vat – but with the sole differences being the labels on the bottles from which the wine is poured. See also neuroeconomics and choice architechture.

median voter model:

The median voter model suggests that the median voter must be captured to achieve a majority of the vote, and attempts to explain why political parties and candidates tend to be so similar, and why two parties tend to dominate electoral processes.

mediation:

Mediation is the process of attempting to resolve disputes by having a neutral third-party evaluate the positions of the disputants and provide advice. Like arbitration, mediation can help avoid protracted and costly litigation, but unlike arbitration, the disputants are not compelled to accept the analysis or advice of a mediator. See also arbitration.

Medicaid:

Medicaid is a federal program that mandates shared state and federal funding for health care for the poor.

Medicare:

Medicare is a federal government plan that subsidizes medical insurance for disabled workers and most Americans over 65 years of age.

medium of exchange:

Money functions as a medium of exchange when money is exchanged for goods or resources. In a barter economy, goods or resources are exchanged directly for other goods or resources. The use of money as a medium of exchange is the most important service that money provides because it finesses the double coincidence of wants required for transactions to occur in a barter system.

mental accounting:

Mental accounting refers to the tendency for people to over-respond to recent information or to recent and unexpected changes in income by mentally compartmentalizing funds, thereby altering their purchasing patterns more than would be rationally warranted. Mental accounting reflects a failure to recognize the essential fungibility of wealth. The assumption in standard economic theory [SET] of rationality augurs for people to alter their long run purchasing plans in response to changes in income, so that the impact on spending for each short run period would be only a tiny fraction of the total change in income. For example, might finding a $50 bill on the sidewalk induce you to treat yourself to an extra movie this weekend? Might losing a $50 ticket to a concert cause you to forego the concert, despite the fact that a $50 gain or loss represents only a trivial percentage of your lifetime wealth? If the answer to either question is “yes,” then you are indulging in mental accounting.  See also behavioral economics, prospect theory, and anomalies.

menu costs of inflation:

The menu (repricing) costs of inflation are the extra costs incurred in redesigning rate schedules and repricing goods necessitated by inflation.

merit bad:

A merit bad is a commodity or service deemed socially harmful by some people (who may have political clout), yet viewed by the consumer of such commodities or services to be a good. Examples of merit bads include gambling, tobacco, pornography, liquor, psychoactive drugs, and prostitution. Merit bads are frequently subjected to excise taxes, in which case the taxes are referred to as sin taxes. Contrast with merit good. Merit goods and merit bads are seldom determined solely in markets, because market decisions are trumped by decisions by an elitist group.

merit good:

A merit good is a commodity, service, or activity deemed by some people (who may have political clout) as so socially beneficial that it should be supported in some fashion by government so that the good is consumed in greater quantity than if left solely to the decisions of private consumers, despite the apparent nonexistence of positive externalities or other characteristics that might justify market intervention. Prayer in school is an example of a merit good supported by some groups who do not believe that market prices and individual choice should limit rates of consumption.

mercantilism:

Mercantilism is a 16th and 17th century economic doctrine that fostered imperialism and favored surpluses in a country’s balance of trade. Mercantilists focused on the accumulation of financial wealth, especially gold, Mercantilism was largely discredited by David Hume and Adam Smith, who wrote his Wealth of Nations (1776) in part to argue that real wealth depends on productive capacity, not money.

merchandise trade balance:

See balance of trade.

merger:

A merger is the joining of two or more firms into a single firm. See also takeover, hostile takeover, horizontal merger, vertical merger, and conglomerate merger.

merit bad:

A merit bad is a good or activity that government officials prohibit, substituting their judgment for the desires of the people denied legal consumption of the good. “Sin” taxes on tobacco and alcohol, and prohibitions against polygamy, mind-altering drugs, pornography, and homosexuality are based on merit bad arguments. See also paternalism.

merit good:

A merit good is a good that government subsidizes or mandates regardless of the desires of consumers, and regardless of whether private decisionmaking would yield efficient results. Compulsory sex education, whether purely informative or intended to promote abstinence only, is sometimes cited as an example. Another example: Laws that once forbade women to work in certain occupations or after certain hours were often intended to encourage women to stay home with their children, and were based on merit good arguments. See also paternalism.

microcredit:

Microcredit (also called microfinance or micro-loans) was created in 1976 by Bangladeshi economist and 2006 Nobel Peace Prize winner Muhammad Yunus and entails granting tiny loans to impoverished people who would otherwise lack access to credit. These loans are intended to empower impoverished people to lift themselves out of poverty by operating their own firms. Borrowers, more than 90% of whom are women, usually form “loan clubs” with roughly six members and each member commits to collectively repay loans if some member of the group defaults. Worldwide, roughly 7 million people are currently microcredit borrowers.

microeconomics:

Microeconomics is the branch of economics that focuses on individual decision making, the allocation of resources, and how prices, production, and the distribution of income are determined. Contrast with macroeconomics. Click on the link for further exploration of the differences between microeconomics and macroeconomics.

middleman:

The term “middleman” is a synonym for intermediary, but it is increasingly viewed as archaic because the term is widely interpreted as sexist.

midpoint bases:

Midpoint bases are used in elasticity calculations to avoid ambiguity in measuring the relative changes of variables. An average of the beginning and ending period is used as the base from which relative changes are measured.

mill:

When used with reference to money, a mill is 1/1000 of a United States dollar (one-tenth of a cent) and is the smallest monetary unit used in accounting in the United States. Across time, inflation has made the mill decreasingly relevant, although property tax rates are commonly expressed in mills per dollar of assessed value, and electric bills and prices for gasoline are often expressed down to tenths of cents. The term is derived from the Latin word for 1,000.

Mill, John Stuart

John Stuart Mill [1806-1873] was a philosopher and economic thinker whose works summarized the pre-calculus version of classical economics. He was a “19th Century classical liberal,” which means that he was a civil libertarian who believed in limited government. He notably championed the public education, abolition of slavery, and the emancipation of women,. He opposed the income tax, favoring instead inheritance taxes as a mechanism by which to afford everyone with equal opportunity, but not necessarily equality of result.

minimax:

Minimax is a term from game theory that describes a strategy in which a player attempts to minimize the maximum possible loss. In a game where both players know potential payoffs for each possible decision, either player could choose the course of action which would give them the greatest payoff. However, either player could also anticipate the other player taking the maximizing course of action, and use this knowledge to most advantageously shape their own decisions. The cycle continues, wherein one player analyzes and anticipates the other player’s course of action, which is based on the second players analysis of the first player’s expectations, and so forth. Minimax strategies yield a determinate solution: the players give each decision a probabilistic weight which results in courses of action that have the highest weights are those for which potential losses are lowest.

minimum cost principle:

The minimum cost principle states that an efficient economy requires accomplishing all activities at their minimum possible opportunity costs.

minimum efficient scale:

The minimum efficient scale (MES) of a production function occurs at the quantity of output at which a firm first minimizes average total cost (ATC). Minimum efficient scale is usually measured along a long run average cost function.

minimum wage law:

A minimum wage law sets a floor under the wage rates that are legally permissible. See also price floor.

misallocation:

Misallocation exists when the maximum possible value of output is not attained because resources are not combined efficiently, or when the bundles of goods consumers buy are inconsistent with the relative costs production costs of the various goods consumerd. Click on the link for a further look into misallocation.

misery index:

The misery index is a synonym for the discomfort index, which is the sum of the annual rate of inflation and the rate of unemployment. The misery index is commonly cited by a presidential candidate who seeks to blame the dominant incumbent party for episodes of recession or inflation.

Mises, Ludwig von

Ludwig von Mises [1881 -1973] was the most prominent Austrian economic theorist in the era following Joseph Schumpeter.

misperceptions theory:

Misperceptions theory is a theory derived from classical reasoning that attributes short run changes in Aggregate Supply to failures of resource suppliers and producers to distinguish changes in relative prices from changes in the price level. For example, if increases in monetary wages elicit increases in the real [inflation-adjusted] supply of labor despite comparable unrecognized increases in the level of average prices, workers have been “fooled,”, and their misperception may yield a short-run Phillips curve. The unemployment rate will fall during unanticipated increases in the price level. However, when workers fully adjust to the increased price level, according to misperceptions theory, the real supply of labor adjusts back to its original level, and unemployment rates will rise to their “natural rate.” See also natural rate of unemployment.

mixed economies:

Mixed economies are societies in which some allocations rely on the market system while others rely on government or some other allocative mechanism.

mobility:

Mobility refers to movements of goods or resources between geographic locations or between types of production.  Mobility is negatively related to the costs associated with such moves. Capital can be moved within a country, and between countries. Labor is also quite mobile, as workers tend to relocate in response to higher wages, better job security, or better working conditions. Land might be thought completely immobile, but because capital and labor are mobile, land is mobile between uses, if not between spaces. Barriers to mobility across international borders include capital controls and labor controls such as immigration laws.

model:

A model is the structure of a theory, which is often formalized mathematically. A scientific model is a testable hypothesis about how “facts” are related. However, in many cases the technology and knowledge that would permit scientific testing are not yet available.

monetarism:

Monetarism is the belief that the quantity of money in circulation is the dominant determinant of the price level in the long run, and that the macroeconomic long run is achieved very quickly. Modern monetarism is the idea that erratic growth in the money supply is the major cause of macroeconomic instability, and that inflation invariably reflects “too much money chasing too few goods.” Macroeconomic theorists who believe in the tenets of monetarism are called monetarists. See also quantity theory of money.

monetarist monetary transmission mechanism:

The monetarist monetary transmission mechanism is the idea that changes in the growth rate of the nominal money supply affect private spending directly. An increase in the money supply is assumed to yield a direct and rapid proportional rise in nominal GDP: ∆MS à ∆ (C + I) à ∆Y is the causal chain emanating from a change in the monetary growth rate.

monetary base:

The monetary base (MB) is sometimes called “high-powered money” and is the total of bank reserves plus currency held by the nonbanking public.

monetary growth rule:

A monetary growth rule is the idea, promoted primarily by Nobel Prize winner Milton Friedman, that the economy will be relatively stable if the money supply is set to grow at a low fixed percentage rate regardless of short run economic conditions.

monetary policy:

Monetary policy is the regulation of a country’s money supply by a central bank, and is ideally intended to maximize production and employment, and to stabilize the price level.

money:

Money is (a) a medium of exchange, (b) a measure of value or unit of account, (c) a store of value, and (d) a standard of deferred payment.

money illusion:

Decision makers suffer from money illusion if their decisions are based on movements of the monetary values of economic variables rather than on the real values of the variables.

money illusion:

Decision makers suffer from money illusion if their decisions are based on movements of the monetary values of economic variables rather than on the real values of the variables.

money laundering:

Money laundering is the process of disguising the source or destination of funds. The most common form of money laundering involves creating complex webs of financial transactions so that incomes from illegal activities are “legitimized,” thereby enabling criminals to “explain” how they acquired funds and/or pay income taxes to avoid prosecution for tax evasion.

money market mutual funds:

A money market mutual fund invests in very short term relatively risk-free securities for its shareholders, and consequently generates relatively low rates of return. See also mutual fund and index fund.

money market:

The money market is an informal network of financial investors and dealers through which vast amounts of standardized short-term debt securities (e.g., US Treasury bills and corporate debt) are bought and sold. These securities are issued by entities thought unlikely to default, are highly liquid, and mature in less than one year – often in less than ninety days.

money multipliers:

The potential money multiplier (mp) is the reciprocal of the reserve requirement ratio (mp = 1 ∕ rr) – the number which, when multiplied by a change in total reserves, yields the potential change in the money supply. The actual money multiplier (ma) is smaller because of currency holdings of the public, excess reserves in banks, and other leakages: ma = MS ∕ MB. Open banks and money multipliers for more on this concept. See also reserve requirements and monetary base.

money neutrality:

See neutrality of money.

money supply:

See M1 money supply and M2 money supply.

money:

An item is considered to be money if it serves as (a) a medium of exchange, (b) a standard unit of account (or measure of value), and (c) a store of value. See also M1 money supply and M2 money supply.

monopolistic competition:

An industry is monopolistically competitive if many firms sell slightly differentiated goods and there is freedom of entry or exit. Monopolistic competition resembles pure competition, but goods are heterogeneous and each firm possesses a bit of market power, so that, absent price discrimination, the price charged will exceed the marginal cost of production. In the long run, monopolistically competitive firms experience zero economic profit, so they barely cover all the opportunity costs of production. The theory of monopolistic competition is a cornerstone of the new trade theory, which perceives globalization as increasingly causing once-profitable firms with market power to watch their market power being eroded by foreign competitors.  The theory of monopolistic competition originated in a dissertation written by Edwin Hastings Chamberlin. See also contestable markets, product differentiation, persuasive advertising and informative advertising.

monopolistic exploitation:

If market power as a seller causes reduction of output relative to that which a price-taker firm would produce so that the value of the marginal product of labor exceeds the wage rate, the difference is known as monopolistic exploitation. The rate of monopolistic exploitation is the difference between the value of the marginal product of labor (VMP) and the wage rate (w). See also monopsonistic exploitation.

monopoly power:

A seller possesses monopoly power whenever the seller can force prices up by restricting output. Monopoly power is now more commonly referred to as market power. (See also market power.)

monopoly profit:

Monopoly profit is the profit attributable to a firm’s market power.

monopoly:

A monopolist is the lone seller of a good that has no close substitutes. (See market power.)

monopsonist:

A monopsonist is the sole buyer of a particular good or resource for which there are no close alternative uses. (See market power.)

monopsonistic exploitation:

Monopolistic exploitation occurs when a firm exercises its clout in hiring labor. The rate of monopolistic exploitation is the difference between the value of the marginal product of labor (VMP) and the wage rate (w) caused when a firm is able to lower the wage rate by hiring fewer workers. See also monopolistic exploitation.

monopsony power:

Monopsony power is a form of market power, and exists whenever a buyer can force price down by restricting purchases.

moral hazard:

Moral hazard exists when a contract creates an incentive for opportunistic behavior that raises the costs or lowers the benefits to the other party. Click on the link for a deeper look into moral hazard.

moral suasion:

Moral suasion is social pressure, sometimes exerted through government, to persuade people or institutions to act in some particular manner. For example, “Don’t Be a Litterbug” and “Don’t Mess with Texas” campaigns have succeeded in reducing trash along public highways. Public hostility now restricts smoking to limited areas. Policymakers use moral suasion – oratory or the threat of regulation – to persuade people or institutions to act against their individual interests. Sometimes called jawboning, moral suasion is occasionally used during inflationary periods as an exhortation for firms to hold prices below equilibrium levels.

mordida:

Mordida is a term commonly used in Spanish speaking countries to describe a bribe or other illicit payment. A synonym used in the Middle East is baksheesh, and in English speaking countries, mordida translates as bribe, or pay-for-play, or payola.

mortgage:

A mortgage is a lien on real property such as land or buildings, and is usually based on a loan that enabled purchase of the real estate. Mortgage loans usually require regular time payments of principal and interest.

mortgage backed securities:

A mortgage backed security (MBS) is a security for which collateral is a bundle of mortgages. Such securities trade in secondary markets because they tend to be much more liquid than the mortgages that serve as collateral because MBSs tend to be high-value standardized instruments traded in large volume. However, inadequate standards for evaluating mortgage backed securities were among major reasons for the subprime lending crisis of 2007-2008.

Morgenstern, Oskar

Oskar Morgenstern [1902-1975] was a prominent Austrian economist who, with the mathematician Jon von Neumann, developed the theory of games, which entails modeling strategic interactions in business, politics, war, marriage, gambling, and all other activities in which humans can be expected to behave strategically.

most-favored nation clause:

A country that signs a treaty with a most most favored nation clause ensures that imports from signator countries will confront import tariffs no higher than the lowest tariffs imposed on imports from any other country.

mothballing:

The term mothballing applies to a strategy of operating productive capacity that entails high operating cost only when demand justifies higher levels of production. Mothballing may also be used strategically as a barrier to entry that keeps potential rivals at bay because managers of potential rival firms are aware that a mothballed facility can be made operational by an existing firm very quickly.

MR = MC:

Equating the marginal revenue from the sale of a product equal to its marginal cost (MR=MC) is a necessary condition for maximizing profit for all firms making decisions for an output market. Whenever marginal revenue (the funds yielded by a specific transaction) is not exceeded by marginal cost, the transaction is profitable—provided that total revenue covers all variable costs.

MRP=MRC:

Equating the marginal resource cost (MRC) of a resource and the revenue product of the resource (MRP=MRC) is a necessary condition for all firms for maximizing profit when making hiring decisions in a resource market.  Whenever marginal revenue product (the funds yielded by hiring a unit of a resource) is not exceeded by marginal resource cost (e.g., a worker’s wage), then acquiring that unit of the resource (e.g., hiring the worker) is profitable.

multilateral trade:

Multilateral trade is trade between three or more countries. Multilateral trade agreements usually reduce trade barriers between the countries that sign a treaty, but favorable treatment is not usually extended to other countries. See also bilateral trade and World Trade Organization.

multinational:

A multinational is an enterprise, usually a corporation, that produces or markets goods in countries external to the country in which its headquarters are located.

multiplant firms:

Multiplant firms are firms that operate more than one production facility. Wal-Mart is an example of a multiplant retail firm. See also horizontal integration.

multiplier effect:

The multiplier effect is the total change in spending that results in a Keynesian cross model when new autonomous spending boosts income which, in turn, is spent, creating more income, and so on. See also accelerator and autonomous expenditures multiplier.

multiplier-accelerator models:

Multiplier-accelerator models are Keynesian macroeconomic models that simulate how multipliers (which operate on consumption) and accelerator effects (which operate on investment) reinforce each other in boosting aggregate demand and aggregate output. See also accelerator and multiplier effect.

multiplier principle:

The multiplier principle is the idea that any increase in one person’s income is partially spent, creating additional income for another person, which is then partially spent, boosting the income of yet another person, and so on.

Mundell effect:

The Mundell effect is the decline in current consumption purchases caused by expectations of deflation, and reflects people’s attempts to conform to the ancient admonition to “Buy low and sell high.” The Mundell effect is also called the Tobin-Mundell effect, because Mundell’s arguments had been anticipated in a an earlier paper by James Tobin, winner of the Nobel Prize in 1971. John Maynard Keynes had also mentioned this as mechanism as a possibility, but dismissed it as unimportant for policy purposes. See also real balance effect, which is also known as the wealth effect or the Pigou effect.

Mundell, Robert

Robert Mundell won the 2005 Nobel Prize in Economics for his contributions to macroeconomic theory and the theory of international finance.

municipal bonds:

Municipal bonds (“munies”) are bonds issued by local governments in the United States and from which the interest income received is usually exempt from federal income taxes.

mutatis mutandis:

Mutatis mutandis is a Latin phrase that economists have roughly translated as “allowing all things to vary that necessarily vary in response to some change.” This approach to theory is a one step in a process of moving from partial equilibrium analysis and towards general equilibrium analysis because it allows recognition of cybernetic effects, including feedbacks. Contrasts with ceteris paribus, which is the standard method used in partial equilibrium analysis.

mutual fund:

A mutual fund uses funds collected from financial investors to buy an array of financial assets, and the investors in the fund then own shares in the entire fund. Most mutual funds are relatively closely regulated by the Securities & Exchange Commission to ensure against fraud. However, hedge funds, which are closely-held mutual funds that require investors to provide at least $1 million to join, tend to be far less regulated than regular mutual funds.

mutual interdependence:

Mutual interdependence exists when firms consider their rivals’ reactions while adjusting prices, outputs, or product lines. See also conscious parallelism of action.