A-Z Popular Blog Economics Search »
Moral Hazard

Related Topics
Economic Problems

Economic Problems


Economic Theories

Rent Seeking


Economies Of Scope

Invisible Hand

Price Economics

Business Economics

52 Useful Economic Theories

 , updated on
Economics is the science that seeks to describe the economy including production, consumption, distribution, pricing and markets. It's an extremely broad area that's not always easy to apply to real business problems. The following are a few economic theories, models and concepts that are both interesting and somewhat applicable to business strategy.

Absolute Advantage

The ability to produce more than your competitors with the same amount of resources such as capital, labor and land. Generally equates to a cost advantage.

Adverse Selection

The tendency for people at high risk to buy insurance.

Attention Economics

Attention economics is the study of human attention as a scarce resource.

Bargaining Power

Bargaining power is the ability of parties to exert influence over each other in negotiation. Typically measured by how much each side has to lose if an agreement isn't reached. In other words, you tend to have a better negotiating position when you have little to lose.

Barriers To Entry

Barriers to entry are obstacles that make it difficult for new competitors to enter a market such as capital, know-how and government regulation.

Barriers To Exit

Obstacles to closing a business or discontinuing a service.

Behavioral Economics

The examination of cognitive, emotional and social factors in economic decisions. For example, asset prices are thought to be driven by cycles of optimism and fear.

Category Killer

A product or service that dominates a market.

Club Theory

A business model based on shared infrastructure and resources such as a theme park.

Coercive Monopoly

A monopoly position that is obtained by preventing any firms from competing using extraordinary power.


Resources that are available to all members of society including cultural items, natural resources and public infrastructure.

Critical Mass

The size that a company needs to reach in order to compete efficiently in a market.

Deadweight Loss

An inefficiency in an economy that prevents markets from performing normally.

Diminishing Marginal Utility

Diminishing marginal utility is a decrease in value for more of something. For example, you may find that a single smart phone is very useful but a second, third, forth or fifth mobile device has little value to you.

Diminishing Returns

Decreasing incremental output from additional resources. For example, if you put 1000 engineers on a project instead of 100 they may not finish much faster.

Diseconomies Of Scale

Disadvantages faced by large organizations such as bureaucracy, heavy weight processes and inability to change.

Economies Of Density

The economic benefits of locating in a dense urban environment such as a city or a spot close to multiple cities.

Economies Of Scale

A product or service that drops in cost as you produce more.

Economies Of Scope

Economies of scope are efficiencies gained by offering a variety of products and services.


Equilibrium is a state in which economic forces such as supply and demand are in balance. As a general rule, everything moves towards equilibrium with time.

Excess Burden

Taxation or regulation that is so intensive that it prevents markets from functioning normally.


A cost or benefit that isn't reflected in the price paid for a good or service.

Failure Demand

Additional demand for an company's products or services due to that company's failures.

Gains From Trade

The net gain achieved by countries, organizations or individuals from trade.

Giffen Goods

A good that receives more demand at a higher price because people can no longer afford more expensive substitutes.

Gift Economy

Exchanges of value that are given unconditionally as opposed to traded or exchanged based on legal conditions.

Inferior Good

A produce or service that you consume less as your income rises.

Information Asymmetry

A condition in which some market participants have better information than others.

Invisible Hand

A metaphor for the unintended global or national impact of individual choices.

Irrational Exuberance

Asset price bubbles driven by optimism.

Managerial Economics

A general term for economic models, first principles and metrics that are useful to business.

Market Power

The ability for an individual firm to raise the market price for a product or service.


A market with one buyer and many sellers. Being the opposite of a monopoly, a monopsony has significant power to push sellers for low prices.

Moral Hazard

A decision maker who is in a position to take risks without any consequences if things turn out badly. In some cases, such decision makers are heavily rewarded when risks bear fruit.

Natural Monopoly

A monopoly that makes economic sense because it would be too costly to duplicate infrastructure.

Network Effect

The relationship between the value of a technology, product or service relative to the number of people who are using it.


Overuse of a renewable resource to the point that it no longer renews as it once did. In other words, over production in a single year can damage an ecosystem for decades or in some cases, permanently.

Perfect Competition

A market in which no competitor has any advantage over any other. It is extremely difficult to profit in such a market as prices are driven towards cost.

Perfect Information

When all market participants have the same information all the time.

Predatory Pricing

A price strategy that attempts to put competitors out of business by offering a low price, often below cost.

Price Umbrella

A price set by a dominant competitor that acts like price gravity affecting every other competitor in the same market.

Rent Seeking

Strategies that generate no value but act as a drag on economic efficiency such as lobbying a government for subsidies and trade barriers.


Attempting to profit from price swings in assets without investing for sustained periods of time in such assets. In efficient markets, speculation is typically unprofitable in the long run.

Sticky Prices

The tendency for prices to stay at an established range and temporarily resist changes in supply and demand.

Superior Good

An expensive item that is mostly consumed by high income individuals.

Switching Barriers

The obstacles that a customer faces to change from one product or service to another.

Time Preferences

A preference for consuming now versus saving for the future.

Tragedy Of The Commons

A tendency for shared resources such as air and water to be overused and abused.

Tyranny Of Small Decisions

A tendency for seemingly rational local choices to have negative global consequences.

Veblen Goods

Goods that receive more demand at a higher price due to perceptions of quality. Many luxury goods are veblen in the long term but not in the short term. In other words, high prices can be good for long term demand but if you have a sale, it temporarily boosts demand.

White Elephant

An asset that is expensive to maintain and difficult to retire. Often applied to underperforming projects that are continued due to sunk costs.

Zero-sum Game

An activity that produces no value but is concerned with gaining a bigger piece of existing value. Often described as dividing a pie instead of baking new pies.


This is the complete list of articles we have written about economics.
Added Value
Advanced Economy
Adverse Selection
Animal Spirits
Attention Economics
Bank Reserves
Bargaining Power
Barriers To Entry
Behavioral Economics
Behavioral Finance
Bounded Growth
Bounded Rationality
Business Cluster
Business Value
Capital Flight
Capital Goods
Category Killer
Circular Economy
Club Theory
Comparative Advantage
Competitive Parity
Cost Competition
Critical Mass
Customary Pricing
Deadweight Loss
Division Of Labor
Economic Activity
Economic Advantage
Economic Bad
Economic Conditions
Economic Context
Economic Development
Economic Growth
Economic Infrastructure
Economic Problems
Economic Sector
Economic Systems
Economic Theories
Economies Of Density
Economies Of Scale
Excess Burden
Experience Economy
Extreme Value Theory
Factors Of Production
Failure Demand
Fiscal Dominance
Food Sovereignty
Free Market
Gains From Trade
Giffen Good
Happiness Economics
Income Distribution
Industrial Complex
Industrial Economy
Inferior Good
Information Asymmetry
Intangible Goods
Intangible Value
Invisible Hand
Knowledge Economy
Labor Productivity
Long Tail
Marginal Utility
Market Conditions
Market Economy
Market Failure
Market Forces
Market Power
Marketing Economics
Mean Regression
Media Economics
Merit Good
Middle Class
Monetary Policy
Plateau Effect
Predatory Pricing
Price Economics
Price Umbrella
Price War
Pricing Strategy
Profit Motive
Rational Choice Theory
Rent Seeking
Rule Of Three
Search Good
Service Economy
State Capitalism
Sticky Prices
Superior Good
Superior Goods
Supply Shock
Sustainable Economics
Switching Barriers
Threat Of Substitutes
Trade War
Traditional Economy
Uneconomic Growth
Unsought Goods
Value Creation
Veblen Goods
Zero-sum Game
If you enjoyed this page, please consider bookmarking Simplicable.

Adverse Selection

The tendency for people at high risk to buy insurance.

Economic Advantage

A list of economic positions or capabilities that allow you to outperform in a particular industry.

Knowledge Work

A definition of knowledge work with examples.


A definition of production with examples.

Economic Infrastructure

The common types of economic infrastructure.

Business Competition

The common types of business competition.


The common types of inefficiency.

Supply Examples

An overview of supply with common examples.

Alpha vs Beta

The difference between two common investment measurements.

Regression Toward The Mean

An overview of Regression Toward The Mean.

Efficient Market Hypothesis

An overview of the Efficient Market Hypothesis.

Animal Spirits

An overview of animal spirits, a theory of investing.

Financial Markets

A definition of financial market with examples.

Mr Market

A definition of Mr. Market, an investing theory.

Organic Growth

A definition of organic growth with examples.

Concept Company

The common types of concept company.

Information Costs

A definition of information costs with examples.

Channel Check

The definition of channel check with examples.
The most popular articles on Simplicable in the past day.

New Articles

Recent posts or updates on Simplicable.
Site Map