Economics
Markets, incentives, behaviour, and allocation. Every concept visualized with interactive 3D animations.
Adverse Selection · When the only buyers are the ones you don't want
Adverse selection is the entry-side version of Akerlof's lemons: when one side knows their type, the people who self-select into the market are the wo
Information EconomicsAggregate Demand · Total Demand in the Economy
AD = C + I + G + NX, summing consumption, investment, government, and net exports. Downward-sloping: lower price levels trigger wealth, interest-rate,
MacroeconomicsAggregate Supply · Short-Run vs Long-Run
SRAS slopes upward because wages are sticky; higher prices let firms temporarily expand. LRAS is vertical at potential GDP — in the long run, only tec
MacroeconomicsAllais Paradox · The 1953 lottery pair that broke the independence axiom — and seeded behavioral economics
The Allais paradox: most people prefer $1M certain to a lottery (10% $5M + 89% $1M + 1% $0), then flip to the riskier choice when 0.89 of $1M is repla
Behavioral EconomicsAnchoring Bias · A random number you saw a second ago changes the number you write down — and expertise barely defends you
Anchoring bias is the systematic tendency to weight an initial reference number too heavily when estimating an unknown quantity. Tversky and Kahneman'
Behavioral EconomicsArbitrage · The riskless profit that polices every other price on earth
Arbitrage is the simultaneous purchase and sale of equivalent or near-equivalent assets at different prices to lock in a riskless profit. The Law of O
FinanceArrow's Impossibility Theorem · No fair voting rule exists — and the proof fits on a page
Arrow's Impossibility Theorem (Kenneth Arrow, 1951) proves that no ranked-choice voting rule with three or more alternatives can satisfy a short list
Welfare EconomicsArrow–Debreu Securities · The basis vectors of asset pricing — a $1 payoff in exactly one state, zero everywhere else
An Arrow–Debreu security pays $1 in one state of the world and $0 in every other. Any payoff can be replicated as a linear combination — the spanning
Asset PricingAuction Mechanisms · First-Price vs Second-Price
English ascending, Dutch descending, first-price sealed-bid, second-price sealed-bid (Vickrey). Vickrey has a dominant strategy: bid your true value.
Game TheoryAustrian Economics · Subjective value, dispersed knowledge, and the limits of planning
Austrian economics is a heterodox school built on subjective value, methodological individualism, and the limits of central planning. It produced the
Schools of ThoughtBalance of Payments · Every cross-border transaction, balanced by accounting identity
The balance of payments (BoP) is the double-entry record of every economic transaction between residents of a country and the rest of the world. It is
International EconomicsBalassa-Samuelson Effect · Why richer countries are structurally more expensive — and why a haircut in Zurich costs five times one in Manila
Productivity in tradable sectors lifts wages economy-wide, but services are non-tradable and inherit those wages with no efficiency gain. The result:
International FinanceBank Run — The Diamond-Dybvig Model · A solvent bank, a self-fulfilling panic, and the institutions that stand between the good equilibrium and the bad one
A bank run is a self-fulfilling collapse of a fractional-reserve bank: depositors withdraw because they fear others will withdraw, even when the bank
Money & BankingBasel III · The post-2008 international rulebook that thickened bank capital, capped leverage, and made liquidity a daily compliance test
Basel III is the international regulatory framework that forces banks to hold thick layers of loss-absorbing capital and liquid assets so they can sur
Banking RegulationBayesian Nash Equilibrium · Optimal strategy when you don't know who you're playing
Bayesian Nash equilibrium extends Nash to games with private types. Each player maximises expected payoff over beliefs about others. Harsanyi 1967-68
Game TheoryBehavioral Economics · Irrational Decisions
Why humans make irrational decisions — loss aversion, anchoring, default effect, present bias, herd behavior, and nudges.
Behavioral EconomicsBertrand Competition · Two firms, the same product, simultaneous prices — and the cheaper one takes everything. Undercutting drives equilibrium straight to marginal cost.
Bertrand competition is a price-setting oligopoly model in which two or more firms simultaneously post prices for identical products and consumers buy
Industrial OrganisationBeveridge Curve · The vacancy-unemployment locus — a downward-sloping diagnostic that traces the business cycle and snaps outward when matching breaks
The Beveridge curve is the negative empirical relationship between job vacancies and unemployment. Movements along the curve trace the business cycle;
Labor EconomicsBinomial Options Pricing · Cox-Ross-Rubinstein's 1979 lattice — the tree that prices American options Black-Scholes cannot
The Cox-Ross-Rubinstein 1979 binomial model prices options on a discrete tree of up/down stock moves. It converges to Black-Scholes as steps → ∞ and n
DerivativesBlack-Scholes Option Pricing · A closed-form price for European options — and the equation that built Wall Street's quant desks
The Black-Scholes-Merton formula prices a European call or put option as the discounted risk-neutral expectation of its payoff, assuming the underlyin
FinanceBond Duration · The cash-flow-weighted average time to receive a bond's payments — and the one number that tells you, to first order, how much it loses when yields rise
Bond duration is the price-weighted average time to receive a bond's cash flows. Modified duration converts it into a price-sensitivity coefficient: Δ
Fixed-Income FinanceBond Pricing · Price & Yield Move Opposite
When market rates rise, existing bonds paying lower coupons lose value. Bond price and yield move in opposite directions — always. Duration measures h
FinanceBrain Drain · When high-skilled workers leave poorer countries for richer ones — costing source-country human capital, paying back in remittances, and sometimes circling home as brain circulation
Brain drain is the emigration of high-skilled workers from developing to developed countries. ~30M college-educated immigrants in the OECD; Jamaica, H
Development EconomicsBretton Woods System · How 730 delegates designed the post-war monetary order in 22 days
The Bretton Woods system (1944-1971) was an international monetary regime under which member countries pegged their currencies to the U.S. dollar with
International EconomicsBudget Constraint · The line between affordable and not
The budget constraint draws the affordability frontier: every bundle of two goods that exhausts a fixed income at given prices. The equation is Px·X +
MicroeconomicsBundling Pricing · Sell two goods together for a single price, and — if buyer valuations are negatively correlated — extract more surplus than any pair of standalone prices could
Bundling pricing sells two or more goods together at a combined price. Adams & Yellen 1976 showed that when consumer valuations are negatively cor
Industrial Organization & PricingBusiness Cycle · Boom
Economies oscillate through four phases: expansion, peak, contraction, trough. Typical cycle lasts 5-10 years. Smoothing this cycle is the central tas
MacroeconomicsCapital Asset Pricing Model (CAPM) · One number — beta — to price every risky asset
The Capital Asset Pricing Model prices a risky asset's expected return as the risk-free rate plus the asset's beta times the market risk premium. It c
FinanceCapital Budgeting · NPV
Discount future cash flows by (1+r)^t. If sum exceeds initial cost, NPV > 0 — accept. IRR is the rate making NPV zero. Capital budgeting's two eyes fo
FinanceCentipede Game · Backward induction says TAKE at node 1. Real players cooperate four nodes deep.
The centipede game: backward induction predicts immediate defection at node 1, but humans cooperate four nodes deep. Rosenthal 1981 made it the textbo
Game TheoryCircular Economy · Designing out waste: the transition to a regenerative system
A circular economy is an economic system aimed at eliminating waste and the continual use of resources through reuse, sharing, repair, and recycling.
Sustainable EconomicsCoase Theorem · If bargaining is free, markets fix externalities by themselves
Ronald Coase's 1960 paper "The Problem of Social Cost" upended the textbook treatment of externalities. Pigou had argued that pollution and other spil
MicroeconomicsCobb-Douglas Production Function · Y = A K^α L^(1−α) — the algebraic backbone of the Solow growth model, real business cycle macro, and almost every growth accounting exercise since 1957
The Cobb-Douglas production function Y = A K^α L^(1-α) is the workhorse model of capital, labor, and output in macroeconomics. Constant returns to sca
Growth & ProductionComparative Advantage · trade
3D production possibility frontiers for two countries. Animate how both countries benefit by specializing in what they produce at lower opportunity co
EconomicsCompensating Differentials · Adam Smith's 1776 doctrine that jobs with worse non-wage characteristics must pay more in equilibrium — the engine behind hedonic wage equations, the $10-million Value of a Statistical Life, and the modern minimum-wage debate
A compensating differential is the wage premium (or discount) a job must pay in equilibrium to offset its non-wage characteristics — risk, hours, pres
Labor EconomicsCompound Interest · A = P(1+r)^t
3D bar chart showing money growing over time with compound interest.
EconomicsConsumer Surplus · Area Under Demand, Above Price
The total benefit consumers get from buying at market price versus what they'd be willing to pay. Graphically, the triangular area under the demand cu
MicroeconomicsCoordination Game · Multiple Nash equilibria, all of which reward agreement — and one central puzzle: which of them do real people actually reach?
A coordination game has multiple pure-strategy Nash equilibria in which players prefer to match — drive left or drive right, stag or hare, focal point
Game TheoryCournot Competition · Firms choose quantities simultaneously, the market clears the total — and Nash equilibrium picks out the exact intersection of their best-response curves
Cournot competition is the 1838 oligopoly model in which firms simultaneously choose quantities, the market clears at price P = a − bQ, and the Nash e
MicroeconomicsCreative Destruction · How innovation destroys the old to build the new
Creative destruction is the process where industrial mutation incessantly revolutionizes the economic structure from within, destroying the old one an
Economic TheoryCredit Default Swap · Insurance on a bond — the bilateral derivative that transferred trillions of dollars of credit risk, broke AIG, and rewired the post-2008 financial plumbing
A credit default swap is an over-the-counter derivative in which the protection buyer pays a periodic premium (the CDS spread, quoted in basis points)
Finance & DerivativesCross-Price Elasticity · When margarine goes up, butter sells more
Cross-price elasticity of demand (XED) measures how the quantity demanded of one good changes when the price of another good changes. The sign carries
MicroeconomicsCrowding Out · When the Treasury borrows, who doesn't?
Crowding out is the displacement of private spending — usually investment — when the government finances deficits by borrowing in the same capital mar
MacroeconomicsCryptocurrency · Digital Money
How cryptocurrency works — blockchain, mining, decentralized transactions, Bitcoin, Ethereum, and smart contracts.
FinanceCurrency Board · A peg so credible the central bank has no choice — every domestic note backed one-for-one by foreign reserves
A currency board fixes the exchange rate by backing every domestic note one-for-one with foreign reserves and stripping the central bank of discretion
International FinanceDeadweight Loss · Market Inefficiency
Value destroyed by taxes, price ceilings, or quotas — trades that would have happened but don't. A triangle of waste that benefits no one.
MicroeconomicsDemographic Dividend · The temporary growth windfall a country earns while its working-age share peaks during the transition from high fertility to low fertility — if education, jobs, and savings can be deployed in time
A demographic dividend is the growth windfall a country gets when its working-age share peaks during the transition from high fertility and high morta
Development EconomicsDerivatives · Options
Contracts whose value comes from an underlying asset. Calls right to buy, puts right to sell, futures obligate trade. Used for hedging (farmers lock i
FinanceDictator Game · One player splits an endowment with a stranger who cannot reject — the cleanest laboratory test of pure altruism, fairness and inequity aversion
In the dictator game one player unilaterally splits an endowment with a passive recipient who cannot reject. Standard rational theory predicts a zero
Behavioural EconomicsDiminishing Marginal Utility · each additional unit
3D bar chart showing satisfaction from consuming each additional unit of a good. The first slice of pizza gives huge utility, but each additional slic
EconomicsDiscounted Cash Flow (DCF) · A company is worth what its future cash is worth today
A discounted cash flow valuation prices an asset as the present value of its expected future free cash flows, discounted at a rate that reflects the r
FinanceDornbusch Overshooting · Why exchange rates jump past their long-run equilibrium on every monetary shock — and slowly return
Rudiger Dornbusch's 1976 model: when monetary policy changes, the exchange rate jumps past its long-run equilibrium and slowly returns. Sticky goods p
Monetary EconomicsDutch Disease · The paradox of plenty: how resource booms can hurt the economy
Dutch disease is an economic phenomenon where the rapid development of one sector (usually natural resources) leads to a decline in other sectors like
Development EconomicsDynamic Stochastic General Equilibrium · Households, firms and the central bank all optimize together under uncertainty
DSGE models: households + firms + central bank all optimize under uncertainty. Workhorse of modern central banks. Smets-Wouters 2007 is the canonical
MacroeconomicsEconomic Growth · Solow Model
Output per worker depends on capital per worker with diminishing returns. Saving builds capital; depreciation erodes it. They balance at a steady stat
MacroeconomicsEdgeworth Box · Two consumers, two goods, and every voluntary trade in one rectangle
The Edgeworth box plots two consumers' bundles on the same diagram. Indifference curves tangency = the contract curve, the locus of Pareto-efficient a
General EquilibriumEfficient Market Hypothesis · If everyone knows it, it's already in the price
The Efficient Market Hypothesis (EMH) claims asset prices fully reflect available information. New information arrives randomly, so price changes are
FinanceEllsberg Paradox · Why people prefer known 50/50 odds to unknown ones — and what that breaks in Savage's subjective expected utility
The Ellsberg paradox: people prefer known 50/50 probabilities to unknown ratios, violating subjective expected utility. Foundation of ambiguity aversi
Decision TheoryEndogenous Growth Theory · Knowledge as a non-rival good that drives perpetual growth
Endogenous growth theory explains long-run growth from inside the model. Knowledge is non-rival and accumulates without bound, breaking the diminishin
MacroeconomicsEnvelope Theorem · Why dV*/dθ = ∂V/∂θ at the optimum — and why every comparative-static result depends on it
The envelope theorem says that at an optimum, the total derivative of the value function with respect to a parameter equals the partial derivative — t
Microeconomic TheoryEquity Risk Premium · The extra return investors demand for bearing equity risk — and the single number that decides the cost of equity, the WACC, and every corporate hurdle rate
The equity risk premium (ERP) is the excess return investors demand for holding stocks instead of risk-free bonds: ERP = E[r_market] − r_f. Historical
FinanceExchange Rate · Currency Supply & Demand
The price of one currency in another, set by capital flows, trade, inflation, and interest rates. Rising US rates attract foreign capital, appreciate
FinanceExpected Utility Theorem (von Neumann-Morgenstern) · Four axioms force you to maximize E[u(x)] — the foundation of finance, insurance, and rational choice under risk
The expected utility theorem says any preference over lotteries that satisfies completeness, transitivity, continuity, and independence can be represe
Decision TheoryExternalities · Spillover Costs & Benefits
Actions that affect uninvolved parties. Pollution hurts neighbors; vaccination protects strangers. Markets produce too much of negative externalities,
MicroeconomicsFiat vs Commodity Money · From cowries and gold to paper and pixels
Commodity money is a medium of exchange that has value as something else — gold, silver, salt, cattle, cigarettes. Fiat money is paper, coin, or a dat
Money & BankingFirst Fundamental Welfare Theorem · Every competitive equilibrium is Pareto efficient — under exacting assumptions
The First Welfare Theorem states that any competitive equilibrium is Pareto efficient — under no externalities, complete markets, and locally non-sati
Welfare EconomicsFiscal Policy · taxes
3D circular flow diagram showing money moving between government, households, and businesses. Animate expansionary policy with increased spending flow
EconomicsFisher Equation · Nominal interest equals real interest plus expected inflation — the identity that decides whether savings actually grow, what bond yields mean, and when sovereign debt is sustainable
The Fisher equation links nominal interest rates, real interest rates, and expected inflation: (1+i) = (1+r)(1+π^e), approximately i ≈ r + π^e. Formal
MacroeconomicsFloating vs Fixed Exchange Rates · Pick two of three: capital mobility, fixed rate, monetary independence
A floating exchange rate is set by supply and demand in the foreign-exchange market with no official target. A fixed exchange rate commits the central
International EconomicsFractional-Reserve Banking · How banks turn $1,000 of cash into $10,000 of money
Fractional-reserve banking is the system in which commercial banks hold only a fraction of customer deposits as reserves and lend the rest. The lent m
Money & BankingFriedman's Permanent Income Hypothesis · Households spend on lifetime resources, not this month's paycheck
Friedman's Permanent Income Hypothesis: consumption depends on long-run expected (permanent) income, not the volatile current paycheck. Transitory win
MacroeconomicsGeneral Equilibrium · Prices that clear every market simultaneously — Arrow-Debreu's fixed-point world
General equilibrium: prices clear every market simultaneously. Existence proved by Arrow and Debreu (1954) using Brouwer's and Kakutani's fixed-point
Microeconomic TheoryGiffen Good · When raising the price of rice makes the poor buy more of it
A Giffen good is an inferior staple whose demand rises when its price rises — the rare textbook exception to the law of demand. For decades the standa
MicroeconomicsGig Economy · The shift toward on-demand, platform-mediated labor
The gig economy is a labor market characterized by short-term contracts or freelance work as opposed to permanent jobs, often mediated by digital plat
Labor EconomicsGross Domestic Product · GDP
3D stacked bar chart breaking down GDP into its four components: consumption, investment, government spending, and net exports. Animate each layer gro
EconomicsHeckscher-Ohlin Model · Countries export goods that intensively use the factor with which they are relatively well endowed — China ships textiles, the United States ships machinery
The Heckscher-Ohlin model says countries export goods that intensively use their relatively abundant factor: China (labor-abundant) ships textiles, th
International Trade TheoryHicksian Demand · The compensated demand curve — pure substitution, no income, always sloping down
Hicksian (compensated) demand h(p, u) is the bundle that minimizes expenditure subject to reaching utility u at prices p. Always downward sloping in o
Consumer TheoryHomothetic Preferences · Indifference curves that scale radially — and the unit income elasticity that follows
Homothetic preferences are preferences whose indifference curves are radial expansions of one another. Demand is linear in income: x_i(p, m) = m · g_i
Microeconomic TheoryHuman Capital · Education
Education is an investment. Each year of schooling raises earnings by 8-10% on average (Mincer return). College grads earn ~75% more over a career, of
Labor EconomicsHyperbolic Discounting · Why "next Monday" never quite arrives — and why your current self can't trust the deals your future self will make
Hyperbolic discounting is the empirical pattern in which people value near-term rewards far more steeply than distant ones, causing preferences to rev
Behavioral EconomicsHyperinflation · When money dies: the rapid and total collapse of purchasing power
Hyperinflation is a very high and typically accelerating inflation rate that quickly erodes the real value of the local currency, often exceeding 50%
MacroeconomicsIS-LM Model · Two curves in one diagram — the goods market on one, the money market on the other — and their intersection is the short-run state of the whole economy
The IS-LM model is John Hicks's 1937 graphical formalisation of Keynes's General Theory. The IS curve is the locus of (Y, r) pairs that clear the good
MacroeconomicsImpossible Trinity (Trilemma) · Fixed exchange rate, free capital, monetary autonomy — choose two
The impossible trinity says a country cannot have a fixed exchange rate, free capital movement and an independent monetary policy at the same time. Pi
International EconomicsIncome Elasticity · How spending shifts as paychecks grow
Income elasticity of demand (Y_E) measures how strongly the quantity demanded of a good responds to a change in income. The number sorts every good in
MicroeconomicsIndifference Curves · All the bundles that make you equally happy
An indifference curve traces every bundle of two goods that delivers the same utility — the consumer is indifferent between any two points on it. The
MicroeconomicsInequality Measurement · Gini Coefficient & Lorenz Curve
The Lorenz curve plots cumulative income share vs population share. The Gini coefficient measures how far it bows below the equality line. Nordic ~0.2
Labor EconomicsInflation · CPI
3D visualization of inflation. Show a stack of coins shrinking in purchasing power over time as price levels rise. Animate a price index climbing whil
EconomicsInformation Ratio · Active manager skill per unit of tracking error — the benchmark-relative cousin of Sharpe
The information ratio measures an active manager's excess return over a benchmark per unit of tracking error. Above 0.5 is considered good; above 1.0
Performance MeasurementInterest Rate Parity · Forward exchange rates aren't forecasts — they're arbitrage
Interest rate parity (IRP) is the no-arbitrage relationship that ties forward exchange rates to spot rates and nominal interest rates: F/S = (1 + i_d)
International EconomicsInterest Rates · Cost of Money
How the Federal Reserve uses interest rates to control the economy — raising rates cools inflation, cutting rates stimulates growth.
Money & BankingJ-Curve (Trade) · Devalue a currency and the trade balance gets worse first, better second — the path traces a J because prices adjust now but volumes take a year
A currency depreciation initially worsens a country's trade balance before improving it — the graph traces a J. Imports are immediately more expensive
International EconomicsJensen's Alpha · Return above the CAPM line — the absolute measure of manager skill
Jensen's alpha is α = R_p − [R_f + β(R_m − R_f)] — the portfolio's return above the CAPM prediction. Jensen 1968. Positive α = manager skill. Berkshir
Performance MeasurementJob-Market Screening · Why a degree raises wages — and why low-ability workers don't bother
Job-market screening: when employers can't observe ability directly, education functions as a separating signal because high-ability workers pay a low
Information EconomicsKaldor-Hicks Efficiency · Pareto with the consent requirement removed — and the philosophical bills it produces
Kaldor-Hicks efficiency holds that a policy is efficient if winners' gains exceed losers' losses — that is, if winners could compensate losers and rem
Welfare EconomicsKelly Criterion · The exact bet fraction f* = (bp − q)/b that maximizes long-run wealth — and the geometric reason why betting more makes you broke
The Kelly criterion: f* = (bp − q)/b is the bet fraction maximizing long-run log-wealth growth. Used in portfolio sizing, sports betting, and quantita
Portfolio TheoryLabor Supply Elasticity · How responsive is hours worked to wages — Frisch, Marshallian, Hicks decomposed, and why the answer governs every tax-policy debate
Labor-supply elasticity measures the percentage change in hours worked per percentage change in wage. Compensated (substitution-only) values cluster a
Labor EconomicsLaffer Curve · Tax revenue as an inverse-U of the tax rate — peak between zero and one hundred
The Laffer curve plots tax revenue as a function of the tax rate. Revenue is zero at 0% and at 100% — peak revenue sits somewhere in the middle. Munde
Public ChoiceLender of Last Resort · The central bank's emergency role — lend freely to solvent banks during a panic, on good collateral, at a penalty rate — and the 150-year argument about whether the cure causes the disease
The lender of last resort is the central bank's emergency role of lending freely to solvent-but-illiquid banks during financial panics to halt contagi
Money & BankingLeverage Ratio · The 3% non-risk-weighted floor that catches the gaming the risk-weighted system cannot
The Basel III leverage ratio caps a bank's balance-sheet size at roughly 33 times its Tier 1 capital — Tier 1 / total exposure ≥ 3%. A deliberately cr
Banking RegulationLewis Dual-Sector Model · A subsistence rural sector with surplus labor feeds a capitalist modern sector at constant wage — until the surplus runs out and wages explode
The Lewis dual-sector model (Arthur Lewis, 1954; Nobel 1979) explains industrialisation as labor migrating from a subsistence rural sector with near-z
Development EconomicsLife-Cycle Hypothesis · Borrow young, save in your peak years, dissave in retirement — and consumption stays flat
Modigliani's Life-Cycle Hypothesis: households smooth consumption over a finite lifetime, saving in working years and dissaving in retirement. Aggrega
MacroeconomicsLiquidity Coverage Ratio · High-quality liquid assets must cover 30 days of stressed cash outflows — the post-2008 rule that turns liquidity into a daily compliance test
The Basel III Liquidity Coverage Ratio requires banks to hold high-quality liquid assets at least equal to 30 days of stressed net cash outflows: LCR
Banking RegulationLiquidity Trap · When the central bank's main lever stops moving the economy
A liquidity trap is when nominal interest rates have fallen so close to zero that conventional monetary policy stops working. Cash and short-term gove
MacroeconomicsMalthusian Trap · Why pre-industrial productivity gains turned into more people, not richer ones
The Malthusian trap is the pre-industrial logic where higher productivity raises population, not living standards. Output grows, people grow faster, a
MacroeconomicsMarket Equilibrium · surplus
3D supply and demand diagram. Start with price above equilibrium showing surplus inventory piling up, then price drops. Then show price below equilibr
EconomicsMarket for Lemons (Akerlof) · When sellers know more than buyers, good cars vanish
George Akerlof's 1970 paper "The Market for Lemons" is the founding document of asymmetric-information economics. Sellers of used cars know whether th
Information EconomicsMarshallian Demand · The textbook demand curve — utility maximization given income, complete with substitution and income effects
Marshallian (uncompensated) demand x(p, m) is the bundle that maximizes utility subject to income m at prices p. The standard demand curve — includes
Consumer TheoryMean-Variance Portfolio · The quadratic program that turned "don't put all your eggs in one basket" into modern finance — and won Markowitz the 1990 Nobel
The mean-variance portfolio chooses asset weights w that minimise variance w'Σw at a target expected return w'μ. Harry Markowitz's 1952 paper founded
FinanceMechanism Design · Engineering the rules of the game so that truth wins
Mechanism design is reverse game theory: instead of analysing a fixed game, you design the rules so that self-interested players reveal private inform
Game TheoryMental Accounting · Money is fungible — but the mind isn't. Bonus, gift, refund, and salary live in separate accounts with different rules, and that single fact rewrites how people save, gamble, and respond to defaults.
Mental accounting is the cognitive habit of sorting money into separate, non-fungible buckets — salary, bonus, gift, gambling winnings — and treating
Behavioral EconomicsMenu Costs · The friction of change: why prices are slower to adjust than markets
Menu costs are the costs incurred by a firm when it changes its prices, including printing new menus, updating systems, and communicating changes to c
MacroeconomicsMercantilism · The early-modern doctrine that national power equals accumulated gold — refuted by Hume and Smith, reborn whenever zero-sum politics overrides efficiency
Mercantilism is the early-modern economic doctrine (c. 1500–1750) that national power flows from a positive trade balance in gold and silver, defended
History of Economic ThoughtMinimum Wage · Price Floor
The economics of minimum wage — a price floor on labor, supply and demand effects, unemployment gap, and the debate.
Labor EconomicsMinsky Financial Instability · Stability breeds instability — Minsky's three financing regimes, the moment they break, and the framework that predicted 2008 decades early
Hyman Minsky's financial-instability hypothesis: stability breeds instability. Borrowers shift from hedge to speculative to Ponzi finance over the bus
Financial EconomicsModern Monetary Theory (MMT) · Reframing sovereign spending and the nature of money
Modern Monetary Theory (MMT) is a macroeconomic framework that argues sovereign countries with their own fiat currencies aren't constrained by tax rev
MacroeconomicsModigliani-Miller Theorem · Under perfect markets, capital structure doesn't matter — and every deviation tells you something important about the real world
Modigliani and Miller (1958) proved that under perfect markets — no taxes, no bankruptcy costs, no information asymmetry — a firm's value is independe
FinanceMonetarism (Friedman) · "Inflation is always and everywhere a monetary phenomenon" — and the half-century that proved it
Monetarism, associated with Milton Friedman, argues that the money supply is the dominant driver of nominal GDP and inflation in the long run. Friedma
MacroeconomicsMonetary Policy · Central Bank Tools
Central banks control money and interest rates via three tools: open market operations (buy/sell bonds), reserve requirements, and discount rates. Fir
MacroeconomicsMoney Multiplier · From $1,000 of base money to $10,000 of bank deposits
The money multiplier is the ratio by which the broad money supply (M1 or M2) expands relative to the monetary base — the cash plus reserves the centra
Money & BankingMonopolistic Competition · Many firms, differentiated varieties, free entry — each a mini-monopoly that still earns zero economic profit once rivals arrive
Monopolistic competition is a market structure in which many firms sell differentiated products with free entry. Each firm has a downward-sloping dema
MicroeconomicsMonopoly · single seller
3D graph showing a monopolist's demand curve, marginal revenue, and marginal cost. Animate the firm choosing quantity where MR=MC, setting a high pric
EconomicsMonopsony in Labor Markets · When the buyer of labor has wage-setting power — the mirror image of monopoly that reverses the textbook story on minimum wages, non-competes, and unions
A labor-market monopsony is the mirror image of a monopoly: a single dominant buyer of labor faces an upward-sloping supply curve, hires below the com
Labor EconomicsMoral Hazard · Hidden Action After the Deal
When one party bears less risk, they take more of it. Auto insurance drives reckless; too-big-to-fail banks take wild bets. Solved via deductibles, mo
Behavioral EconomicsMortgage-Backed Securities · Pool thousands of home loans, sell the monthly payments as a bond, slice the bond by risk — the engineering trick that built a 12-trillion-dollar market and then broke the world in 2008
A mortgage-backed security is a bond whose cash flows come from a pool of mortgage loans. Created by Lewis Ranieri at Salomon Brothers in 1977, MBS ar
Financial EconomicsMundell-Fleming Model · The IS-LM-BP framework that proved every open economy must surrender one of three things — fixed exchange rates, free capital flow, or its own monetary policy
The Mundell-Fleming model extends IS-LM to a small open economy with international capital mobility. It adds a balance-of-payments curve to the IS and
Open-Economy MacroeconomicsNAIRU · The unemployment rate at which inflation neither accelerates nor decelerates — the vertical long-run Phillips curve that broke the 1960s policy menu
NAIRU — the Non-Accelerating Inflation Rate of Unemployment — is the unemployment rate at which inflation neither rises nor falls. Below it, tight lab
MacroeconomicsNash Equilibrium · No One Wants to Change
A strategy combination where each player's choice is optimal given the others'. No one can gain by deviating alone. Works for cooperation, competition
Game TheoryNational Debt · Government Borrowing
How national debt accumulates — budget deficits, bonds, debt-to-GDP ratio, and the debate over government borrowing.
Public FinanceNet Present Value (NPV) · Accept the project if its present-valued payoff beats its cost
Net Present Value sums the present value of a project's expected cash flows and subtracts the upfront investment. The decision rule is one line: accep
FinanceNetwork Effects · Value grows with scale: the power of connected systems
Network effects occur when the value of a product or service increases as more people use it, creating a positive feedback loop for growth and adoptio
MicroeconomicsNew Keynesian Economics · The three-equation workhorse — Calvo sticky prices, forward-looking Phillips curve, dynamic IS, and the Taylor rule that closes the system
New Keynesian economics rebuilt Keynes on rational expectations and microfoundations. Calvo sticky prices, the forward-looking Phillips curve, the dyn
MacroeconomicsNudge Theory · Guiding choices through the architecture of the environment
Nudge theory is a concept in behavioral science that proposes positive reinforcement and indirect suggestions can influence the motives and decision-m
Behavioral EconomicsOkun's Law · One point of unemployment costs two to three points of GDP
Okun's law is the empirical relationship between unemployment and the output gap. A one-percentage-point rise in unemployment is associated with a rou
MacroeconomicsOligopoly · Few Firms, Interdependent Pricing
A handful of large firms watch each other closely. Cartels coordinate; Cournot firms compete on quantity; Bertrand firms undercut on price. Most real
MicroeconomicsOpportunity Cost · trade-offs
3D forking path showing two choices. When one path is chosen and lights up, the other fades with a glowing label showing the forgone value. Animate mu
EconomicsOptimum Currency Area · When should countries share a currency? Mundell's 1961 answer — and why the eurozone largely fails it
Robert Mundell asked in 1961 when a group of regions should share a currency. The answer: when labour can move between them, when shocks hit them simi
International FinanceOptions Greeks · Delta, Gamma, Theta, Vega, Rho — five partial derivatives that run every options desk on Earth
The Greeks are the partial derivatives of an option's price with respect to spot, time, volatility, and rate. Delta is the hedge ratio, Gamma its curv
FinancePareto Efficiency · No waste — but no promise of fairness
An allocation is Pareto efficient when no one can be made better off without making someone else worse off. Named for Vilfredo Pareto (1906), the crit
Welfare EconomicsPerfect Competition · Many Firms, One Price
The cleanest market: many small firms, identical products, free entry. Every firm is a price taker. In long run, economic profits collapse to zero as
MicroeconomicsPhillips Curve · Inflation vs Unemployment
A short-run tradeoff: higher inflation tends to accompany lower unemployment. 1970s stagflation broke the naive version. Modern view: no long-run trad
MacroeconomicsPortfolio Diversification (Markowitz) · Why a basket of imperfectly correlated assets beats any single one
Portfolio diversification combines imperfectly correlated assets so that the portfolio's variance falls below the weighted average of individual varia
FinancePrice Discrimination · Three degrees of charging different prices for the same good — and why economists are less hostile to it than the word suggests
Price discrimination is the practice of charging different buyers different prices for the same good. Pigou's three degrees: first-degree (each bu
MicroeconomicsPrice Elasticity of Demand · How much quantity moves when price moves
Price elasticity of demand (PED) measures how sharply quantity demanded responds to a price change. It is the percent change in quantity divided by th
MicroeconomicsPrincipal-Agent Problem · Pay you to do something I can't watch you do
The principal-agent problem is the central organizing question of contract theory: how do you pay someone to act in your interest when you cannot full
Information EconomicsPrisoner's Dilemma · Nash equilibrium
3D payoff matrix for two players. Animate each player's decision process, highlight the dominant strategy, and show how both end up at Nash equilibriu
EconomicsProducer Surplus · Area Above Supply, Below Price
Producers' mirror of consumer surplus — what they receive versus minimum they'd accept. Triangular area above the supply curve and below market price.
MicroeconomicsProduction Possibility Frontier · Trade-offs & Efficiency
The PPF curve shows what an economy can produce given its resources. On the curve: efficient. Inside: wasted capacity. Outside: unattainable. The slop
MicroeconomicsProspect Theory (Kahneman & Tversky) · Why losses hurt twice as much as equivalent gains feel good — and what that breaks in classical economics
Prospect theory, developed by Daniel Kahneman and Amos Tversky in their 1979 Econometrica paper, describes how people actually evaluate risky choices
Behavioral EconomicsPublic Choice Theory · Voters, politicians, bureaucrats as utility-maximizers — and why concentrated interests usually win
Public choice theory applies economic methods to political behavior. Voters, politicians, and bureaucrats are utility-maximizers — Buchanan-Tullock 19
Public ChoicePublic Goods · Non-Rivalrous
Classified by rivalry (does your use limit mine?) and excludability (can we block non-payers?). Public goods fail markets — free riders lurk. Governme
Public FinancePurchasing Power Parity (PPP) · When the same basket should cost the same — and why it usually doesn't
Purchasing power parity is the long-run claim that exchange rates should adjust until the same basket of goods costs the same in any currency. If a Bi
International EconomicsPut-Call Parity · The model-free identity that ties every European option price to the stock and a bond
Put-call parity says C − P = S − K·e^(−rT) for European options on a non-dividend stock. A model-free no-arbitrage relation tying call, put, stock, an
DerivativesQuantitative Easing · How a central bank stimulates the economy after the policy rate hits zero
Quantitative easing is large-scale central-bank purchases of long-term government bonds and other assets, used when the conventional tool — cutting th
Money & BankingQuantity Theory of Money · The accounting identity that became monetarism
The quantity theory of money links the money supply to the price level through the Fisher equation, M × V = P × Q. M is the money stock; V is velocity
MacroeconomicsRamsey-Cass-Koopmans Model · Optimal saving with infinite horizon and discounted utility
The Ramsey-Cass-Koopmans model: a representative household chooses an optimal consumption path to maximize lifetime utility. Foundation of modern macr
Growth TheoryRational Expectations · If everyone forecasts using the true model, surprise policy is the only effective policy
Rational expectations is the hypothesis that economic agents form forecasts using all available information and the true structural model of the econo
MacroeconomicsReal Business Cycle Theory · Cycles as the efficient equilibrium response to technology shocks
Real Business Cycle theory (Kydland-Prescott 1982): business cycles are driven by real technology shocks, not monetary policy. Stochastic Ramsey model
Business Cycle TheoryReal Interest Rate · Nominal minus inflation — the rate that actually decides whether your savings grow
The real interest rate is the nominal rate adjusted for inflation: r ≈ i − π. It is what actually determines whether your savings grow or shrink in pu
MacroeconomicsRecession · Economic Contraction
What happens when an economy shrinks for two consecutive quarters — GDP falls, businesses contract, unemployment rises, and the cycle eventually recov
MacroeconomicsRent-Seeking · Spending real resources to capture transfers — and why the contest dissipates the rent
Rent-seeking spends real resources to capture government-created transfers instead of producing value. Tullock 1967 showed total contest spending appr
Public ChoiceReputation Effects · When tomorrow's punishment makes today's cooperation rational
Reputation effects let cooperation survive in repeated games: defection today costs you tomorrow's payoff. The folk theorem and the threshold discount
Game TheoryResource Curse · Why oil-rich nations often grow slower than oil-poor ones
The resource curse — also called the paradox of plenty — is the empirical pattern that countries with abundant natural-resource exports tend to grow m
Development EconomicsReturns to Scale · Constant
What happens when you double all inputs? Output can grow by less (diseconomies), exactly double (constant returns), or more than double (economies of
MicroeconomicsRevealed Preference (Samuelson) · If you bought it when something cheaper was on the shelf, you preferred it
Revealed preference is Paul Samuelson's 1938 reframing of consumer theory. Instead of starting from invisible "utility" and deducing demand, it starts
MicroeconomicsRevelation Principle · Whatever a complicated mechanism achieves at equilibrium, a direct mechanism asking agents to tell the truth can achieve too — the single theorem that made mechanism design tractable
The revelation principle says any equilibrium outcome of any mechanism can be replicated by a direct mechanism in which agents truthfully report their
Game TheoryRicardian Equivalence · Tax cut, or deferred tax bill — to a forward-looking household, the same thing
Ricardian equivalence is the proposition that the government's choice between paying for spending with taxes today and paying for it with bonds (i.e.,
MacroeconomicsRisk-Return Tradeoff · Efficient Frontier & Diversification
Plot assets in risk-return space. Combinations with uncorrelated returns reduce risk for any expected return. The upper envelope is the efficient fron
FinanceRoy's Identity · A single division recovers Marshallian demand from indirect utility — Shephard's mirror image on the utility side
Roy's identity: x_i(p, m) = −(∂v/∂p_i)/(∂v/∂m). One division recovers Marshallian demand from indirect utility — the Marshallian counterpart of Shepha
Consumer TheorySecond Fundamental Welfare Theorem · Any efficient allocation is reachable — given the right lump-sum transfers
The Second Welfare Theorem: any Pareto-efficient allocation can be supported as a competitive equilibrium given appropriate lump-sum transfers. Decoup
Welfare EconomicsSeigniorage · The real revenue a government earns from its monopoly on money — quiet at low inflation, an inflation tax in the middle, a hyperinflation when the fiscal need overruns the Laffer-curve limit
Seigniorage is the real revenue a government earns by issuing money. Defined as S = ΔM/P — the real value of newly issued money. At low inflation the
Money & BankingShadow Banking · A 20-trillion-dollar parallel banking system that borrows short, lends long, and uses leverage — without a banking licence, without deposit insurance, and without a central-bank backstop
Shadow banking is credit intermediation outside the traditional regulated banking system. Money market funds, repo, ABCP, securitisation vehicles, hed
Financial EconomicsSharpe Ratio · Excess return per unit of total risk — the most-cited number in portfolio management
The Sharpe ratio is (R_p − R_f) / σ_p — excess return per unit of total volatility. Sharpe 1966. Most-used portfolio performance metric. S&P 500 histo
Performance MeasurementShephard's Lemma · Differentiate the expenditure function in any price — and out pops the Hicksian demand for that good
Shephard's lemma: h_i(p, u) = ∂e(p, u)/∂p_i. Differentiating the expenditure function in any price returns Hicksian demand directly — no optimization
Consumer TheorySignaling Theory (Spence) · Why a costly degree raises wages — even when it teaches nothing
Signaling theory, formalized by Michael Spence in his 1973 paper "Job Market Signaling," explains how an informed party can credibly reveal hidden qua
Information EconomicsSkill-Biased Technical Change · Technology shifts the labor demand curve toward skill faster than education shifts the supply — the race that explains the tripling of the college wage premium
Skill-biased technical change is the idea that new technology raises demand for skilled labor faster than for unskilled. It is the leading explanation
Labor EconomicsSlutsky Equation · The exact algebraic decomposition of a price-induced demand change into substitution plus income
The Slutsky equation ∂x/∂p = ∂h/∂p − x·∂x/∂m decomposes a Marshallian price derivative into a Hicksian substitution term and an income-effect term. Ex
Consumer TheorySolow Growth Model · Saving, depreciation, and the diminishing returns to capital
The Solow growth model is the workhorse theory of long-run growth. Capital accumulates with diminishing returns; the economy converges to a steady sta
MacroeconomicsSolow Residual · Subtract capital, subtract labor, see what's left — the part of growth driven by ideas, organization, and technology rather than accumulation
The Solow residual is the share of output growth not explained by accumulating capital or labor — total factor productivity. g_A = g_Y − α·g_K − (1−α)
Growth & ProductionSortino Ratio · Sharpe's smarter twin — excess return divided by downside deviation only
The Sortino ratio measures risk-adjusted return like the Sharpe ratio, but penalises only downside deviation — the volatility below a minimum acceptab
Performance MeasurementSt. Petersburg Paradox · Why a coin-flip game with infinite expected payoff is worth less than $25 to actual people — and the log-utility fix that founded a field
The St. Petersburg paradox: a coin-flip game with infinite expected value that nobody will pay much for. Bernoulli's 1738 resolution via log utility s
Decision TheoryStackelberg Leader · Move first, commit visibly, and exploit the follower's reaction curve — the first-mover advantage of sequential quantity competition
A Stackelberg leader is the first mover in a sequential quantity-competition duopoly: it commits to an output q_L knowing the follower will respond wi
Industrial OrganizationStagflation · The worst of both worlds: rising prices and stagnant growth
Stagflation is an economic condition characterized by slow economic growth, high unemployment, and rising prices (inflation) occurring simultaneously.
MacroeconomicsStock Market · Buying & Selling
How the stock market works — IPOs, supply and demand, candlestick charts, bull and bear markets, and long-term growth.
FinanceStolper-Samuelson Theorem · A rise in a good's relative price raises the real return to the factor used intensively in that good — by a magnified amount — and lowers the return to the other factor
The Stolper-Samuelson theorem (1941) says that in the two-good two-factor Heckscher-Ohlin model, a rise in the relative price of a good raises the rea
International TradeSubgame-Perfect Equilibrium · Selten's refinement of Nash for sequential games — rationality has to hold at every node, not just on the path you happen to walk
Subgame-perfect equilibrium is Reinhard Selten's 1965 refinement of Nash equilibrium for sequential games: strategies must form a Nash equilibrium in
Game TheorySubstitution & Income Effect · Splitting a price-induced demand change into two pieces — and why the split explains Giffen goods, backward-bending labor supply, and ambiguous saving responses
When a price changes, the demand response splits into a substitution effect (a movement along the original indifference curve toward the now-cheaper g
MicroeconomicsSupply & Demand · equilibrium
3D visualization of supply and demand curves intersecting at equilibrium.
EconomicsTariffs and Quotas · A tax on imports, a quantitative cap, or a foreign-administered ceiling — three instruments, the same diagram, and three different answers to the question "who keeps the rent?"
A tariff is a tax on imports; a quota is a quantitative limit. Both raise domestic prices, transfer surplus from consumers to producers, and burn two
International TradeTaxes · Government Revenue
How taxes work — progressive brackets, income tax, sales tax, and how tax revenue funds public services.
Public FinanceTaylor Rule · A four-term equation that predicts what the Federal Reserve will do — and a benchmark every modern central bank uses to discipline its own narrative
The Taylor rule is a prescriptive formula for central-bank interest-rate setting: i = r* + π + 0.5(π − π*) + 0.5(y − y*). Proposed by John B. Taylor i
Monetary EconomicsTerms of Trade · The ratio of export prices to import prices — one number that decides whether a country gets richer by trading or has to run faster to stand still
Terms of trade is the ratio of an economy's export prices to its import prices: ToT = P_x / P_m × 100. A rising ratio means each export unit buys more
International EconomicsTit-for-Tat Strategy · Cooperate first; then do whatever your opponent just did
Tit-for-tat is a 4-line strategy that won Axelrod's 1980-81 Iterated Prisoner's Dilemma tournaments: cooperate on move one, then mirror the opponent.
Game TheoryTrade Deficit · Imports vs Exports
What a trade deficit means — when imports exceed exports, the balance of trade, tariffs, and currency effects.
International EconomicsTragedy of the Commons · Shared Resources Overused
Individually rational exploitation of shared resources leads to collective ruin. Fisheries, atmosphere, groundwater all succumb without regulation, pr
Game TheoryTreynor Ratio · Excess return per unit of systematic risk — the right metric for a fund inside a diversified portfolio
The Treynor ratio is (R_p − R_f) / β_p — excess return per unit of systematic risk. Treynor 1965. Differs from Sharpe by using β instead of σ — the ri
Performance MeasurementTwo-Part Tariff · A fixed access fee plus a per-unit price — the pricing structure that lets Disney, Costco, and the entire razor-blade economy capture surplus without choking demand
A two-part tariff charges a fixed access fee F plus a per-unit price p, so total payment is T(q) = F + p·q. With identical consumers the firm sets p =
Microeconomics · PricingTypes of Unemployment · Frictional
Three kinds. Frictional (between jobs, healthy). Structural (skill mismatch, hard to fix). Cyclical (recession-driven, responds to policy). Natural ra
MacroeconomicsUltimatum Game
The ultimatum game is a two-stage bargaining experiment: a Proposer offers a split of a fixed sum to a Responder, who can accept (both keep their shar
Behavioral EconomicsUtility Function · Numbers attached to bundles, just enough to preserve a ranking
A utility function U(x) assigns a real number to each consumption bundle so that the consumer prefers a to b exactly when U(a) > U(b). The numbers the
MicroeconomicsValue-at-Risk · A probabilistic loss bound that became the dashboard number for global banking — and the metric that failed twice spectacularly before regulators replaced it
Value-at-Risk (VaR) is a probabilistic bound on portfolio loss: the worst loss not exceeded with confidence α over horizon h. A 1-day 99% VaR of $10M
Risk ManagementVeblen Good · When the price tag is the product
A Veblen good is a luxury whose demand rises with its price, because the high price itself signals status. The term traces to Thorstein Veblen's 1899
MicroeconomicsVelocity of Money · How often the average dollar changes hands — and why its collapse ended monetary targeting
The velocity of money is the number of times the average dollar is spent on final goods and services in a year. Defined by V = PY / M from the Fisher
MacroeconomicsVickrey Auction · The sealed-bid auction whose payment rule makes telling the truth your best move — the foundation of modern mechanism design
A Vickrey auction is a sealed-bid auction in which the highest bidder wins but pays the second-highest bid. The payment rule makes truthful bidding a
Microeconomics · Mechanism DesignWalras's Law · If n-1 markets clear, the n-th must clear too
Walras's Law: across n markets, the value of total excess demand is zero. If n-1 markets clear, the n-th must clear automatically. A consequence of bu
General EquilibriumWealth Inequality · Gini Coefficient
How wealth is distributed — the Lorenz curve, Gini coefficient, top 1% concentration, and the inequality debate.
Political EconomyWeighted Average Cost of Capital (WACC) · The discount rate that prices every public company — a market-weighted blend of equity and after-tax debt cost
WACC blends the cost of equity and after-tax cost of debt by their market-value weights into the single discount rate that every DCF valuation and cap
FinanceWelfare Economics · Efficiency vs Equity
Pareto efficiency: can't improve one without hurting another. But many Pareto-efficient points are unfair. Choosing among them requires a social welfa
Public FinanceYield Curve · The bond market's recession antenna
The yield curve plots interest rates of bonds with the same credit quality — typically U.S. Treasuries — across maturities from one month to thirty ye
FinanceZero Lower Bound · When central banks run out of room — and what they do next
The zero lower bound (ZLB) is the floor at (or near) zero below which conventional monetary policy can no longer effectively cut nominal interest rate
Money & Banking