| M1 | The smallest of several measures of the stock of money in an economy, this consisting primarily of currency held by the public and demand deposits. Also includes several other very liquid items: travelers checks and other accounts on which checks can be written. |
| M2 | A measure of the stock of money in an economy that includes, in addition to all that is in M1, savings deposits and other relatively liquid assets such as small certificates of deposit and money market mutual funds. |
| Maastricht Treaty | The 1991 treaty among members of the EU to work toward a monetary union, or common currency. This ultimately resulted in adoption of the euro in 1999. |
| Macroeconomic | Referring to the variables or performance of an economy as a whole, or its major components, as opposed to that of individual industries, firms, or households. |
| Macroeconomic policy | Any policy intended to influence the behavior of important macroeconomic variables, especially unemployment and inflation. Macroeconomic policies include monetary and fiscal policies, but also such things as price controls and incentives for economic growth. |
| Made-to-measure tariff | A tariff set so as to raise the price of an imported good to the level of the domestic price, so as to leave domestic producers unaffected. Also called a scientific tariff. |
| Magnification effect | The property of the Heckscher-Ohlin Model that changes in certain exogenous variables lead to larger changes in the corresponding endogenous variables: goods prices as they affect factor prices in the Stolper-Samuelson Theorem; factor endowments as they affect outputs in the Rybczynski Theorem. Due to Jones (1965). |
| MAI | Multilateral Agreement on Investment |
| Managed float | An exchange rate regime in which the rate is allowed to be determined in the exchange market without an announced par value as the goal of intervention, but the authorities do nonetheless intervene at their discretion to influence the rate. |
| Mandated countertrade | A requirement by government that importing firms engage in countertrade, as a means of increasing exports. |
| Manufactured good | A good that is produced by manufacturing. |
| Manufacturing | Production of goods primarily by the application of labor and capital to raw materials and other intermediate inputs, in contrast to agriculture, mining, forestry, fishing, and services. |
| Maquiladora | A program for the temporary importation of goods into Mexico without duty, under the condition that they contribute -- through further processing, transformation, or repair -- to exports. The program was established in 1965, and expanded in 1989. |
| Marginal analysis | The determination of optimal behavior by comparing benefits and costs at the margin, that is, benefits and costs that result from small (i.e., marginal) changes. Optimality requires that marginal benefit equal marginal cost, since otherwise a rise or fall could increase benefit more than cost. |
| Marginal cost | The increase in cost that accompanies a unit increase in output; the partial derivative of the cost function with respect to output. |
| Marginal product | In a production function, the marginal product of a factor is the increase in output due to a unit increase in the input of the factor; that is, the partial derivative of the production function with respect to the factor. In a competitive equilibrium, the equilibrium price of any factor is its marginal value product in every sector where it is employed. |
| Marginal profit | The amount by which a firm's profit rises or falls when output increases by one unit; thus marginal revenue minus marginal cost. |
| Marginal propensity | The fraction of a change in income devoted to an activity, such as consumption, importing, or saving. See propensity. |
| Marginal propensity to consume | The fraction of a change in income (or perhaps disposable income) spent on consumption. Contrasts with average propensity to consume. |
| Marginal propensity to import | The fraction of a change in income (or perhaps disposable income) spent on imports. Contrasts with average propensity to import. |
| Marginal propensity to save | The fraction of a change in income (or perhaps disposable income) that is saved. |
| Marginal rate of substitution | In a production function or a utility function, the ratio at which one argument (input) substitutes for another along an isoquant or indifference curve. |
| Marginal rate of technical substitution | More complete name for the marginal rate of substitution between factors in a production function, sometimes used to distinguish it from the analogous concept in a utility function. |
| Marginal rate of transformation | The increase in output of one good made possible by a one-unit decrease in the output of another, given the technology and factor endowments of a country; thus the absolute value of the slope of the transformation curve. |
| Marginal returns |
1. Loosely, the extra that you get in return for doing more of something.
2. Marginal product |
| Marginal revenue | The amount by which a firm's revenue increases when it expands output by one unit, taking into account that to sell one more unit it may need to reduce price on all units. |
| Marginal revenue product | The additional revenue generated by the extra output from employing one more unit of a factor of production. In a competitive industry this equals the marginal value product, but with imperfect competition it is smaller, due to the implied price reduction. Determines factor prices in competitive factor markets. |
| Marginal utility | In a utility function, the increase in utility associated with a one-unit increase in consumption of one good; or the partial derivative of the utility function. |
| Marginal value product | The value of the marginal product of a factor in an industry; that is, the price of the good produced times the marginal product. Determines factor prices when all markets are competitive. |
| Marginalism |
1. The belief that marginal analysis provides a useful theory of economic behavior.
2. The belief that economic value reflects marginal utility. |
| Marine Mammal Protection Act | The 1972 U.S. law prohibiting the "taking" (harassing, hunting, capturing, or killing) of marine mammals, and also prohibiting the import of any marine mammal product or any fish that has been associated with the taking of marine mammals. See tuna-dolphin case. |
| Market |
1. The interaction between supply and demand to determine the market price and corresponding quantity bought and sold.
2. The determination of economic allocations by decentralized, voluntary interactions among those who wish to buy and sell, responding to freely determined market prices. |
| Market access | The ability of firms from one country to sell in another. |
| Market adjustment | The process by which the economy moves to a new market equilibrium when conditions change. |
| Market balance | Equality of supply and demand. |
| Market clearing | Equality of supply and demand. A market-clearing condition is an equation (or other representation) stating that supply equals demand. A market-clearing price is a price that causes supply and demand to be equal. |
| Market dynamics | The process by which market adjustment takes place. Common examples include Walrasian and Marshallian. |
| Market economy | A country in which most economic decisions are left up to individual consumers and firms interacting through markets. Contrasts with central planning and non-market economy. |
| Market equilibrium | Equality of quantity supplied and quantity demanded. See equilibrium. |
| Market failure | Any market imperfection, but especially the complete absence of a market due to incomplete or asymmetric information. |
| Market imperfection | Any departure from the ideal benchmark of perfect competition, due to externalities, taxes, market power, etc. |
| Market mechanism | The process by which a market solves a problem allocating resources, especially that of deciding how much of a good or service should be produced, but other such problems as well. The market mechanism is an alternative, for example, to having such decisions made by government. |
| Market power |
1. Ability of a firm or other market participant to influence price by varying the amount that it chooses to buy or sell.
2. Ability of a country to influence world prices by altering its trade policies. |
| Market price | The price at which a market clears. |
| Market rate | The interest rate or exchange rate at which a market clears. |
| Market structure | The way that suppliers and demanders in an industry interact to determine price and quantity. There are four main idealized market structures that have been used in trade theory: perfect competition, monopoly, oligopoly, and monopolistic competition. |
| Market value | See factor cost. |
| Marketing board | A form of state trading enterprise, a marketing board typically buys up the domestic supply of a good and sells it on the international market. |
| Markup |
1. The amount (percentage) by which price exceeds marginal cost. A profit-maximizing seller facing a price elasticity of demand h will set a markup equal to (p-c)/p=1/h. One effect of international trade that increases competition is to reduce markups.
2. In WTO terminology, sometimes used for the extent to which an applied tariff exceeds the bound rate. |
| Marshall-Lerner condition | The condition that the sum of the elasticities of demand for exports and imports exceed one (in absolute value); that is, hX + hM > 1, where hX, hM are the demand elasticities for a country's exports and imports respectively, both defined to be positive for downward sloping demands. Under certain assumptions, this is the condition for a depreciation to improve the trade balance, for the exchange market to be stable, and for international barter exchange to be stable. |
| Marshall Plan | A U.S. program to assist the economic recovery of certain European countries after World War II. Also called the European Recovery Program, it was initiated in 1947 and it dispersed over $12 billion before it was completed in 1952. |
| Marshallian adjustment | A market adjustment mechanism in which quantity rises when demand price exceeds supply price and falls when supply price exceeds demand price. |
| Marxist | Referring to the writings of Karl Marx and to a body of economic thought based, more or less loosely, on those writings. |
| Material injury | The injury requirement of the AD and CVD statutes, understood to be less stringent than serious injury but otherwise apparently not precisely defined. |
| Maximum price system | Similar to a minimum price system, except that the price specified is the highest, rather than the lowest, permitted for an imported good. |
| Maximum revenue tariff | A tariff set to collect the largest possible revenue for the government. |
| Meade Geometry | The geometric technique introduced by Meade (1952) of deriving a country's offer curve from its transformation curve and community indifference curves by first constructing a set of trade indifference curves. |
| Mean | The arithmetic average of the values of an economic or statistical variable. For a variable x with values xi, i=1,…,n, the mean is mean(x) = Si=1…n(xi/n). |
| Measure of economic welfare | An aggregate figure that adjusts GDP in an attempt to measure a country's economic well-being rather than its production, with adjustments for leisure, environmental degradation, etc. |
| Mercantilism | An economic philosophy of the 16th and 17th centuries that international commerce should primarily serve to increase a country's financial wealth, especially of gold and foreign currency. To that end, exports are viewed as desirable and imports as undesirable unless they lead to even greater exports. |
| Merchandise trade | Exports and imports of goods. Contrasts with trade in services. |
| MERCOSUR | A common market among Argentina, Brazil, Paraguay and Uruguay, known as the "Common Market of the South" ("Mercado Común del Sur"). It was created by the Treaty of Asunción on March 26, 1991, and added Chile and Bolivia as associate members in 1996 and 1997. |
| METI | Ministry of Economy, Trade and Industry. |
| Metzler paradox | The possibility, identified by Metzler (1949), that a tariff may lower the domestic relative price of the imported good. This will happen if it drives the world price down by even more than the size of the tariff, as it may do if the foreign demand for the importing country's export good is inelastic. |
| MEW | Measure of economic welfare. |
| MFA | Multifiber Arrangement. |
| MFN | Most Favored Nation. |
| MFN rate | MFN tariff. |
| MFN status | The status given by the U.S. to some non-members of the GATT/WTO whereby they are charged MFN tariffs even though they are eligible for higher tariffs. See PNTR. |
| MFN tariff | The tariff level that a member of the GATT/WTO charges on a good to other members. |
| Microeconomic | Referring to the behavior of and interactions among individual economic agents, especially firms and consumers, and especially in markets. Contrasts with macroeconomic. |
| Middle product | A good that has undergone some processing and that requires further processing before going to final consumers; an intermediate good. Sanyal and Jones (1982) introduced the term, observing that almost all international trade is of middle products, and they provided a model based on that assumption. |
| MIGA | Multilateral Investment Guarantee Agency |
| Migration | The permanent relocation of people from one country to another. See emigration, immigration. |
| Millennium Round | The name suggested by the European Union for the trade round that they and others hoped would be initiated at the Seattle Ministerial in 1999. That ministerial ended without agreement to start a new round. |
| Mill's test | One of two conditions needed for infant industry protection to be welfare-improving, this requires that the protected industry become, over time, able to compete internationally without protection. See also Bastable's test. |
| Minimum efficient scale | The smallest output of a firm consistent with minimum average cost. In small countries, in some industries the level of demand in autarky is not sufficient to support minimum efficient scale. |
| Minimum import price | See minimum price system. |
| Minimum price system | Specification of the lowest price permitted for an import. Prices below the minimum may trigger a tariff, hence a variable levy, or quota. See maximum price system. These have several names: basic import price, minimum import price, reference price, and trigger price. |
| Minister of International Trade | Title, in many but not all countries, of the trade minister. |
| Ministerial | A meeting of ministers. In the context of the GATT and WTO, it is a meeting of the trade ministers from the member countries (including, from the U.S., USTR). |
| Ministry of Economy, Trade and Industry | The Japanese government ministry that deals with economic issues, including the vitality of the private sector, external economic relations, energy policy, and industrial development. |
| Ministry of International Trade and Industry | The Japanese government ministry that deals with trade and industrial policies. Established in 1949 as the Ministry of Commerce and Industry, MITI was renamed METI as of January 6, 2000. |
| Missing trade | See mystery of the missing trade. |
| MITI | Ministry of International Trade and Industry |
| Mixed economy | An economy in which some production is done by the private sector and some by the state, in state-owned enterprises. |
| Mixing regulation |
1. Specification of the proportion of domestically produced content in products sold on the domestic market.
2. Specification of an amount of domestically produced product that must be bought by an importer for given quantities of imports, under a linking scheme. |
| MNC | Multinational Corporation |
| MNE | Multinational Enterprise |
| Modality | Method or procedure. WTO documents speak of modalities of negotiations, i.e., how the negotiations are to be conducted. |
| Mode of supply | The method by which suppliers of internationally traded services deliver their service to buyers. The four modes usually identified are: cross-border supply, consumer movement, producer presence, and movement of natural persons. |
| Model | A stylized simplification of reality in which behavior is represented by variables and by assumptions about how they are determined and interact. Models enable one to think consistently and logically about complex issues, to work out how changes in an economic system matter, and (sometimes) to make predictions about economic performance. |
| Monetary approach | A framework for analyzing exchange rates and the balance of payments that focuses on supply and demand for money in different countries. A floating exchange rate is assumed to equate supply and demand and thus to reflect relative growth rates of money supplies and determinants of demand. Under a pegged exchange rate, the balance of payments surplus or deficit equals the excess demand or supply, respectively, for a country's money. |
| Monetary base | Usually, the currency and central bank deposits that together provide the base for the money supply under fractional reserve banking. Also defined as the central bank assets the acquisition of which creates this monetary base by injecting domestic money into the economy. The latter definition usually includes international reserves and domestic credit. By either definition, the monetary base changes as a result of open market operations and exchange market intervention. |
| Monetary independence | The ability of a country to determine its own monetary policy, as opposed to allowing the money supply to be determined by the exchange market intervention required to maintain a fixed exchange rate. |
| Monetary integration | The adoption of a common currency by two or more countries. |
| Monetary policy | The use of the money supply and/or the interest rate to influence the level of macroeconomic activity and other policy objectives including the balance of payments or the exchange rate. |
| Monetary union | Two or more countries sharing a common currency. |
| Monetize |
1. To turn anything into money.
2. To convert government debt into currency. |
| Money income | Nominal income; contrasts with real income. |
| Money market | The money market, in macroeconomics and international finance, refers to the equilibration of demand for a country's domestic money to its money supply. Both refer to the quantity of money that people in the country hold (a stock), not to the quantity that people both in and out of the country choose to acquire during a period in the exchange market, mostly for the purpose of then using it to buy something else. |
| Money overhang | A money supply that is larger than people want to hold at prevailing prices. This was said to be a major cause of inflation in Russia after the fall of the Soviet Union, which left an excess of money in circulation. |
| Money supply | There are several formal definitions, but all include the quantity of currency in circulation plus the amount of demand deposits. The money supply, together with the amount of real economic activity in a country, is an important determinant of its price level and its exchange rate. |
| Monopolistic | Having some power to set price. |
| Monopolistic competition | A market structure in which there are many sellers each producing a differentiated product. Each can set its own price and quantity, but is too small for that to matter for prices and quantities of other producers in the industry. |
| Monopoly | A market structure in which there is a single seller. |
| Monopoly argument | The monopoly argument for a tariff is the same as the optimal tariff argument. It gets its name from the fact that a country using a tariff to improve the terms of trade is acting much like a monopoly firm, restricting its sales to get a better price. |
| Monopsony | A market structure in which there is a single buyer. Term introduced in Robinson (1932). |
| Monotonic | Changing in one direction only; thus either strictly rising or strictly falling, but not reversing direction. |
| Moral hazard | The tendency of individuals, firms, and governments, once insured against some contingency, to behave so as to make that contingency more likely. A pervasive problem in the insurance industry, it also arises internationally when international financial institutions assist countries in financial trouble. |
| Most Favored Nation | The principle, fundamental to the GATT, of treating imports from a country on the same basis as that given to the most favored other nation. That is, and with some exceptions, every country gets the lowest tariff that any country gets, and reductions in tariffs to one country are provided also to others. |
| Mothballing | The preservation of a production facility without using it to produce, but keeping the machinery in working order and supplies available. This may be preferable -- if the facility's operating costs are high and the aim is to have it available in time of war -- to having it produce in peacetime under a subsidy or import protection. See national defense argument. |
| Movement of natural persons | One of four modes of supply under the GATS, this involving the temporary movement across national borders of natural persons employed by or associated with a firm in order to participate in the firm's business. Also called temporary producer movement. |
| MPC | Marginal propensity to consume. |
| MRS | Marginal rate of substitution. |
| MRT | Marginal rate of transformation. |
| Multi-cone equilibrium | A free-trade equilibrium in the Heckscher-Ohlin Model in which prices are such that all goods cannot be produced within a single country, and instead there are multiple diversification cones. This, or a two cone equilibrium, will arise if countries' factor endowments are sufficiently dissimilar compared to factor intensities of industries. Contrasts with one cone equilibrium. |
| Multifactor model | A model with more than two factors. In the context of trade theory this is likely to mean a Heckscher-Ohlin Model with more than two factors. |
| Multifiber Arrangement | An agreement (OMA) among developed country importers and developing country exporters of textiles and apparel to regulate and restrict the quantities traded. It was negotiated in 1973 under GATT auspices as a temporary exception to the rules that would otherwise apply, and was superseded in 1995 by the ATC. |
| Multifunctionality | Refers to the purposes that an industry may serve in addition to producing its output. Most often applied to agriculture by countries that wish to subsidize it, arguing that subsidies are needed to serve these other purposes, such as rural viability, land conservation, cultural heritage, etc. |
| Multilateral | Among a large number of countries. Contrasts with bilateral and plurilateral. |
| Multilateral agreement | An agreement among a large number of countries. |
| Multilateral Agreement on Investment | An agreement to liberalize rules on international direct investment that was negotiated in the OECD but never completed or adopted because of adverse public reaction to it. Preliminary text of the agreement was leaked to the Internet in April 1997, where many groups opposed it. Negotiations were discontinued in November 1998. |
| Multilateral aid | Aid provided by a group of countries, or an institution representing a group of countries such as the World Bank, to one or more recipient countries. |
| Multilateral Investment Guarantee Agency | One of the five institutions that comprise the World Bank Group, MIGA helps encourage foreign investment in developing countries. |
| Multinational corporation | A corporation that operates in two or more countries. Since it is headquartered in only one country but has production or marketing facilities in others, it is the result of previous FDI. |
| Multinational enterprise | A firm, usually a corporation, that operates in two or more countries. In practice the term is used interchangeably with multinational corporation. |
| Multiple equilibria | Refers to a system in which there is more than one equilibrium, most commonly a market in which a backward bending supply curve crosses a demand curve more than once, at prices each of which is a market clearing price. |
| Multiplier | In Keynesian macroeconomic models, the ratio of the change in an endogenous variable to the change in an exogenous variable. Usually means the multiplier for government spending on income. In the simplest Keynesian model of a closed economy, this is 1/s, where s is the marginal propensity to save. See open economy multiplier. |
| Multistage production | Another term for fragmentation. Used by Dixit and Grossman (1982). |
| Mundell-Fleming Model | An open-economy version of the IS-LM model that allows for international trade and international capital flows. Due to Mundell (1962,63) and Fleming (1962). |
| Mutatis mutandis | Latin phrase meaning, approximately, "allowing other things to change accordingly." Used as a shorthand for indicating the effect of one economic variable on another, within a system in which other variables that matter will also change as a result. Contrasts with ceteris paribus. |
| Mutual recognition | The acceptance by one country of another country's certification that a satisfactory standard has been met for ability, performance, safety, etc. |
| Mystery of the missing trade | The empirical observation, by Trefler (1995), that the amount of trade is far less than predicted by the HOV version of the Heckscher-Ohlin Model. More precisely, the factor content of trade is far less than the differences between countries in their factor endowments. |