concentration ratio

(noun)

The proportion of total industry output produced by the largest firms (usually the four largest).

Related Terms

Examples of concentration ratio in the following topics:

  • Market Power

    • Measurement of market power is often accomplished with concentration ratios or the Herfindahl-Hirschman Index (HHI).
    • The concentration ratio is the proportion of total industry output produced by the largest firms (usually the four largest).
    • For monopolies, the four firm concentration ratio is 100 percent, while the ratio is zero for perfect competition.
    • The use of the concentration ratio or the HHI to measure market power is not perfect.
    • A high concentration ratio or large firm size is not the only way to achieve market power.

  • The Reserve Ratio

    • The reserve ratio is a central bank regulatory tool employed by most, but not all, of the world's central banks.
    • The required reserve ratio is a tool in monetary policy, given that changes in the reserve ratio directly impact the amount of loanable funds available .
    • Money growth in the economy can occur through the multiplier effect resulting from the reserve ratio.
    • For example, a reserve ratio of 20% will result in 80% of any given initial deposit being loaned out and if the process of loaning is assumed to continue, the maximum increase in money expansion specific to an initial deposit at a 20% reserve ratio will be equal to the reserve multiplier 1/(reserve ratio) x the initial deposit.
    • For example, with the reserve ratio (RR) of 20 percent, the money multiplier, m, will be calculated as:

  • Defining and Measuring Income Inequality

    • Models, ratios and indices include:
    • The derivation of the Gini ratio is found via Lorenz curves, or more specifically, the ratio of two areas in a Lorenz curve diagram.
    • This demonstrates the Gini ratio across the globe, with some interesting implications for advanced economies like the U.S.
    • 20:20 Ratio:This name indicates the method; the top 20% and the bottom 20% of earners are used to derive a ratio.
    • Palma Ratio: Quite similar to the 20:20 ratio, the Palma ratio underlines the ratio between the richest 10% and the poorest 40% (dividing the former by the latter).

  • Example Transactions Showing How a Bank Can Create Money

    • The deposit multiplier is the ratio of the maximum possible change in deposits to the change in reserves.
    • When banks in the economy have made the maximum legal amount of loans (zero excess reserves), the deposit multiplier is equal to the reciprocal of the required reserve ratio ($m=1/rr$).
    • Thus, with a required reserve ratio of 0.1, an increase in reserves of $1 can increase the money supply by up to $10 .
    • Calculate the change in money supply given the money multiplier, an initial deposit and the reserve ratio

  • The Fractional Reserve System

    • The fraction of deposits that a bank must hold as reserves rather than loan out is called the reserve ratio (or the reserve requirement) and is set by the Federal Reserve.
    • First, it can adjust the reserve ratio.
    • A lower reserve ratio means that banks can issue more loans, increasing the money supply.
    • Creating reserves means that commercial banks have more reserves with which they can satisfy the reserve ratio requirement, leading to more loans and an increase in the money supply.

  • The Money Multiplier in Theory

    • That is, in a fractional-reserve banking system, the total amount of loans that commercial banks are allowed to extend (the commercial bank money that they can legally create) is a multiple of reserves; this multiple is the reciprocal of the reserve ratio.
    • We can derive the money multiplier mathematically, writing M for commercial bank money (loans), R for reserves (central bank money), and RR for the reserve ratio.
    • We start with the reserve ratio requirement that the the fraction of deposits that a bank keeps as reserves is at least the reserve ratio:
    • The above equation states that the total supply of commercial bank money is, at most, the amount of reserves times the reciprocal of the reserve ratio (the money multiplier) .

  • Voluntary Exchange

    • The ratio at which cola and tea trade can be called the exchange ratio.
    • The exchange ratio is the price of one good in terms of another.
    • This exchange ratio is determined by the preferences of the individuals, the relative amount and distribution of cola and tea.
    • The relative prices of cola and tea are established by the exchange ratio.
    • If the exchange ratio is 1c = 5t, the "correct" set of prices can be either

  • Introduction to How the U.S. Economy Works

    • Marx and his followers believed that capitalist economies concentrate power in the hands of wealthy business people, who aim mainly to maximize profits; socialist economies, on the other hand, would be more likely to feature greater control by government, which tends to put political aims -- a more equal distribution of society's resources, for instance -- ahead of profits.
    • If the pure capitalism described by Marx ever existed, it has long since disappeared, as governments in the United States and many other countries have intervened in their economies to limit concentrations of power and address many of the social problems associated with unchecked private commercial interests.

  • The Federal Funds Rate

    • These daily activities change their ratio of reserves to liabilities.
    • If, by the end of the day, the bank's reserve ratio has dropped below the legally required minimum, it must add to its reserves in order to remain compliant with the law.

  • The GDP Deflator

    • The GDP deflator is a price index that measures inflation or deflation in an economy by calculating a ratio of nominal GDP to real GDP.