A tax-deferred
retirement savings plan defined by subsection 401(a) of the
Internal Revenue Code.[1] The 401(a) plan is established by an employer, and allows for contributions by the employer or both employer and employee.[2] These plans are available to some employees of the government, educational institutions, and non-profits, and their funds can be rolled over to a different qualified retirement plan, such as a
401(k) or
IRA,[3] when changing jobs.
A type of
retirement plan which is sponsored by an employer and in which the employer may match a portion of the employee's contributions. Most
contributions are tax-deferred until retirement withdraws occur.
A type of nonqualified,[6][7]tax advantaged deferred-compensation
retirement plan that is available for
governmental and certain nongovernmental employers in the
United States. Unlike with a 401(k) plan, it has no 10% penalty for withdrawal before the age of 55 (59 years, 6 months for IRA accounts) (although the withdrawal is subject to
ordinary income taxation). 457 plans can also allow
independent contractors to participate in the plan, where 401(k) and 403(b) plans cannot.[8]
The ability of a party (whether an individual, firm, or country) to produce a greater quantity of a good, product, or service than competitors using the same amount of resources.
A positive effect on private fixed investment because of the growth of the market economy. Rising GDP usually implies that profit expectations and business confidence rise, encouraging businesses to build more factories and other buildings and to install more machinery.
A macroeconomic model that explains price level and output through the relationship of downward-sloping aggregate demand (AD) and upward-sloping aggregate supply (AS).
A macroeconomic model that explains inflation and output through the relationship of downward-sloping aggregate demand (AD) and horizontal inflation adjustment (IA). The monetary policy rule (MPR) is assumed, which is that the central bank increases interest rates in response to increase in inflation and vice versa.
A market situation where buyers and sellers have different information, and participants with key information participate selectively in trades at the expense of other parties.
Also called domestic final demand (DFD) or effective demand.
The total
demand for goods and services in an economy.[10] It specifies the amounts of goods and services that will be purchased at all possible price levels.[11] Aggregate demand can also be interpreted as the demand for the
gross domestic product of a country. It is often called
effective demand, though this term also has a distinct meaning.
The difficult problem of finding a valid way to treat an
empirical or theoretical aggregate as if it reacted like a less-aggregated measure, say, about behavior of an individual
agent as described in general
microeconomic theory.[12]
A macroeconomic model that explains output through the relationship of
total factor productivity and capital. It assumes that there is no diminishing return of capital.
Also called the shipping the good apples out theorem, or the third law of demand.
When the prices of two substitute goods, such as high and low grades of the same product, are both increased by a fixed per-unit amount, consumption will shift toward the higher-grade product. This is because the added per-unit amount decreases the relative price of the higher-grade product.
A state of the economy in which production represents consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing. In the single-price model, at the point of allocative efficiency, price is equal to marginal cost.[13][14]
A tax imposed by the U.S. federal government in addition to the regular income tax for certain individuals, estates, and trusts. High-income taxpayers must calculate and pay the greater of the AMT or regular tax.[15]
A school of thought based around low levels of regulation and taxation, minimal public services, strong private property rights, contract enforcement, overall ease of doing business, and low barriers to free trade.
The application of
economic theory and
econometrics in specific settings. As one of the two sets of fields of
economics (the other being the core),[19] it is typically characterized by the application of the core, i.e. economic theory and econometrics, to address practical issues in a range of fields.
The practice of taking advantage of a price difference between two or more
markets by striking a combination of matching deals that capitalize upon the imbalance, with the profit being the difference between the
market prices.
Also called the Arrow–Debreu–McKenzie model or ADM model.
A model that suggests there must be a set of prices such that aggregate supplies will equal aggregate demands for every commodity in the economy, given certain assumptions. It can be used to prove the existence of general equilibrium (or Walrasian equilibrium) of an economy.[21]
Also called a state-price security, pure security, or primitive security.
A contract that agrees to pay one unit of a numeraire (a currency or a commodity) if a particular state occurs at a particular time in the future and pays zero numeraire in all the other states.
A problem faced by companies when considering the transfer of intellectual property. A company may wish to sell some information, but it cannot fully describe the capabilities of the information without effectively transferring the information for free.
If the probabilistic beliefs of agents who share a common prior and update their probabilistic beliefs by Bayes' rule, regarding a fixed event, are common knowledge then these probabilities must coincide. Thus, agents cannot have common knowledge of a disagreement over the posterior probability of a given event.
The characteristic of being
self-sufficient; the term is usually applied to political states or their economic systems. Autarky is possible when an entity can survive or continue its activities without external assistance or
international trade. If a self-sufficient economy also deliberately refuses all trade with the outside world, then it is called a closed economy.[31]
The consumption expenditure that occurs when income levels are zero. Such consumption is considered autonomous of income only when expenditure on these
consumables does not vary with changes in income; generally, it may be required to fund necessities and debt obligations. If income levels are actually zero, this consumption counts as
dissaving, because it is financed by
borrowing or using up
savings.
A quantity equal to the
total cost divided by the number of goods produced (the output quantity, Q). It is also equal to the sum of
variable costs (total variable costs divided by Q) plus
average fixed costs (total
fixed costs divided by Q).
The
fixed costs (FC) of production divided by the quantity (Q) of
output produced. Fixed costs are those costs that must be incurred in fixed quantity regardless of the level of output produced.
A firm's
variable costs (labour, electricity, etc.) divided by the quantity of
output produced. Variable costs are those costs which vary with the output.
Also called the Backus–Kehoe–Kydland consumption correlation puzzle or BKK puzzle.
The observation that consumption is much less correlated across countries than output. According to theory we should observe that consumption is much more correlated across countries than output in an
Arrow–Debreu economy.
Also called the Backus-Smith consumption-real exchange rate puzzle or consumption – real-exchange-rate anomaly.
The observation that the correlations between consumption and real exchange rates are zero or negative. This is contrary to economic theory which predicts that with full risk sharing, relative consumption should be perfectly correlated with the real exchange rate.
Also called the advantage of backwardness or the latecomer's advantage.
The advantage that a still-developing country has because it can take advantage of the technology/industry gap with a developed country by implementing a new technology or venturing into an industry that is new to its economy but mature in the developed country.
The fact that it is easier for late-development countries to imitate technologies, but more difficult to imitate the system, because the reform will offend vested interests.[34]
The process of reasoning backwards in time, from the end of a problem or situation, to determine a sequence of optimal actions. It proceeds by first considering the last time a decision might be made and choosing what to do in any situation at that time. Using this information, one can then determine what to do at the second-to-last time of decision. This process continues backwards until one has determined the best action for every possible situation (i.e. for every possible
information set) at every point in time.
Also called balance of international payments and abbreviated B.O.P. or BoP.
A record or summary of all economic transactions between the residents of a country and the rest of the world in a particular period of time (e.g. over a quarter of a year or, more commonly, over a year). These transactions are made by individuals, firms and government bodies. Thus the balance of payments includes all external visible and non-visible transactions of a country.
Also called commercial balance or net exports (NX).
The difference between the monetary value of a nation's
exports and
imports over a certain period.[35] Sometimes a distinction is made between a balance of trade for goods versus one for services. "Balance of trade" can be a misleading term because trade measures a flow of exports and imports over a given period of time, rather than a balance of exports and imports at a given point in time. Also, balance of trade does not necessarily imply that exports and imports are "in balance" with each other or anything else.
A
budget, particularly that of a government, in which
revenues are equal to
expenditures. Thus, neither a
budget deficit nor a
budget surplus exists (the accounts "balance"). The term may also refer more generally to a budget that has no budget deficit but could possibly have a budget surplus.[36] A cyclically balanced budget is a budget that is not necessarily balanced year-to-year, but is balanced over the
economic cycle, running a surplus in boom years and running a deficit in lean years, with these offsetting over time.
A financial institution that accepts
deposits from the public and creates
credit.[37] Lending activities can be performed either directly or indirectly through
capital markets. Due to their importance in the financial stability of a country, banks are
highly regulated in most countries. Most nations have institutionalized a system known as
fractional reserve banking, under which banks hold liquid assets equal to only a portion of their current liabilities. In addition to other regulations intended to ensure liquidity, banks are generally subject to
minimum capital requirements based on an international set of capital standards, known as the
Basel Accords.
In theories of
competition in economics, a cost that must be incurred by a new entrant into a
market that incumbents do not have or have not had to incur.[39][40] Because barriers to entry protect incumbent firms and restrict competition in a market, they can contribute to distortionary prices and are therefore most important when discussing
antitrust policy. Barriers to entry often cause or aid the existence of
monopolies or give companies
market power.
Corporate tax planning strategies used by multinationals to "shift" profits from higher-tax jurisdictions to lower-tax jurisdictions or no-tax locations.
Baxter-Stockman neutrality of exchange rate regime puzzle
Also called the exchange rate disconnect puzzle.
The unexpectedly weak relationship between the exchange rate and any other macroeconomic variable.[42]
The branch of
economics that studies the effects of psychological, cognitive, emotional, cultural and social factors on the economic
decisions of individuals and institutions and how those decisions vary from those implied by classical theory.[43]
The dynamic programming equation associated with
discrete-time optimization problems.[44] It writes the "value" of a decision problem at a certain point in time in terms of the payoff from some initial choices and the "value" of the remaining decision problem that results from those initial choices.
Seeks to provide an economic justification for the phenomenon of
intergenerational transfers of
wealth; in other words, to explain why people leave money behind when they die.
A
microeconomic model of price-setting oligopoly which studies what happens when there is a homogeneous product (i.e. consumers want to buy from the cheapest seller) where there is a limit to the output of firms which they are willing and able to sell at a particular price. This differs from the Bertrand competition model where it is assumed that firms are willing and able to meet all demand. The limit to output can be considered a physical capacity constraint which is the same at all prices (as in
Edgeworth’s work) or to vary with price under other assumptions.
A concept in
development economics or
welfare economics that emphasizes that a firm's decision whether to industrialize or not depends on its expectation of what other firms will do. It assumes
economies of scale and
oligopolistic market structure and explains when industrialization would happen.
A mathematical model for the dynamics of a
financial market containing
derivative investment instruments. From the
partial differential equation in the model, known as the
Black–Scholes equation, one can deduce the Black–Scholes formula, which gives a theoretical estimate of the price of
European-styleoptions and shows that the option has a unique price regardless of the risk of the security and its expected return (instead replacing the security's expected return with the
risk-neutral rate). The formula led to a boom in options trading and provided mathematical legitimacy to the activities of the
Chicago Board Options Exchange and other options markets around the world.[48] It is widely used, although often with adjustments and corrections, by options market participants.[49]: 751
The main governing body that directs the operations of the United States
Federal Reserve System. Its seven members supervise the 12 Federal Reserve Districts.
In
finance, an instrument of indebtedness of the bond issuer to the holders. The most common types of bonds include
municipal bonds and
corporate bonds. The bond is a
debtsecurity, under which the issuer owes the holders a debt and (depending on the terms of the bond) is obliged to pay them
interest (the
coupon) or to repay the principal at a later date, termed the
maturity date.[50] Interest is usually payable at fixed intervals (semiannual, annual, or sometimes monthly). Very often the bond is negotiable, that is, the ownership of the instrument can be transferred in the secondary market. This means that once the transfer agents at the bank medallion stamp the bond, it is highly liquid on the secondary market.[51]
Also called the Sam Vimes theory of socioeconomic unfairness.
Purchasing cheap, low-quality goods may become more expensive in the long run because they must be replaced more frequently. For example, purchasing expensive, high-quality boots may be cheaper over a long time because cheaper boots would quickly wear out and require replacement.
The idea that
rationality is limited when individuals
make decisions, and under these limitations, rational individuals will select a decision that is
satisfactory rather than optimal.[52]
An economic model in international trade that illustrates a situation where a government can subsidize domestic firms to help them in their competition against foreign producers and in doing so enhances national welfare.
The point at which total
cost and total
revenue are equal, i.e. "even". There is no net loss or gain, and one has "broken even", though
opportunity costs have been paid and
capital has received the risk-adjusted, expected return. In short, all costs that must be paid are paid, and there is neither profit nor loss.[53][54]
A
monetary system which established the rules for commercial and financial relations among the United States, Canada, Western Europe, Australia, and Japan after the 1944 Bretton Woods Agreement. The Bretton Woods system was the first example of a fully
negotiated monetary order intended to govern monetary relations among independent states. The chief features were an obligation for each country to adopt a monetary policy that maintained its external
exchange rates within 1 percent by tying its currency to
gold and the ability of the
IMF to bridge temporary
imbalances of payments; there was also a need to address the lack of cooperation among other countries and to prevent
competitive devaluation of the currencies.
The amount by which spending exceeds
revenue over a particular period of time; it is the opposite of
budget surplus. The term may be applied to the budget of a government, private company, or individual.
The set of all possible consumption bundles that an individual can afford, given the
prices of goods and the individual's
income level. The budget set is bounded above by the
budget line. Graphically speaking, all the consumption bundles that lie inside and on the budget constraint form the budget set. By most definitions, budget sets must be
compact and
convex.
Also called intervention storage or the ever-normal granary.
An attempt to use
commodity storage for the purposes of
stabilising prices in an entire economy or an individual (commodity) market. Specifically,
commodities are bought when a
surplus exists in the economy, stored, and are then sold from these stores when
economic shortages in the economy occur.[55]
The downward and upward movement of
gross domestic product (GDP) around its long-term growth trend.[57] The length of a business cycle is the period of time containing a single boom and contraction in sequence. These fluctuations typically involve shifts over time between periods of relatively rapid economic growth (
expansions or
booms) and periods of relative stagnation or decline (
contractions or
recessions).
A branch of
applied economics which uses
economic theory and quantitative methods to analyze
business enterprises and the factors contributing to the diversity of organizational structures and the relationships of firms with labour,
capital and product markets.[58]
Also called the corporate sector or sometimes simply business.
The part of the
economy made up by
companies.[59] It is generally considered a subset of the
domestic economy,[60] excluding the economic activities of general government, of private households, and of
non-profit organizations serving individuals.[61]
Also called the capital controversy or the two Cambridges debate.
A dispute between proponents of two differing theoretical and mathematical positions in
economics concerning the nature and role of
capital goods and a critique of the
neoclassical vision of aggregate production and distribution.[62]
A German science of
public administration in the 18th and early 19th centuries that aimed at strong management of a centralized
economy for the benefit mainly of the
state.[63]
A market-based approach to limiting negative externalities (for example, pollution) by providing
economicincentives for reducing the production of said negative externalities.[64] A central authority or
governmental body allocates or sells a limited number (a "cap") of permits that allow the creation of a specific negative externality over a set time period. Permit owners are then allowed to sell these permits to others.
The extent to which an enterprise or a nation uses its installed
productive capacity. It is the relationship between
output that is produced with the installed equipment and the potential output which could be produced with it if capacity was fully used.
Any asset that can enhance one's power to perform economically useful work. Capital goods, real capital, or
capital assets are already-produced,
durable goods or any non-financial asset that is used in
production of
goods or
services.[65] Capital is distinct from land (or
non-renewable resources) in that capital can be increased by human labor. At any given moment in time, total
physical capital may be referred to as the capital stock (which is not to be confused with the
capital stock of a business entity).
Reflects net change in ownership of national assets. A surplus in the capital account means money is flowing into the country, and the inbound flows effectively represent borrowings or sales of assets. A deficit in the capital account means money is flowing out of the country, and it suggests the nation is increasing its ownership of foreign assets.
Any net addition to existing wealth and/or a redistribution of wealth. Capital accumulation is the dynamic that motivates the pursuit of
profit, involving the investment of money or any financial asset with the goal of increasing the initial monetary value of said asset as a financial return.
A fixed, one-time
expense incurred on the purchase of
land, buildings, construction, and equipment used in the production of goods or in the rendering of services. In other words, it is the total cost needed to bring a project to a commercially operable status. Whether a particular cost is capital or not depends on many factors, such as
accounting,
tax laws, and
materiality.
Occurs when money or assets rapidly flow out of a country due to an event of economic consequence. Such events may include an increase in
taxes on
capital or capital holders or the government of the country
defaulting on its debt that disturbs
investors and causes them to lower their valuation of the assets in that country or otherwise to lose confidence in its economic strength.
Any method for increasing the amount of
capital owned or under one's control, or any method in utilizing or mobilizing capital resources for investment purposes. Capital formation also sometimes refers to a specific statistical concept, also known as
net investment, which measures the net additions to the (physical) capital
stock of a country (or an economic sector) in an accounting interval. Capital formation is also sometimes a modern general term for
capital accumulation, referring to the total "stock of capital" that has been formed, or to the growth of this total capital stock.[66]
A
durable good that is used in the production of goods or services. Capital goods are one of the three types of producer goods, the other two being land and labour, which are also known collectively as primary
factors of production. This classification originated with
classical economics and has remained the dominant method for classification.
The amount of fixed or real
capital present in relation to other
factors of production, especially labor. At the level of either a production process or the aggregate economy, it may be estimated by the capital to labor ratio, such as from the points along a capital/labor
isoquant.
An institution that manages the
currency,
money supply, and
interest rates of an entire state or nation. Central banks also usually oversee the
commercial banking system of their respective countries. In contrast to a commercial bank, a central bank possesses a
monopoly on increasing the
monetary base in the state, and usually also prints the national currency,[73] which usually serves as the state's legal tender. Central banks also act as a "
lender of last resort" to the banking sector during times of financial crisis. Most central banks usually also have supervisory and regulatory powers to ensure the solvency of member institutions, prevent
bank runs, and prevent reckless or fraudulent behavior by member banks.
A phrase or clause often loosely translated as "holding all else constant." It does not imply that no other things will in fact change; rather, it isolates the effect of one particular change.[74]
A
heterodox theory of
money that argues that money originated historically with states' attempts to direct economic activity rather than as a spontaneous solution to the problems with
barter or as a means with which to tokenize debt,[75] and that
fiat currency has value in exchange because of sovereign power to levy
taxes on economic activity payable in the currency they issue.
A model of the economy in which the major exchanges are represented as flows of
money,
goods and
services, etc. between
economic agents. The flows of money and goods exchanged in a closed circuit correspond in value, but run in the opposite direction. The circular flow analysis is the basis of
national accounts and hence of
macroeconomics.
A proposed set of regular payments to all citizens from revenue raised by leasing or taxing the monopoly of valuable land and other natural resources. It is based on the Georgist principle that the natural world is the common property of all people.
A model that aims to describe the economy by aggregating the behavior of individuals and firms.[76] Note that the classical
general equilibrium model is unrelated to
classical economics, and was instead developed within
neoclassical economics beginning in the late 19th century.[77]
A model in which a monopolist must sell its product at a low price because it is effectively in competition with itself over multiple periods. It is assumed that the monopolist sells a durable good to a market where resale is impossible, faces an infinite time horizon, faces consumers who have different valuations, and does not know individuals' valuations.
States that if the provision of a good or service results in an externality and trade in that good or service is possible, then bargaining will lead to a
Pareto efficient outcome regardless of the initial allocation of property. This requires sufficiently low
transaction costs in the bargaining and exchange process.
A model which describes cyclical
supply and demand in a market where the amount produced must be chosen before prices are observed. Producers'
expectations about prices are assumed to be based on observations of previous prices. It explains why
prices may be subjected to periodic fluctuations in certain types of
markets.
A situation in which all individuals would be better off cooperating but fail to do so because of conflicting interests between individuals that discourage joint action.[79][80][81]
A deceitful agreement or secret cooperation between two or more parties to limit open
competition by deceiving, misleading or defrauding others of their legal right.
Relates to "the exchange of
goods and services, especially on a large scale".[82] It includes legal, economic, political, social, cultural and technological
systems that operate in a country or in
international trade.
An economic good or service that has full or substantial
fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them.[83]
Also called compensating wage differential or equalizing difference.
The additional amount of income that a given worker must be offered in order to motivate them to accept a given undesirable job, relative to other jobs that worker could perform.[87][88]
The presence in a market of independent buyers and sellers competing with one another and the freedom of buyers and sellers to enter and leave the market.
A market in which many sellers compete against each
other to attract customers. Each seller has an incentive to sell at the lowest
price possible to attract customers, so prices tend to be driven so low that
the sellers can just barely make a profit.
The addition of
interest to the principal sum of a
loan or
deposit; it is often interpreted as "interest on interest". Compound interest is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then earned on the principal sum plus any previously accumulated interest. Contrast simple interest.
A class of economic models that use actual economic data to estimate how an economy might react to changes in policy, technology, or other external factors.
The sum of the percentage market shares of (a pre-specified number of) the largest firms in an industry, which is used to quantify
market concentration in an industry.
A theory of
microeconomics that relates
preferences to consumption expenditures and to
consumer demand curves. It analyzes how consumers maximize the desirability of their consumption as measured by their preferences subject to limitations on their expenditures, by maximizing
utility subject to a consumer
budget constraint.[97]
Measures changes in the price level of
market basket of
consumer goods and
services purchased by households.
The CPI is a statistical estimate constructed using the prices of a sample of representative items whose prices are collected periodically. Sub-indices and sub-sub-indices are computed for different categories and sub-categories of goods and services, being combined to produce the overall index with weights reflecting their shares in the total of the consumer expenditures covered by the index. It is one of several
price indices calculated by most national statistical agencies. The annual percentage change in a CPI is used as a measure of
inflation. A CPI can be used to index (i.e. adjust for the effect of inflation) the real value of wages, salaries, and
pensions; to regulate prices; and to deflate monetary magnitudes to show changes in real values. In most countries, the CPI, along with the population
census, is one of the most closely watched national economic statistics.
the difference between the maximum price a consumer is willing to pay and the actual price they do pay. If a consumer is willing to pay more for a unit of a good than the current asking price, they are getting more benefit from the purchased product than they would if the price was their maximum willingness to pay. They are receiving the same benefit, the obtainment of the good, with a smaller cost as they are spending less than they would if they were charged their maximum willingness to pay.[98]
According to
mainstream economists, only the final purchase of
goods and
services by individuals constitutes consumption, while other types of expenditure—in particular,
fixed investment,
intermediate consumption, and government spending—are placed in separate categories (see consumer choice). Other economists define consumption much more broadly, as the aggregate of all economic activity that does not entail the design, production and
marketing of goods and services (e.g. the selection, adoption, use, disposal and recycling of goods and services).
In
microeconomics, the contract curve is the set of points representing final allocations of two goods between two people that could occur as a result of mutually beneficial trading between those people given their initial allocations of the goods. All the points on this locus are
Pareto efficient allocations, meaning that from any one of these points there is no reallocation that could make one of the people more satisfied with his or her allocation without making the other person less satisfied. The contract curve is the subset of the Pareto efficient points that could be reached by trading from the people's initial holdings of the two goods.
The study of how economic actors can and do construct contractual arrangements, generally in the presence of
asymmetric information. Because of its connections with both
agency and
incentives, contract theory is often categorized within a field known as
law and economics.
A
good created by the coordination of people within
civil society.[106] Coordination goods are non-
rivalrous, but may be partially
excludable through the means of withholding cooperation from a non-cooperative state.[107]
A type of business organization owned by many people but treated by law as though it were an individual person; it can own property, pay taxes, make contracts, and contribute to political causes.
1. The value of
money that is used up to produce a
good or deliver a
service, and hence is no longer available for further use. In
business, the cost may be one of acquisition, in which case the amount of money expended to acquire a good or service is counted as the cost; in this case, money is the input that is gone in order to acquire the thing. This acquisition cost may be the sum of the cost of production as incurred by the original producer and of further costs of transaction as incurred by the acquirer over and above the
price paid to the producer. Usually, the price designated by the producer also includes a mark-up for
profit over the cost of production.
2. More generally, a
performance metric that is totaling up as a result of a process or as a differential for the result of a
decision.[108] Hence cost is the metric used in the standard
modeling paradigm applied to economic
processes. Costs (pl.) are often further described based on their timing or their applicability.
A graph of the
costs of production as a function of total quantity produced. In a
free market economy,
productively efficient firms optimize their production process by minimizing cost consistent with each possible level of production, and the result is a cost curve; and
profit maximizing firms use cost curves to decide output quantities. There are various types of cost curves, all related to each other, including total and average cost curves; marginal ("for each additional unit") cost curves, which are equal to the
differential of the total cost curves; and variable cost curves. Some are applicable to the
short run, others to the
long run.
The
cost of maintaining a certain
standard of living. Changes in the cost of living over time are often operationalized in a
cost-of-living index. Cost of living calculations are also used to compare the cost of maintaining a certain standard of living in different geographic areas. Differences in cost of living between locations can also be measured in terms of
purchasing power parity rates.
A situation involving unexpected incurred
costs. A cost overrun occurs when an underestimation of the actual cost during budgeting results in costs that are in excess of budgeted amounts.
A maxim indicating a (prescriptive) version of the
labor theory of value. It suggests that the price of a good should be equal to its cost, implying that
profit,
rent, and
interest could be considered unjust economic arrangements.
A model used to describe an industry structure in which companies compete on the amount of output they will produce, which they decide on independently of each other and at the same time.
A systematic approach to estimating the strengths and weaknesses of alternative options (for example in
transactions, activities, or functional business requirements). It is often used to determine the option or options that provide the best approach to achieve benefits while preserving savings.[109] Cost-benefit analysis may be used to compare potential (or completed) courses of actions, or estimate (or evaluate) the value against
costs of a single decision, project, or policy. Common areas of application include commercial transactions, functional business decisions, policy decisions (especially
government policy), and project investments.
The theory that the
price of an object or condition is determined by the sum of the
cost of the resources that went into producing it. The cost can comprise any of the
factors of production (including labor, capital, or land) as well as
taxation.
A purported type of
inflation caused by increases in the cost of important
goods or services where no suitable alternative is available. As businesses face higher prices for underlying inputs, they are forced to increase prices of their outputs.
A
payment card issued to users (cardholders) to enable the cardholder to pay a
merchant for
goods and
services based on the cardholder's promise to the
card issuer to pay them at a later time for the cost of the good or service plus other agreed-upon fees and charges.[110] The card issuer (usually a bank) creates a
revolving account and grants a
line of credit to the cardholder, from which the cardholder can borrow money for payment to a merchant or as a
cash advance.
An evaluation of the
credit risk of a prospective
debtor (an individual, business, company, or government), predicting their ability to pay back the debt, and an implicit forecast of the likelihood of the debtor
defaulting on the debt.[111] Credit rating represents an evaluation of a
credit rating agency of the qualitative and quantitative information for the prospective debtor, including information provided by the prospective debtor and other non-public information obtained by the credit rating agency's analysts. A subset of credit rating called credit reporting or
credit score is a numeric evaluation of an individual's credit worthiness, which is conducted by a
credit bureau or
consumer credit reporting agency.
A phenomenon that occurs when increased government involvement in a sector of a
market economy substantially affects the remainder of the market, either on the
supply or
demand side of the market.
An increase in private investment that results from government spending. It occurs because public investment makes the private sector more productive, as well as because government spending may have a stimulative effect on the economy.
The branch of
economics that studies the relationship between
culture and economic outcomes. Here, "culture" is defined by shared beliefs and preferences of respective groups. Programmatic issues include whether and how much culture matters to economic outcomes and what its relation is to
institutions.[113] As a growing field in
behavioral economics, the role of culture in economic behavior is increasingly being demonstrated to cause significant differentials in decision-making and the management and valuation of
assets.
Money in any form when in actual use or circulation as a
medium of exchange, especially circulating
banknotes and
coins.[114][115] A more general definition is that a currency is a "
system" of money (monetary units) in common use, especially within a particular nation.
A country's current account is one of the two components of its
balance of payments, the other being the
capital account (also known as the financial account). The current account consists of the
balance of trade, net primary income or factor income (earnings on foreign investments minus payments made to foreign investors) and net cash transfers, that have taken place over a given period of time. The current account balance is one of two major measures of a country's foreign trade (the other being the
net capital outflow). A current account surplus indicates that the value of a country's net foreign assets (i.e. assets less liabilities) grew over the period in question, and a current account deficit indicates that it shrank. Both government and private payments are included in the calculation. It is called the current account because
goods and
services are generally consumed in the current period.[116][117]
A macroeconomic model based on the AD-AS model, but examining the relationship between inflation and income, rather than price level and income. DAD is short for Dynamic Aggregate Demand, and SAS is short for Surprise Aggregate Supply.
A set of
preference representation theorems proved by
Gerard Debreu. They specify some conditions on the preference relation that guarantee the existence of a representing utility function.
An entity that owes a
debt to another entity. The entity may be an individual, a firm, a government, a company, or another
legal person. The
counterparty to which the debt is owed is called a
creditor. When the counterparty of the arrangement is a
bank, the debtor is more often referred to as a
borrower.
The amount by which spending exceeds
revenue over a particular period of time; it is the opposite of
budget surplus. The term may be applied to the budget of a government, private company, or individual.
A decrease in the general
price level of goods and services.[119] Deflation occurs when the
inflation rate falls below 0% (a negative inflation rate); though inflation reduces the value of
currency over time, deflation increases it. This allows more goods and services to be bought than before with the same amount of currency. Deflation is distinct from
disinflation, which occurs when the inflation rate decreases but is still positive.[120]
A value that allows data to be measured over time in terms of some
base period, usually through a
price index, in order to distinguish between changes in the money value of a
gross national product (GNP) that come from a change in prices, and changes from a change in physical output. It is the measure of the price level for some quantity. A deflator serves as a price index in which the effects of inflation are nulled.[121][122][123] It is the difference between real and nominal GDP.[124][125]
A reduction in debt. At the
micro-economic level, it is measured as the reduction of the
leverage ratio, or the percentage of
debt in the
balance sheet of a single economic entity, such as a household or a firm. At the
macro-economic level, it is usually measured as a decline of the total debt to
GDP ratio in the
national accounts.
A purported type of inflation caused by an increase in aggregate demand greater than the increase in aggregate supply. As real
gross domestic product rises and
unemployment falls, the economy moves along the
Phillips curve and prices increase.
The gradual decrease in the economic value of the
capital stock of a firm, nation, or other entity, either through physical depreciation, obsolescence, or changes in the demand for the services of the capital in question. If the capital stock is in one period ,
gross (total) investment spending on newly produced capital is and depreciation is , the capital stock in the next period, , is . The net increment to the capital stock is the difference between gross investment and depreciation, and is called
net investment.
A sustained, long-term decrease in economic activity in one or more economies. It is a more severe economic downturn than a
recession, which is a slowdown in economic activity over the course of a normal
business cycle.
The process of removing or reducing economic regulations, or the total repeal of governmental
regulation of the economy. It became common in advanced industrial economies in the 1970s and 1980s, as a result of new trends in economic thinking about the inefficiencies of
government regulation, and the risk that regulatory agencies would be controlled by the regulated industry to its benefit, and thereby hurt consumers and the wider economy.
A
model of
bank runs and related
financial crises. The model shows how banks' mix of illiquid assets (such as business or mortgage loans) and liquid liabilities (deposits which may be withdrawn at any time) may give rise to self-fulfilling panics among depositors.
A variation of
Bertrand competition where each firm produces a somewhat differentiated product, and consequently faces a demand curve that is downward-sloping for all levels of the firm's price. This provides a solution to the
Bertrand paradox (economics).
The decrease in the
marginal (incremental) output of a
production process as the amount of a single
factor of production is incrementally increased, while the amounts of all other factors of production stay constant. The law of diminishing returns states that in all productive processes, adding more of one factor of production while holding all others constant ("ceteris paribus"), will at some point yield lower incremental per-unit returns.[130] It does not imply that adding more of a factor will decrease the total production, a condition known as negative returns, though in practice this is common.
A mechanism in which a
debtor obtains the right to delay
payments to a
creditor, for a defined period of time, in exchange for a charge or
fee.[131] Essentially, the party that owes money in the present purchases the right to delay the payment until some future date.[132]
A set of models that describe, explain, and predict choices between two or more
discrete alternatives, such as entering or not entering the
labor market, or choosing between modes of
transport. These models examine situations in which the potential outcomes are discrete, such that the optimum is not characterized by standard first-order conditions.
A decrease in the rate of
inflation; a slowdown in the rate of increase of the general
price level of goods and services in an economy's
gross domestic product over time. It is the opposite of
reflation. Disinflation is also distinct from
deflation, which occurs when the inflation rate is negative.
Negative
saving, which occurs when spending is greater than
disposable income. This spending may be financed by already accumulated savings, such as money in a
savings account, or it can be
borrowed.
A
corporate tax system in which some or all of the tax paid by a company may be attributed, or
imputed, to the shareholders by way of a
tax credit to reduce the income tax payable on a distribution.
A model of
monopolistic competition which formalises consumers' preferences for product variety by using a
CES function.[135] In the model, variety preference is inherent within the assumption of
monotonic preferences because a consumer with such preferences prefers to have an average of any two bundles of goods as opposed to extremes.
A
vertical externality that occurs when two firms with market power (i.e., not in a situation of
perfect competition), at different vertical levels in the same
supply chain, apply a mark-up to their prices.[137] This is caused by the prospect of facing a steep demand curve slope, prompting the firm to mark-up the price beyond its marginal costs.[138]
A visual framework for
sustainable development – shaped like a
doughnut or
lifebelt – combining the concept of
planetary boundaries with the complementary concept of social boundaries.[139] The name derives from the shape of the diagram, i.e. a disc with a hole in the middle.
A paradox that states that the equilibrium speed of car traffic on a road network is determined by the average door-to-door speed of equivalent journeys taken by
public transport or the next best alternative. Although consistent with
economic theory, it is a paradox in that it contradicts the common expectation that improvements in the road network will reduce
traffic congestion.
A model in
developmental economics that explains the growth of a developing economy in terms of a
labour transition between two sectors, the subsistence or traditional agricultural sector and the capitalist or modern industrial sector.
A result about
voting systems designed to choose a nonempty set of winners from the preferences of certain individuals, where each individual ranks all candidates in order of preference.
Also called DDC models ordiscrete choice models of dynamic programming.
Models that simulate an agent's choices over discrete options that have future implications. Rather than assuming observed choices are the result of static utility maximization, observed choices in DDC models are assumed to result from an agent's maximization of the
present value of utility, generalizing the
utility theory upon which
discrete choice models are based.[140]
A finding in
happiness economics which states that at a point in time happiness varies directly with income both among and within nations, but over time happiness does not trend upward as income continues to grow: while people on higher incomes are typically happier than their lower-income counterparts at a given point in time, higher incomes don't produce greater happiness over time.[141]
A reassessment of the nature of
competition in the
economy which models the economy on
biology (growth, change, death, evolution,
survival of the fittest, complex inter-relationships, non-linear relationships) rather than physics.
The application of
statistical methods to economic data in order to give
empirical content to economic relationships.[142] More precisely, it is "the quantitative analysis of actual economic phenomena based on the concurrent development of theory and observation, related by appropriate methods of inference".[143]
A theory that posits that activities in an area divide into two categories: basic and nonbasic. Basic industries are those exporting from the region and bringing wealth from outside, while nonbasic (or service) industries support basic industries.
The combination of losses of any goods that have a value attached to them by any one individual.[146][147] Economic cost is used as means to compare the prudence of one course of action with that of another.
Broad improvement in the economic well-being or
quality of life of a nation, region, or community, often but not necessarily as a consequence of
economic growth.
A situation in which economic forces such as
supply and demand are balanced and in which, in the absence of external influences, the values of economic variables do not change. For example, in the standard textbook model of
perfect competition, equilibrium occurs at the point at which quantity demanded and quantity supplied are equal.[151]Market equilibrium in this case is a condition in which a market price is established through competition such that the amount of goods or services sought by
buyers is equal to the amount of goods or services produced by
sellers. This price is often called the competitive price or
market clearing price and will tend not to change unless demand or supply changes, and the quantity is called the "competitive quantity" or market clearing quantity. However, the concept of equilibrium in economics also applies to
imperfectly competitive markets, where it takes the form of a
Nash equilibrium.
An increase in the inflation-adjusted
market value of the goods and services produced by an
economy over time. It is conventionally measured as the percent rate of increase in real
gross domestic product, or real GDP.[152]
Any measurable unit of the economy which helps economists assess the past or make predictions about the future, such as
unemployment rate and
gross domestic product.
A theoretical construct representing an economic process by a set of variables and a set of logical and/or quantitative relationships between them. Economic models are usually simplified, often
mathematical, frameworks designed to illustrate complex processes. Frequently, economic models posit
structural parameters.[153] A model may have various
exogenous variables, and those variables may change to create various responses by economic variables. Methodological uses of models include investigation, theorizing, and fitting theories to the world.[154]
The condition of having stable income or other resources to support a
standard of living now and in the foreseeable future. It includes probable continued
solvency, predictability of the future
cash flow of a
person or other
economic entity, such as a country, and employment security or
job security.
A situation in which the
demand for a particular
good or
service exceeds its
supply within a particular
market. A shortage is the opposite of a
surplus.
A system of
production,
resource allocation, and
distribution of
goods and services within a society or a given geographic area. It includes the combination of the various institutions, agencies, entities, decision-making processes, and patterns of
consumption that comprise the economic structure of a given community. As such, an economic system is a type of
social system. The
mode of production is a related concept.[156] All economic systems have three basic questions to ask: what to produce, how to produce it, and in what quantities and who receives the output of production.
The major subfield of
urban economics which explains how
urban agglomeration occurs in locations where cost savings can naturally arise.[158] This term is most often discussed in terms of economic firm productivity. However, agglomeration effects also explain some social phenomenon, such as large proportions of the population being clustered in cities and major urban centres.[159]
The cost advantages that enterprises obtain as a result of the increased efficiency offered by a certain scale of operation (typically measured by amount of
output produced), with cost per unit of output decreasing with increasing scale. At the basis of economies of scale there may be technical, statistical, organizational, or related factors to the degree of market control.
The cost advantages that enterprises obtain as a result of the increased efficiency offered by variety rather than by volume, with cost per unit of
output decreasing with increasing variety.[160] In economics, "scope" is synonymous with broadening production through diversified products. For example, a gas station that sells gasoline can also sell soda, milk, baked goods, etc. through their customer service representatives, which may make the sale of gasoline more efficient.[161]
An area of the
production,
distribution,
trade, and
consumption of
goods and
services by different agents. In its broadest sense, an economy may be defined as "a social domain that emphasizes the practices, discourses, and material expressions associated with the production, use, and management of resources".[162]
A graphical representation of a market with just two commodities, X and Y, and two consumers. The dimensions of the box are the total quantities Ωx and Ωy of the two goods.
A situation in which two players cannot reach a state of equilibrium with pure strategies, i.e. each charging a stable price. It was proposed to solve the
Bertrand paradox.
A theorem stating that the
core of an economy shrinks to the set of
Walrasian equilibria as the number of
agents increases to infinity. That is, among all possible outcomes which may result from
free market exchange or
barter between groups of people, while the precise location of the final settlement (the ultimate division of goods) between the parties is not uniquely determined, as the number of traders increases, the set of all possible final settlements converges to the set of Walrasian equilibria.
Originally referred to the wage per efficiency unit of labor.[164] Marshallian efficiency wages are those calculated with efficiency or ability exerted being the unit of measure rather than time.[164] Today, efficiency wage refers to the idea that higher wages may increase the efficiency of the workers by various channels, making it worthwhile for the employers to offer wages that exceed a
market-clearing level.
A hypothesis that states that
asset prices reflect all available information. A direct implication is that it is impossible to "beat the market" consistently on a risk-adjusted basis since market prices should only react to new information.
Demand that is sensitive to changes in
price, such that changes in price have a relatively large effect on the quantity of the good demanded. Contrast inelastic demand.
The measurement of the proportional change of an economic variable in response to a change in another. Colloquially, elasticity is often interpreted as how easy it is for a supplier or consumer to change their behavior and substitute another good, the strength of an incentive over choices per the relative
opportunity cost.
A
paradox in which people's decisions are inconsistent with
subjective expected utility theory. It is generally taken to be evidence of
ambiguity aversion, in which a person tends to prefer choices with quantifiable risks over those with unknown, incalculable risks.
A theory that
economic growth is primarily the result of
endogenous and not external forces.[166] Endogenous growth theory holds that investment in
human capital,
innovation, and knowledge are significant contributors to economic growth. The theory also focuses on
positive externalities and
spillover effects of a knowledge-based economy which will lead to economic development.
Previously known as engineering economy, is a subset of economics concerned with the use and "...application of economic principles"[167] in the analysis of engineering decisions.[168]
The efforts by a person, known as an entrepreneur, in organizing resources for the creation of something new or taking risks to create new innovations and production.
A major result about the differentiability properties of the
value function of a parameterized optimization problem.[169] As we change parameters of the objective, the envelope theorem shows that, in a certain sense, changes in the decision variable(s) of the objective do not contribute to the change in the objective function.
A state of fairness in which job applicants are treated similarly, unhampered by artificial barriers or prejudices or preferences, except when particular distinctions can be explicitly justified.[170]
The concept or idea of fairness in economics, particularly in regard to
taxation or
welfare economics. More specifically, it may refer to
equal life chances regardless of identity, to provide all citizens with a basic and equal minimum of income, goods, and services or to increase funds and commitment for redistribution.[171]
A situation in which the quantity of a good or service supplied is more than the quantity demanded,[173] and the price is above the
equilibrium level determined by
supply and demand; that is, the quantity of the product that producers wish to sell exceeds the quantity that potential buyers are willing to buy at the prevailing price. It is the opposite of an
economic shortage.
The rate at which one
currency is exchanged for another. It is also commonly regarded as the value of one country's currency relative to another currency.[174]
An emerging field of economic enquiry that focuses on the rebuilding and reconstructing of economies in post-conflict nations and providing support to disaster-struck nations. It focuses on the need for good
economic planning on the part of developed nations to help prevent the creation of failed states. It also emphasizes the need for the structuring on new firms to rebuild national economies.[175]
The twelve-member committee of the United States
Federal Reserve that meets several times a year to decide the course of action that should be taken to control the
money supply of the United States.
An
economic system in which the
prices for
goods and services are self-regulated by the
open market and by
consumers. In a free market, the laws and forces of
supply and demand are free from any intervention by a
government or other authority and from all forms of economic privilege,
monopolies, and
artificial scarcities.[178] Proponents of the concept of the free market contrast it with a
regulated market in which a government intervenes in supply and demand through various methods such as
tariffs used to restrict trade and to protect the local economy. In an idealized
free-market economy, prices for goods and services are set freely by the forces of supply and demand and are allowed to reach their point of
equilibrium without intervention by government policy.
The four classic functions or uses of
money as summarized by
William Stanley Jevons in 1875: a
medium of exchange, a common measure of value (or
unit of account), a standard of value (or
standard of deferred payment), and a
store of value. This analysis later became a fundamental concept of
macroeconomics. Most modern textbooks now list only three functions, that of medium of exchange, unit of account, and store of value, not considering a standard of deferred payment as a distinguished function, but rather subsuming it in the others.
The sector of the economy which purchases goods from the product market and sells labor, land, and entrepreneurship ability to the factor market in the circular flow market.
Demand that is not very sensitive to changes in
price, such that changes in price have a relatively small effect on the quantity of the good demanded. Contrast elastic demand.
A measure of how the overall level of
prices in the economy changes over time. If the inflation rate is positive, prices are rising; if the inflation rate is negative, prices are falling.
Adam Smith’s famous idea that when constrained by
competition, each firm’s greed causes it to act in a socially optimal way, as if guided to do the right thing by an invisible hand.
A diverse set of
macroeconomic theories about how in the
short run (and especially during
recessions) economic
output can be strongly influenced by the total amount of spending that occurs within an economy, known as
aggregate demand. Keynesian economists generally argue that because aggregate demand is often unstable and behaves erratically, it does not necessarily or predictably equal the
aggregate supply, which can cause
market economies to experience inefficient macroeconomic outcomes in the form of
recessions (when demand is low) and
inflation (when demand is high), and that these outcomes can be mitigated by
monetary policy actions by a
central bank and
fiscal policy actions by a government authority, which can help stabilize output over the
business cycle.
A lack of any quantifiable knowledge about some possible occurrence, as opposed to the presence of quantifiable risk (e.g., that in statistical noise or a parameter's confidence interval). The concept acknowledges some fundamental degree of ignorance, a limit to knowledge, and an essential unpredictability of future events.
An economic rule stating that quantity
demanded and
price move in opposite directions, i.e. as demand increases, price decreases, and vice versa.
law of diminishing marginal utility
An economic rule stating that the additional satisfaction a
consumer gets from purchasing one more unit of a product will decrease with each additional unit purchased.
A situation where a firm’s total revenues exceed its variable costs but are less than its total costs. The firm continues to operate until its fixed cost contracts expire.
The study of the economy as a whole, concentrating on
economy-wide factors such as interest rates, inflation, and unemployment. Macroeconomics also encompasses the study of economic growth and how governments use monetary and fiscal policy to try to moderate the harm caused by recessions.
A bundle of goods and services selected to measure
inflation. Economists define a market basket, such as the
Consumer Price Index, and then track how much money it takes to buy this basket from one period to the next.
An
economy in which almost all economic activity happens in
markets, with little or no interference by the government; often referred to as a laissez-faire ("leave alone") economic system.
The structure of a
market as a whole, taking into consideration two main factors: the number of firms in the market and whether goods offered are identical, similar, or differentiated.
market production
Term that economists use to capture what happens when one individual offers to make or sell something to another individual at a price agreeable to both.
A branch of economics that studies individual people and individual businesses. For people, microeconomics studies how they behave when faced with decisions about where to spend their money or how to invest their savings. For businesses, it studies how profit-maximising firms behave individually, as well as when competing against each other in markets.
An economic system blending elements of a market economy with elements of a planned economy, free markets with state interventionism, or private enterprise with public enterprise.
A school of thought in
monetary economics which emphasizes the role of governments in controlling the amount of
money in
circulation (the
money supply). Monetarists assert that variations in the money supply have major influences on national
output in the short run and on
price levels over longer periods, and that the objectives of
monetary policy are best met by targeting the growth rate of the money supply rather than by engaging in
discretionary policy.
A situation in which many firms with slightly
different products compete. Production costs are above what may be achieved by perfectly competitive firms, but society benefits from the product
differentiation.
A firm with no competitors in its industry. A monopoly firm produces less output, has higher costs, and sells its output for a higher price than it would if constrained by competition.
Any lack of perfect knowledge of the multiplier effect of a particular policy action, such as a monetary or fiscal policy change, upon the intended target of the policy.
An industry in which one large producer can produce output at a lower cost than many small producers. It undersells its rivals and ends up as the only firm surviving in its industry.
Any reason other than
price that changes the will to produce a good or service, for example, changes in taxes and input costs, price of substitutes, future expectations, and changes in technology.
An industry with only a few firms. If these firms collude, they form a
cartel, which may reduce output and drive up profits in the same way a
monopoly does.
A situation where numerous small firms producing
identical products compete against each other in a given industry. Perfect competition leads to firms producing the socially optimal output level at the minimum possible cost per unit.
A normalized average of
price relatives for a given class of goods or services in a given region and during a given period of time. It is a statistic designed to help to compare how these price relatives, taken as a whole, differ between geographical locations or time periods. Notable price indices include
consumer price index,
producer price index, and
GDP deflator.
An item that yields positive benefits to people that is excludable, i.e. its owners can prevent others from using the good or consuming its benefits. A private good, as an economic resource is scarce, which can cause competition for it.
Or economics of the public sector, is the study of government policy through the lens of
economic efficiency and
equity. Public economics builds on the theory of
welfare economics and is ultimately used as a tool to improve social welfare.
Goods or services that cannot be profitably produced by private firms because they are impossible to provide to just one person; if you provide them to one person, you have to provide them to everybody. Public goods non-excludable (you can’t prevent anyone from consuming them) and non-rival (it costs no extra to supply one extra person).
The theory that people optimally change their behaviour in response to policy changes. Depending on the situation, their behavioural changes can greatly limit the effectiveness of policy changes.
Interest rates that compensate for inflation by measuring the returns to a loan in terms of units of stuff lent and units of stuff returned (as opposed to nominal interest rates).
(Also known as a factor market.) In the circular flow model, the sector which facilitates resources from household to firms in return for income payment.
The direct relationship between the risk of an investment and its expected return or profit; the higher the risk, the higher the opportunity for gain or loss and vice versa.
Any situation in which people do not have enough resources to satisfy all of their
wants. The phenomenon of scarcity is what creates the need for economics.
A situation in which a firm’s total
revenues are less than its
variable costs, and the firm is better off shutting down immediately and losing only its
fixed costs.
A situation where the demand for a certain good by individuals of a higher income level is inversely related to its demand by those of a lower income level.[181]
An economic system in which the government owns some of the factors of production including entire industries, for example, the healthcare system of the country.
Any situation when an individual's marginal utility of an action increases because his peers also participate in this action. For example, researchers have shown that people are more likely to exercise when their peers exercise.[182]
socially optimal output level
The output level that maximises the benefits that society can get from its limited supply of resources.
An economic model of markets that separates buyers from sellers and then summarises each group’s behaviour with a single line on a graph. The buyers’ behaviour is captured by the demand curve, whereas the sellers’ behaviour is captured by the supply curve. By putting these two curves on the same graph, economists can show how buyers and sellers interact in markets to determine how much of any particular item is going to be sold, as well as the
price at which it is likely to be sold.
A theory in
macroeconomics which postulates that lowering tax rates, decreasing government regulation, and allowing free trade is the most effective way to foster economic growth because greater supplies of goods and services at lower prices cause employment to increase and consumers to spend more. Contrast demand-side economics.
A
tax imposed by the government of a country, or by a supranational union of countries or institutions, on
imports or
exports of goods. Import duties may serve as a source of revenue for the government as well as a form of regulation of foreign trade by taxing foreign products in order to encourage or safeguard domestic industries that produce the same or similar products. Along with
import and
export quotas, tariffs are among the most commonly used instruments of
protectionism.
Also called the general theory of second best or the second best theorem.
A theory that concerns the situation when one or more
optimality conditions cannot be satisfied. It shows that if one optimality condition in an
economic model cannot be satisfied, it is possible that the next-best solution involves changing other variables away from the values that would otherwise be optimal.[183]
The multiplier by which
aggregate demand will increase when there is an increase in
transfer payments (e.g., welfare spending, unemployment payments).[186]
Any cost that changes in proportion to the amount of goods or services that a firm produces.[187] Variable costs are also the sum of
marginal costs over all units produced.
Refers to how fast
money passes from one holder to the next. It can refer to the income velocity of money, which is the frequency with which the average same unit of currency is used to purchase newly domestically produced goods and services within a given time period.[188] In other words, it is the number of times one unit of money is spent to buy goods and services per unit time.[188]
The monetary compensation (or
remuneration, personnel expenses, labor) paid by an
employer to an
employee in exchange for work done. Payment is typically calculated as a fixed amount for each task completed (a task wage or
piece rate), or at an hourly or daily rate (
wage labour), or based on some other easily measured quantity of work done.
Wants are often distinguished from needs. A need is something that is necessary for survival (such as food and shelter), whereas a want is simply something that a person would like to have. Some economists have rejected this distinction and maintain that all of these are simply wants, with varying levels of importance. By this viewpoint, wants and needs can be understood as examples of the overall concept of demand.
The
abundance of
valuablefinancial assets or
physical possessions which can be converted into a form that can be used for
transactions. This includes the core meaning as held in the originating old English word weal, which is from an
Indo-European word stem.[189] The modern concept of wealth is of significance in all areas of
economics, especially for
growth economics and
development economics, yet the meaning of wealth is context-dependent. Individuals or companies possessing a substantial
net worth are often referred to as wealthy. Net worth is defined as the current value of one's
assets less
liabilities (excluding the principal in trust accounts).[190]
The change in spending that accompanies a change in perceived
wealth.[191] Usually the wealth effect is positive: spending changes in the same direction as perceived wealth.
A type of government support for the citizens of that society. Welfare may be provided to people of any income level, as with
social security (and is then often called a
social safety net), but it is usually intended to ensure that people can meet their basic human needs such as food and shelter. Welfare attempts to provide a minimal level of
well-being, usually either a free- or a subsidized-supply of certain goods and social services, such as
healthcare,
education, and
vocational training.[192]
The minimum amount of money that а person is willing to accept to abandon a good or to put up with something negative, such as
pollution. It is equivalent to the minimum monetary amount required for sale of a good or acquisition of something undesirable to be accepted by an individual.
The maximum price at or below which a consumer will definitely buy one unit of a product.[194] This corresponds to the standard economic view of a consumer
reservation price. Some researchers, however, conceptualize WTP as a range.
In
finance, the yield on a
security is the amount of cash (in percentage terms) that returns to the owners of the security, in the form of interest or dividends received from it. Normally, it does not include the price variations, distinguishing it from the total
return. Yield applies to various stated rates of return on stocks (common and preferred, and
convertible), fixed income instruments (bonds, notes, bills, strips, zero coupon), and some other investment type insurance products (e.g.
annuities).
In
game theory and
economic theory, a zero-sum game is a
mathematical representation of a situation in which each participant's gain or loss of
utility is exactly balanced by the losses or gains of the utility of the other participants. If the total gains of the participants are added up and the total losses are subtracted, they will sum to zero. Thus,
cutting a cake, where taking a larger piece reduces the amount of cake available for others as much as it increases the amount available for that taker, is a zero-sum game if all participants value each unit of cake equally (see
marginal utility).
^"IRS Publication 4406"(PDF). Internal Revenue Service. October 2004.
Archived(PDF) from the original on November 11, 2008. Retrieved October 28, 2008.
^Sexton, Robert; Fortura, Peter (2005).
Exploring Economics. Nelson Education Limited.
ISBN978-0-17-641482-5. This is the sum of the demand for all final goods and services in the economy. It can also be seen as the quantity of real GDP demanded at different price levels.
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the original on January 1, 2019. An economic theory prevalent in 18th-cent. Germany, which advocated a strong public administration managing a centralized economy primarily for the benefit of the state.
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ISBN978-0-15-512403-5. Pure capitalism is defined as a system wherein all of the means of production (physical capital) are privately owned and run by the capitalist class for a profit, while most other people are workers who work for a salary or wage (and who do not own the capital or the product).
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ISBN978-0-262-18234-8. In capitalist economies, land and produced means of production (the capital stock) are owned by private individuals or groups of private individuals organized as firms.
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SAGE Publishing. p. 383. Capitalism, as a mode of production, is an economic system of manufacture and exchange which is geared toward the production and sale of commodities within a market for profit, where the manufacture of commodities consists of the use of the formally free labor of workers in exchange for a wage to create commodities in which the manufacturer extracts surplus value from the labor of the workers in terms of the difference between the wages paid to the worker and the value of the commodity produced by him/her to generate that profit.
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OCLC456632. All communists without exception propose that the people as a whole, or some particular division of the people, as a village or commune, should own all the means of production—land, houses, factories, railroads, canals, etc.; that production should be carried on in common; and that officers, selected in one way or another, should distribute among the inhabitants the fruits of their labor.
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ISBN978-0-87548-449-5. One widespread distinction was that socialism socialised production only while communism socialised production and consumption.
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function that
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^See "Discount", "Compound Interest", "Efficient Markets Hypothesis", "Efficient Resource Allocation", "Pareto-Optimality", "Price", "Price Mechanism" and "Efficient Market" in Black, John, Oxford Dictionary of Economics, Oxford University Press, 2002.
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