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ECONOMY TERMINOLOGIES

Terminology

Explanation

Absolute advantage

A principle that refers to the ability of an individual/firm or a country to produce more quantity of products/goods/services than their competitors, using the same amount of resources.

Adam Smith

A Scottish Economist, author and a moral philosopher. Best known for his works: An Inquiry into the nature & causes of the wealth of nations in 1776 and the theory of moral sentiments in 1959.

Average Revenue

Refers to the revenue received for selling a good per unit of output sold. This is found by dividing the total revenue by quantity sold.

Accounting Profit

A company’s total earnings which includes explicit costs of doing business, such as taxes, depreciation, expenses, etc.

Average Tax Rate

Tax rate that is paid when all sources of taxable income is added and divided by number of taxes owed

Average Total Cost

Total cost per unit including fixed and variable costs, found by dividing total cost by the quantity of output.

Average Fixed Cost

Per unit output of fixed costs, found by dividing fixed cost of production by quantity produced (output).

Absolute Poverty

-Poverty defined with respect to an absolute material standard of living.

-Someone is absolutely poor if their income does not allow them to consume enough to purchase a minimum bundle of consumer goods and services (including shelter, food and clothing).

Automatic Stabilizers

Government fiscal policies which have the effect of automatically moderating the cyclical ups and downs of capitalism. Examples include income taxes (which collect more or less taxes depending on the state of the economy) and unemployment insurance benefits (which automatically replace lost income for people who lose their jobs).

Allocative Efficiency

A neoclassical concept referring to the allocation of productive resources (capital, labour etc.) in a manner which best maximizes the well-being ( or “utility”) of individuals.

Accelerator, Investment

Investments spending simulates economic growth, which in turn simulates further investment spending. The positive feedback loop ( investment causes growth which causes more stronger

Balanced Budget

-An annual budget (such as for a government) in which revenues perfectly offset expenditures, so that there is neither a deficit nor a surplus.
-The phrase “balanced budget” is commonly used in reference to official government budgets.

Bank for International Settlements

An international financial regulatory organization based in Berne, Switzerland, which designs international regulations regarding capital adequacy and other banking practices. The BIS is governed by government appointees from the world’s largest capitalist economies.

Banking Cycle

- An economic cycle which results from cyclical changes in the attitudes of banks toward lending risk.

-When economic times are good, bankers become optimistic that their loans will be repaid and hence they expand their lending.

-The opposite occurs when the economy becomes weaker. Bankers begin to fear more defaults on their loans, hence they issue fewer loans, and hence the economy weakens even further.

Banks

 A company that accepts deposits and issues new loans. It makes profit by charging more interest for the loans than it pays on the deposits, as well as through various service charges. By issuing new loans (or credit), banks create new money which is essential to promoting economic growth and job creation.

Barter

A form of trade in which one good or service is exchanged directly for another, without the use of money as an intermediary.

Bond

A financial security which represents the promise of its issuer (usually a company or a government) to repay a loan over a specified time period, at a specified rate of interest.

Balance of Trade

The difference between a country’s imports and its exports. Balance of trade is the largest component of a country’s balance of payments. Debit items include imports, foreign aid, domestic spending abroad and domestic investments abroad. Credit items include exports, foreign spending in the domestic economy and foreign investments in the domestic economy

Business Firm

A business organization, such as a corporation, limited liability company or partnership. Firms are typically associated with business organizations that practice law, but the term can be used for a wide variety or business operation units.

Balance Budget Laws

Laws (usually passed by right-wing governments) which requires governments to run balanced budgets regardless of the state of the overall economy

Budget surplus

Excess of receipts or income over expenditure or outlays.

Budget Deficit

A financial health indicator where expenditures exceed revenue.

Business Cycle

Economy-wide fluctuations in economic activities such as, production, trade, employment, etc.

Capacity Utilization

A company or economy’s capacity represents the maximum amount of output it can produce. The rate of capacity utilization, therefore, represents the proportion of capacity that is actually used in production.

Capital

Wealth used to start a business or other meaning is, a factor of production, others being land and labour.

Capital Adequacy

Capital adequacy rules are loose regulations imposed on private banks, in hope of ensuring that they have sufficient internal resources (including the money invested by the bank’s own shareholders) to be able to withstand fluctuations in lending and profitability.

Capital Flight

A destructive process in which investors (both foreigners and domestic residents) withdraw their financial capital from a country as a result of what are perceived to be non-favourable changes in economic policies, political conditions, or other factors.

Capital Gain

A capital gain is a form of profit earned on an investment by re-selling an asset for more than it cost to buy. Assets which may be purchased for this purpose include stocks, bonds, and other financial assets; real estate; commodities; or fine art.

Capitalism

An economic system in which privately-owned companies and businesses undertake most economic activity (with the goal of generating private profit), and most work is performed by employed workers who are paid wages or salaries.

Capitalist Class

The group of individuals (representing just a couple of percent of the population in advanced capitalist countries) Which owns and controls the bulk of private corporate wealth, and which as a result faces no compulsion to work in order to support themselves. 

Carbon Tax

An environmental tax which is imposed on products which utilize carbon-based materials, and hence contribute to greenhouse gas pollution (including oil, gas, coal, and other fossil fuels). The level of the tax should depend on the carbon (polluting) content of each material.

Central Bank

A public financial institution, usually established at the national level and controlled by a national government, which sets short-term interest rates, lends money to commercial banks and governments and otherwise oversees the operation of the credit system.

Central Planning

The different broad groups in society, defined according to what work they do, their wealth, their degree of control over production and their general role in the economy.

Class

The different broad groups in society, defined according to what work they do, their wealth, their degree of control over production and their general role in the economy.

Classical Economics

The classical economists wrote in the early years of capitalism, and they uniformly celebrated the productive, innovative actions of the new class of industrial capitalists. They focused on the dynamic economic and political development of capitalism, analysed economics in class terms and advocated the labour theory of value.

Climate Change

As a consequence of the cumulative emission of carbon dioxide (a by-product of fossil fuel use) and other Chemicals over the pat two centuries,the concentration of these gases in the total atmosphere is growing dramatically.

Commodity

Anything that is bought and sold for money is a commodity-including produced goods and services, inputs (such as capital or raw materials), and even labour.

Comparative Advantage

a law referring to ability of an economic actor to produce goods & services at lower opportunity cost than others.

Competition

Competition occurs between different companies trying to produce and sell the same good or service. Companies may compete each other for markets and customers; for raw material; for labor; and for capital.

Conditionality

International financial institutions (like the World Bank and the International Monetary Fund) often attach strong conditions to emergency loans they make to developing countries experiencing economic and financial crises.

Consumer Price Index

The consumer price index (CPI) is a measure of the overall price level paid by consumers for the various goods and services they purchase.

Consumption

Goods and services which are used for their ultimate end purpose, meeting some human need or desire.

Corporation

A corporation is a form of business established as an independent legal entity, separate from the individuals who own it. A major benefit, for the owners, of this form of business is that it provides for limited liability for its.

Cost of Job Loss

When a worker is laid off or fired, they experience a significant out of pocket cost. That cost of job loss depends on how much they were earning in their job, how long it takes them to find a new job, the higher the cost of job loss, the more employers will be able to threaten and discipline their workers.

Counter-Cyclical Policies

-Governments can take many different actions to offset the ongoing booms and busts of the private-sector economy.

-Theses policies include fiscal policies (increasing governments spending when the economy is weak) monetary policies and social policies to maintain household incomes and spending even in downtown.   

Credit

The ability to purchase something without immediately paying for it – through a credit card, a bank loan, a mortgage, or other forms of credit. The creation of credit is the most important source of new money, and new spending power, in the economy.

Credit Squeeze

At times private banks become reluctant to issue new loans and credit, often because they are worried about the risk of default by borrowers. This is common during times of recession or financial instability. A credit squeeze can dramatically slow down economic growth and job-creation

Collateral 

Property or other assets that a borrower offers a lender to secure a loan. If the borrower stops making the promised loan payments, the lender can seize the collateral to recoup its losses. Because collateral offers some security to the lender in case the borrower fails to pay back the loan, loans that are secured by collateral typically have lower interest rates than unsecured loans.

Consumers

A consumer is a person or group of people, such as a household, who are the final users of products or services. The consumer’s use is final in the sense that the product is usually not improved by the use.

Corporatism

A corporation is a form of business established as an independent legal entity, separate from the individuals who own it. A major benefit, for the owners, of this form of business is that it provides for limited liability for its.

Customer

A customer (sometimes known as a client, buyer, or purchaser) is the recipient of a good, service, product, or idea, obtained from a seller, vendor, or supplier for a monetary or other valuable consideration.

Consumer Surplus

Difference between what consumers are willing (and able) to pay for a service/good relative to its market price, and what they actually spend on the service/good.

Circular Flow Diagram

Basic visual model used in Economics to show how Economy functions (flow of money through firms, markets, etc.)

Cross price Elasticity of Demand

Measures responsiveness of quantity demanded for a good to a change in price of another good.

Cost

Combination of losses & gains that have value attached to them by an individual. The value of everything a seller must give up to produce a good.

Complements

Goods or services used in conjunction to other goods or services. A complementary good or service has no value when consumed alone, but value is added when it is combined with another good or service.

Coase Theorem

An economic theory which affirms that where there are competitive markets without any transaction costs, an efficient set of inputs & outputs, to & from production-optimal distribution are selected, regardless of how property rights are divided.

Constant Returns to Scale

Constant ratio between inputs and outputs. Occurs when increase in number of inputs leads to equivalent increase in output.

Competitive Market

Market where large number of producers compete with each other to satisfy needs of large number of consumers.

Collusion

-Agreement between firms in market, sometimes illegal, to limit competition by deceiving, misleading or defrauding others of their legal rights.

-An agreement to divide markets, set prices, limit production and opportunities.

Cartel

Organization created from formal agreement between group of producers of goods or services to regulate supply to manipulate prices.

Diminishing marginal Product

An economic principle that states: while increasing one input & keeping the other inputs at the same level may increase outputs initially, further increase in that input will have a limited effect, & eventually no effect or a negative effect on the output.

Deadweight loss

Fall in total surplus caused by market inefficiency. Can be applied to any deficiency caused by an inefficient allocation of resources.

Diseconomies of Scale

Economic concept that refers to a situation in which economies of scale no longer function for a firm.

Debt

The total amount of money owed by an individual, company or other organization to banks or other lenders is their debt. It represents the accumulated total of past borrowing. When it is owed by government, it is called public debt

Debt Burden

The real economic importance of a debt depends on the interest rate that must be paid on the debt, and on the total income of the consumer or business that undertook the loan.

Deficit

When a government, business, or household spends more in a given period of time than they generate in income, they incur a deficit. A deficit must be financed with new borrowing, or by running down previous savings.

Define Benefit Pensions

A pension plan that pays a specified monetary benefit, usually based on a pensioner’s years of service and their income at the time of retirement.

Define Contribution Pensions

A pension plan that makes no specific promise about the level of pension paid out after retirement. Instead, a pensioner’s income depends on the amount of money accumulated in a pre-funded retirement account, on investment returns, and on interest rates at the time of retirement.

Deflation

-A decline in the overall average level of prices.

- A general decline in prices, often caused by a reduction in the supply of money or credit.

- Deflation can be caused also by a decrease in government, personal or investment spending.

Demand

An economic principle that describes a consumer’s desire and willingness to pay a price for a specific good or service.

Depreciation

- A method of allocating the cost of a tangible asset over its useful life. Businesses depreciate long-term assets for both tax and accounting purposes.

- A decrease in an asset’s value caused by unfavourable market conditions.

Depression

A depression is a very deep, long and painful recession, in which unemployment rises to very high levels and economic output does not bounce back.

Derivatives

A derivative is a financial asset whose resale value depends on the value of other financial assets at different points in time. Its value is thus “derived” from the value of other financial assets, and is hence very difficult to predict. Examples of derivatives include futures, options, and swaps.

Discrimination

As a result of racist and sexist attitudes and deliberate efforts of employers to play off groups of workers against each other, different groups of people (defined and divided by gender, ethnicity, language, ability or other factors) experience very different economic opportunities and incomes.

Distribution

The distribution of income reflects the process by which the real output of goods and services produced by the economy is allocated to different individuals and groups of people.

Dividends

Many companies pay a cash dividend (quarterly or annually) to the owners of its shares. This is an enticement to investors to purchase that company’s shares, and represents a way of distributing some of a company’s profits to its ultimate owners.

Division of Labour

Division of labour, the separation of a work process into a number of tasks, with each task performed by a separate person or group of persons. It is most often applied to systems of mass production and is one of the basic organizing principles of the assembly line.

Durable Goods

Durable goods are a category of consumer products that do not need to be purchased frequently because they are made to last for a long time (usually lasting for three years or more). They are also called consumer durables or durables.

Demand Constrained

An economy is demand-constrained when the level of output and employment is limited by the amount of overall demand (or spending) on its products.

Development

Economic development is the process through which country’s economy expands and improves in both quantitative and qualitative items. Economic development requires the coming together of several different processes and conditions 

Discretionary Fiscal Policy

Some governments taxing and spending programs can be adjusted by governments in response to changing economic circumstances.

Economic Growths

Economic growth is the expansion of total output produced in the economy. It is usually measured by the expansion of real GDP.

Economies of Scale

Cost advantage that arises as quantity of output increases.

Effective Demand

The theory of effective demand was developed separately in the 1930s by john Maynard Keynes and Michal Kalecki.

Employment

Employment is a specific form of work, in which the worker performs their labour for someone else in return for a money wage or salary.

Employment Rate

This measures the share of working age adults who are actually employed in a paying position. The employment rate can be a better indicator of the strength of labour markets than the unemployment rate (since the unemployment rate depends on whether or not a non-working individual is considered to be “in” the labour force).

Enclosures

A historic process in Britain and other European countries, in the very early years of capitalism, in which lands formerly held and used in common were fenced off in formally assigned to private owners.

Environment

The natural environment is the essential aspect of the economy, whose influence is felt in several different ways. Everyone relies on the direct ecological benefits that come from nature: fresh air, clean water, space climate.

Environmental Taxes

Taxes which are imposed on particular activities, or particular products, which are considered to especially damaging to the environment, with the goal of changing economic behavior and reducing pollution.

Equilibrium

State in which economic forces are balanced where quantity demanded = quantity supplied.

Equity

Value of assets minus the liabilities of the asset. Equity = Assets – Liability.

Exchange Rate

The “price” at which the currency of one country can be converted into the currency of another country. A country’s currency is “strong,” or its exchange rate is “high,” if it can purchase more of another country’s currency.

Exports

Function of international trade where goods produced domestically are shipped abroad.

Externalities

The positive or negative impact of an economic activity experienced by an unrelated bystander.

Economics

Study of how society manages its scarce resources or a science concerned with production, distribution and consumption of goods & services.

Efficiency

A property of society in which resources are optimally allocated to serve each individual or entity in best way while minimizing waste and inefficiency.

Explicit Costs

Clear cash outflow from a business that reduce its bottom-line profitability.

Elasticity

Measure of variables responsiveness to change in another variable

Economic Profit

Total revenue – total cost (including implicit and explicit costs)

Efficient Scale

Quantity of input that minimize the average total cost.

Economies of Scale

Cost advantage that arises as quantity of output increases.

Fixed Costs

Cost that doesn’t change with quantity of output produced or sold.

Free Rider Problem

Market failure that occurs when people who receive benefits of common resource and don’t pay their fair share of taxes.

Factors of Production

Inputs used to produce goods and services to make economic profit.

Feudalism

-A type of economy (such as that in Europe in the Middle Ages) that is primarily agricultural, but productive enough to support a class of artisans and merchants

-Feudal societies are composed of two main social classes: nobles and peasants.

- The nobility extracted the agricultural surplus from peasants through a system of tradition, mutual obligation and (when necessary) brute force

Final Products

Products (either goods or services) which are intended for final consumption. They are distinct from intermediate products, which are products used in the production of other products (such as raw materials, capital goods, or producer services).

Finance

Monetary purchasing power, typically created by a bank or other financial institution, which allows a company, household, or government to spend on major purchases (often on capital assets or other major purchases).

Financialization

The trend under neoliberals through which real production in the economy is accompanied by an increasing degree of financial activity and intermediation (including various forms of lending, financial assets, and securitization).

Fiscal Policy

The spending and Taxing activities of governments constitute its fiscal policy.

Foreign Direct Investment

An investment by a company based in one country, in an actual operating business, including real physical capital assets (like buildings, machinery and equipment), located in another country.

Foreign Exchange

The process by which the currency of one nation is converted into the currency of another country.
Foreign exchange transactions encompass everything from the conversion of currencies by a traveler at an airport kiosk to billion-dollar payments made by corporate giants and governments for goods and services purchased overseas

Fractional Reserve System

A banking system in which private banks are required to hold a specified proportion of assets on hand in their banks, to underpin a much larger amount of lending to the bank’s customers.

Free Economic Enterprise

An economic system where few restrictions are placed on business activities and ownership. In this system, governments generally have minimal ownership of enterprises in the market place. This system aims for limited restrictions on trade and minimal government intervention.

Free Trade Agreements

An agreement between two or more countries which eliminates tariffs on trade between the countries, reduces non-tariff barriers to trade, cements rights and protections for investors and corporations, and takes other measures to guarantee a generally liberalized, pro-business economic environment.

Full Employment

A condition in which every willing worker is able to find a paying job within a very short period of time, and hence unemployment is near zero.

Fixed Capital

Real capital which is installed permanently in a specific location including buildings, infrastructure, and major machinery, and equipment

Flat-Rate Tax

A form of Income tax in which every tax payer pays the same rate of tax on their personal income, regardless of their income level. It differs from a progressive tax, in which higher-income individuals pay a higher rate of tax.

Formal Economy

The sector of the economy which produces goods and services in return for monetary payment, and is fully integrated into the formal infrastructure

Fractional Reserve System

A banking system in which private banks are required to hold a specified proportion of assets on hand in their banks, to underpin a much larger amount of lending to the bank’s customer.

General Equilibrium

Neoclassical economics assumes that production, employment, investment, income distribution are all determined by a condition of equilibriumin every single market.

Gini Coefficient

A statistical measure of inequality. A Gini score of 0 implies perfect equality (in which every individual receives the same income). A Gini score of 1 implies perfect inequality (in which one individual receives all of the income).

Globalization

A generalized historical process through which more economic activity takes place across national borders. Forms of globalization include international trade (exports and imports), foreign direct investment, international financial flows, and international migration.

Goods

Tangible products which are produced in the economy – including agricultural products, natural resources, manufactured goods, and construction.

Government Production

Some production in the economy is undertaken directly by governments (or various kinds of government agencies.

Greenhouse Gases

Green house gases trap more heat from the sun near the earth’s surface Carbon dioxide is the major greenhouse gas, but other forms of pollution also contribute to global warming.

Gross Domestic Product

The value of all the goods and services produced for money in an economy, evaluated at their market prices. Excludes the value of unpaid work (such as caring reproductive labour performed in the home). GDP is calculated by adding up the value-added at each stage of production.

 

Gross Domestic Product Deflator

A price index which adjusts the overall value of GDP according to the average increase in the prices of all output. The GDP deflator equals the ratio of nominal GDP to real GDP.

Gross Domestic Product, Per Capita

The level of GDP divided by the population of a country or region.

Gross National Product (GNP)

An economic statistic that includes GDP, plus any income earned by residents from overseas investments, minus income earned within the domestic economy by overseas residents.

Game theory

Study of human behaviour within competitive or strategic situations

Hyper-Inflation

A situation of extremely rapid inflation (reaching 100% per year or more), often resulting from a condition of economic or political breakdown.

Hoarding

A situation in which financial investors, companies, or individual consumers choose to hold hordes of cash or other liquid assets, rather than spending and re-spending that money.

Heterodox Economics

Various schools of thought (including post-Keynesian, Structuralist Marxian, and institutional economics) which rejects the precepts 

Households

The basic unit of individual economic behaviour. Households offer labour supply to the labour market, earn income (from employment and other sources), make consumer purchases, and care for each other through unpaid labour within the home.

Inflation

Inflation is defined as a sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase. As inflation rises, every dollar you own buys a smaller percentage of a good or service.

Interdependence

Relation between two of more entities where each is dependent on other for goods or services.

Imports

Goods that are produced abroad and sold domestically

Inferior Good

Good for which demand declines with increase in income or real GDP.

Income Elasticity of Demand

Sensitivity of the quantity demanded for certain goods or services to change in the real income of its consumers keeping all things constant.

Import Quota

A limit set on the quantity of goods that can be produced abroad & sold domestically.

Implicit Costs

Cost occurred but not necessarily reported as an expense.

Industrial Policy

Government policies aimed at fostering the domestic development of particular desirable or productive industries, in order to boost productivity, create higher-paid jobs, and enhance international trade performance.

Inequality

The distribution of income across individual households typically demonstrates inequality between higher-income and lower-income households.

Informal Economy

The informal sector of the economy represents the production of goods and services for the own-use of the producers, or for informal or “underground” trade in particular communities (as opposed to the formal economy). It is particularly important in developing countries.

Innovation

Producers (including private companies) will endeavour to develop new products (new goods or services) and new processes (new ways of producing those goods or services), with the goal (in a capitalist context) of enhancing market share and hence profitability.

Institutionalist Economics

A school of heterodox economics which emphasizes the importance of institutional development and evolution (as opposed to “pure” market forces) in explaining economic and social development.

Interest

A lender charges interest as the price of lending money (or some other asset) to a borrower. Interest is typically charged as a specified percentage of the loan’s value, per specified time period (eg. percent per year).

Intermediate Products

Products (including both goods and services) which are not produced in order to be consumed, but rather are produced in order to be used in the production of some other good or service.

International Monetary Funds

An international financial institution established after World War II with the goal of regulating and stabilizing financial relationships among countries, and ensuring free flow of finance around the world economy

Investment

Investment represents production which is not consumed, but rather is utilized in the production of other additional output.

John Maynard Keynes

A 19th Century British Economist & Philosopher who spent his working years with East India Company, and whose radical ideas had great impact on modern political & economic theories. He’s also known as the father of Keynesian Economics. 

Labour Discipline

Employers are interested in maximizing the extent to which employees expend effort and “follow the rules” in the workplace.

Labour Extraction

Most employees under capitalism are paid according to the time they spend at work. But employers then face a challenge to extract genuine labour effort from their workers while they are on the job.

Labour Force

The total population of working-age people who are willing and able to work, and who hence have “entered” the labour market. The labour force includes individuals who are employed, and those who are “actively” seeking employment.

Labour Intensity

The ratio of labour effort expended, compared to total on-the-job compensated labour time.

Labour Market Segmentation

Deep and systematic differences among various groups of workers, in which different types of workers are effectively “assigned” to different types of jobs (reflecting differing productivity and income opportunities).

Labour Supply

The total number of workers available and willing to work in a paid position; usually measured by the labour force (although the labour force usually excludes many workers who do not officially qualify as “actively” seeking work, but who can nevertheless be mobilized into employment if necessary).

Long Waves

Longer-term periods of growth or stagnation in the economy, that can last for a decade or more and reflect broader changes in technology, politics, and international relations.

Loan

The act of giving money, property or other material goods to another party in exchange for future repayment of the principal amount along with interest or other finance charges. A loan may be for a specific, one-time amount or can be available as open-ended credit up to a specified ceiling amount.

Law of Demand

An economic (micro) law, that states that, all things equal, quantity demanded of a good or service falls, when the price of the good or service increases.

Law of Supply

Another microeconomic law that states, all factors being equal, quantity of supply of goods/services increases, when the price of goods/services increases.

Laffer Curve

A curved graph, developed by Arthur Laffer, that illustrates the relationship between tax rates & amount of tax revenue collected by Governments.

Lump Sum Tax

Fixed amount of tax, regardless of change in circumstances of taxed entity.

Lorenz Curve

A curve representing wealth/income inequality. Plots percentile of population according to income/wealth on x-axis and cumulative wealth/income on y-axis.

Monopoly

Industry dominated by one entity/corporation without close substitutes.

Marginal product of Labour

Change in amount of output from employing additional unit of labour.

Monopolistic Completion

Market structure where firms sell similar products but not perfect substitutes.

Marginal Cost

Change in total cost that arises from producing an extra unit.

Marginal Revenue

Change in total revenue resulting from sale of one additional unit of output.

Marginal Product

Change in output from employing one more unit of an input.

Marginal Tax Rate

Extra tax paid on additional dollar of income.

Market Economy

Economic system that allocates resources through decentralized decisions of individuals and business.

Microeconomics

Study of implications of actions of individuals and how these affect distribution & utilization of resources.

Macroeconomics

Study of how economy behaves, including studying phenomena like economic growth, inflation, unemployment, etc.

Market Socialism

A form of socialism in which productive companies are owned through public or non-profit forms, but relate to each other through markets and competition (with little or no central planning).

Money

Broadly speaking, money is anything that can be used as a means of payment (for example, to settle a debt). It includes actual currency, bank deposits, credit cards and lines of credit, and various modern electronic means of payment.

Mortgage

Debt instrument, secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments. Mortgages are used by individuals and businesses to make large real estate purchases without paying the entire value of the purchase up front.

Mutual fund

A financial vehicle which involves pooling investments in the shares of many different joint stock (or publicly traded) companies, in order to reduce the risk and overhead costs associated with investing in corporate shares.

Machinery and Equipment

One form of fixed capital asset, consisting of machines, computers, transportation equipment, assembly lines, and other equipment. Economists believe that investment in machinery and equipment is very important to productivity growth.

Managers

Top managers and directors of larger companies who are assigned the task of initiating and organizing production, disciplining workers, and accounting to shareholders for the performance of the business

Market Income

A household’s total pre-tax income obtained from its activities in the formal economy, including wages and salaries, investment income, and small business profits.

Mercantilism

An economic theory from pre-capitalist times which held that a country’s prosperity depended on its ability to generate large and persistent surpluses in its foreign trade with other countries.

Migration

The movement of human beings from one country or region to another. Sometimes migration is motivated by economic factors (such as the search for employment), sometimes by other forces (such as war, natural disaster, or famine).

Monetarism

Strictly speaking, monetarism was a right-wing economic theory (associated with the work of Milton Friedman, in particular) which believed that inflation could be controlled or eliminated by strictly controlling, over long periods of time, the growth of the total supply of money in the economy.

Monetary Policy

Monetary policy reflects the use by government and government agencies (especially the central bank) of interest rate adjustments and other levers (such as various banking regulations) to influence the flow of new credit into the economy, and hence the rate of economic growth and job-creation.

Monetary Targeting

A policy which attempts to directly limit the growth in the total supply of money in the economy. It was the main policy tool used by strict monetarists.

Multinational Corporation

A multinational corporation (MNC) is a company which directly undertakes productive facilities or operations in more than one country.

Multiplier

-An initial stimulus to spending (in the form of new business, consumer, or government purchases) usually results in a larger final increase in total spending, production, and employment in the economy.

- This magnifying effect is called the multiplier.

Natural Monopoly

In some industries, economies of scale are so strong that it makes most economic sense for there to be only one supplier. This type of industry is considered a natural monopoly, since competition will eventually tend to concentrate output in one producer.

Natural Rate of Unemployment

According to neoclassical economics, the wage rate is determined by a process of labour-market clearing (in which workers and employers compete with each other, ensuring that labour supply equals labour demand).

Neoclassical Economics

Neoclassical economics is the dominant approach to economics currently taught and practiced in most of the world (and especially dominant in Anglo-Saxon countries). It attempts to explain the behaviour of the economy on the basis of competitive, utility-maximizing behaviour by companies, workers, and consumers.

Neoliberalism

A modern, more harsh incarnation of capitalism which became dominant globally beginning in the early 1980s, largely as a reaction to international economic and political problems encountered at the end of the Postwar “Golden Age.” Neoliberal policies have emphasized deregulation (including of labour markets), privatization, globalization, and strict monetary policy.

Nominal GDP

Nominal gross domestic product measures the total value of all the goods and services produced and traded for money in the formal economy, evaluated at their current money prices. Nominal GDP can grow from one period to the next because of an increase in actual (real) output, and/or because of an increase in average prices.

Non-Accelerating-Inflation Rate of Unemployment

-This theory is a variant of the neoclassical natural rate of unemployment. As in original natural rate theory, NAIRU advocates believe that unemployment cannot be reduced below a certain level without sparking a continuous acceleration in inflation

- Unlike the original natural rate theory, however, the NAIRU doctrine does not strictly define this position as “full employment.” The policy prescriptions of the natural rate and NAIRU theories are practically identical

Non-Tradeable

Some products cannot be transported over long distances, or otherwise sold to consumers from far-off locations. These products (including some goods and most services) are hence considered non-tradeable: they must be consumed near to where they are produced.

Needs

Needs are based on physiological, personal or socio-economic requirements necessary for you to function and live. Transportation is a need for the modern, urban person because work, food and other necessities of daily life are too far from where they live. Wants, on the other hand, are a means to fulfilling our needs

Normative Economics

A perspective on economics that incorporates subjectivity within its analyses. It is the study or presentation of “what ought to be” rather than what actually is. Normative economics deals heavily in value judgments and theoretical scenarios.

Normative Statements

Subjective & value-based claims that attempt to prescribe how world should be.

Normal Good

Goods for which, all things equal, increase in quantity demanded increases as individuals’ real income increases.

Natural Monopoly

Type of monopoly that arises as result of high start-up or fixed costs of operating a business in specific industry.

Nash Equilibrium

concept where no player has incentive of changing their chosen strategy after considering opponents choice.

Oligopoly

Market structure where small number of firms have large majority of market share.

Opportunity Cost

Benefit that must be given up to obtain something else.

Paradox of Thrift

 An individual household, business, or government may attempt to save money by reducing their current expenditures. However, those attempts to save, once amalgamated at the level of the overall economy, may reduce aggregate spending levels and hence output and employment, thus undermining overall growth or even causing a recession.

Participation Rate

The proportion of working-age individuals who decide to “participate” in the labour force, by either being employed or actively seeking work.

Pay-as-You-go- Pension

A pay-as-you-go pension plan sponsor simply pays for pension benefits to retired plan members out of its current incoming revenues. Many government pension plans are funded on a pay-as-you-go (or “paygo”) basis, with pension benefits financed directly from current taxes.

Payroll tax

A tax levied on current employment or payrolls (collected either as a fixed amount per employee, or as a percentage of total wages and salaries paid). Payroll taxes are most commonly used to finance employment-related social programs, such as pension or unemployment insurance programs.

Pensions

Pension benefits are paid to individuals who have retired from active employment, in order to support themselves in the last years of their lives.

Perfect Competition

An abstract assumption, central to neoclassical economics, in which companies are so small that none can influence total output or price levels in an industry, none can distinguish its products from those of competing firms, and none can anticipate or interact with the actions of its competitors.

Physical capital

A tangible tool, building, machine, or other productive asset which is used to produce other goods or services.

Physiocrats

A very early school of economics (originating in France in the 18th Century) which likened the interactions between different sectors and classes of the economy, and the monetary flows between them, to the circulation of blood through the human body.

Pollution

Many economic activities involve the discharge of waste products (including solid waste, air pollution, and water pollution) into the natural environment, as a negative side-effect of production.

Post-Keynesian Economics

A modern heterodox school of economic thought which emphasizes the more non-neoclassical or radical aspects of John Maynard Keynes’ theories.

Poverty

A state of having inadequate income or other resources to support a household or group of households at a basic standard of living. Poverty can be measured in absolute or relative terms.

Poverty rate

The proportion of individuals or households in a jurisdiction which are defined as poor, according to either absolute or relative definitions of poverty.

Pre-Funded Pension

A pension plan in which funds are accumulated and invested throughout an individual’s working life in order to pay for the subsequent disbursement of pension benefits after that person has retired.

Preferences

According to neoclassical economic theory, individuals’ preferences regarding the sorts of consumer goods they most enjoy will exercise an ultimate influence on both the composition of output in the economy, and the prices paid for final products and factors of production.

Price Level

The overall average level of nominal prices in the economy can be calculated, most often as a weighted average of the prices of individual goods and services (with weightings reflecting the importance of each product in overall spending or output).

Primary Products

Products which are harvested directly from the natural environment, with minimal subsequent processing, are considered primary products. These typically include agricultural, fishing, forestry, mineral, and energy products.

Private Equity

A form of business in which the company’s entire equity base is owned by one or a small group of individual investors. Under the private equity model, the company does not issue shares onto the stock market, and hence is not usually required to release public financial statements or comply with other securities regulations

Product Markets

The markets where produced goods and services are bought and sold (distinguished from markets for factors of production).

Production

The process by which human labour (or “work”) is applied, usually with the help of tools and other forms of capital, to produce useful goods or services.

Production for Profit

Under capitalism, most production is undertaken by private companies (of various forms), with the goal of generating a profit to the company’s owners.

Productivity

In general, productivity measures the effectiveness or efficiency of productive effort. Productivity can be measured in many different ways. Physical productivity measures the actual amount of a good or service produced (eg. tons of steel, or number of haircuts).

Profit

This is the surplus left over after a company sells its output, and pays off the cost of production (including labour costs, raw materials, and a proportional share of its capital equipment). Its calculation is: revenue – cost = profit.

Program Spending

Government spending which is undertaken to provide useful public programs. Program spending includes both direct government production of services (like health care or education), and transfer payments which are intended to supplement the income of households (through programs like unemployment insurance or public pensions).

Progressive tax

A tax is considered progressive if a larger proportionate share of its total burden falls on individuals with higher average incomes.

Public Goods

True public goods are those which cannot be provided to one group of consumers, without being provided to any other consumers who desire them. Thus, they are “non-excludable.”

Public Investments

Real investment spending by government or public institutions on structures, infrastructure, machinery and equipment, and other real capital.

Public-Private Partnership

A form of financing public investment, and sometimes the direct provision of public services, in which finance is provided by private investors (in return for interest), and private firms are involved in the management of the construction or operation of the publicly-owned facility.

Phillips Curve

a curve that shows the concept that inflation & unemployment have stable & inverse relationship.

Production Possibilities curve

Graph that represents alternative combination of outputs that an economy can produce by transferring resources from one service/good to another.

Positive Statements

Measure of relationship between chance in price of a good and the quantity demanded of that good. Price elasticity of demand = Change in quantity demanded(%)/change in price (%).

Price Elasticity of Demand

Measure of relationship between chance in price of a good and the quantity demanded of that good. Price elasticity of demand = Change in quantity demanded(%)/change in price (%).

Price Elasticity of supply

Measure of relationship between chance in price of a good and the quantity supplied of that good. Price elasticity of demand = Change in quantity supplied(%)/change in price (%).

Price Ceiling

Max legal price a seller is allowed to charge for a good or service.

Price Floor

Minimum legal price at which a good can be sold.

Producer Surplus

Measure of the difference between the amount producer is willing to accept for a good and amount he receives.

Pigovian Tax

Affluent fee assessed against business/individuals for engaging in a specific activity.

Private Goods

Goods that must be purchased for consumption by individuals which prevents others from consuming it.

Public Goods

Opposite of private goods. Products consumed by individuals without reducing availability of said product to others.

Proportional Tax

An income tax system where same percentage of tax is levied from higher income tax payers & lower income tax payers.

Progressive Tax

Tax that takes higher percentage from higher income tax payers than lower income tax payers.

Production Function

Relationship between physical inputs or factors of production and physical output of production process.

Price Discrimination

Business pricing practice of selling same good at different prices to different customers.

Quantity Demand

A term used in economics to describe the total amount of goods or services that are demanded at any given point in time. The quantity demanded depends on the price of a good or service in the marketplace, regardless of whether that market is in equilibrium.

Real GDP

The value of total gross domestic product (that is, all the goods and services produced for money in the economy) adjusted for the effects of inflation. In theory, real GDP represents the physical quantity of output.

Real Interest Rate

The interest rate on a loan, adjusted for the rate of inflation. The real interest rate represents the real burden of an interest payment. Real interest rates must be positive for the lender to attain any real income from the loan.

Real Wages

The value of wages, adjusted for the level of consumer prices. If the nominal value of wages is growing faster than consumer prices, then real wages are growing, and hence the real consumption possibilities offered to workers are improving.

Recession

A condition in which the total real GDP of an economy shrinks (usually, for at least two consecutive quarters). A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade

Recovery

A condition in which real GDP begins to grow again, following a recession

Regressive Tax

A tax in which lower-income individuals or households bear a proportionately greater burden of the tax. Sales taxes are generally considered regressive (since lower-income households do not generally save, and hence must pay the sales tax on a larger proportion of their total income).

Relative Poverty

A measure of poverty based on an individual or family’s relative income compared to the overall average level of income in the economy as a whole. Relative poverty thresholds change over time with growth in overall income levels.

Relative Price

The price of any product or commodity measured relative to the overall level of prices (for example, compared to the consumer price index).

Reproduction

The economic process of recreating the work force. Reproduction involves caring for one’s self and one’s family, and raising children.

Retained Earnings

Business profits which are not distributed to shareholders (through dividends or other payouts), but instead are retained within the company in order to finance future investment or other expenditures.

Return of Equity

A measure of business profitability equal to net after-tax income divided by the average level of shareholders’ equity in the business.

Scarcity

Limited nature of society’s resources

Specialization

Focus on a particular area

Substitutes

Product/service consumers see as same/similar to another product. Another definition is, two goods are substitutes if increase in price of one leads to increase in demand for the other.

Surplus

Situation where quantity supplied is greater than quantity demanded

Shortage

Situation where quantity demanded is greater than quantity supplied

Supply Side Economics

Branch of economics that argues that the Economic growth can be created effectively by lowering the barriers on production & investing in capital.

Sunk Costs

Cost already incurred/committed and cannot be recovered.

Securitization

A process in which financial relationships (such as loans) are converted into financial securities or assets (such as bonds) which can be bought and re-sold in securities markets.

Services

A form of output which consists of a function performed for one person by another – such as cooking and serving a meal, teaching a lecture, completing a telephone call, or delivering a package.

Shares

Financial assets which represent the ownership of a small proportion of the total equity (or net wealth) of a corporation. Shares can be bought and sold on a stock market.

Shortage

A situation where demand for a product or service exceeds the available supply. Possible causes of a shortage include miscalculation of demand by a company producing a good or service (i.e., the company can’t produce enough to keep up with demand) or government policies (i.e., price fixing/ rationing).

Standard of Value

An agreed-upon value for a transaction in a country’s medium of exchange, such as the dollar or peso. A standard of value allows all merchants and economic entities to set uniform prices for goods and services.

Stock Market

A place where shares of joint stock corporations are bought and sold. Most modern stock markets no longer have a physical presence, but rather consist of connected computer networks.

Surplus Governments

A government surplus exists when a government’s tax revenues exceed its total spending (including both interest charges and program spending).

Sustainability

A condition in which the economy does not utilize more resources from the natural environment than can be replenished by the normal reproductive capacity of the environment, and does not expel more pollution into the environment than can be absorbed without ongoing deterioration in environmental quality.

Sales Tax

A tax imposed as a proportion of consumer spending on specified goods or services. Also known as a “value-added” tax.

Saving

The portion of income which is not spent on consumption. Saving can be undertaken by individuals and households, by businesses, or by governments.

Slavery

An economic system in which most work is performed by individuals who are forcibly compelled to work with no formal compensation, under the control of a slave-owning elite.

Social Democracy

A reformist political strategy which aims to win certain improvements in social and economic conditions under capitalism, without challenging the underlying precepts of wage labour and production for profit.

Socialism

An economic system in which most wealth is owned or controlled collectively (through the state, other public institutions, or non-profit organizations), and the operation of markets is influenced or managed through regulation and planning.

Speculation

The purchase of an asset (such as a financial asset or real estate) purely in the hope that its market price will increase, allowing a profit (known as a capital gain) to be made on its subsequent resale.

Structuralist Economics

A form of heterodox economics which emphasizes the relationships between effective demand, income distribution, and political and economic power.

Structures

A form of fixed capital consisting of buildings and other large constructed assets (including bridges, pipelines, mines, highways, etc.).

Supply Constrained

An economy is supply-constrained when its total output is limited only by the supply of factors of production (including labour, capital, and natural resources). Contrasts with a demand-constrained economy.

Surplus Economic

For the economy as a whole, the surplus equals the amount of production over and above what is required for the reproduction of the existing economic system (including the necessary consumption required to reproduce the population, and depreciation on the existing stock of capital).

Tariff

A tariff is a tax imposed on the purchase of imports. It is usually imposed in order to stimulate more domestic production of the product in question (instead of meeting domestic demand through imports).

Taxes

Compulsory government levies collected to pay for public spending. There are many different types of taxes (income, corporate, sales, wealth, payroll, and environmental taxes); each has a different impact on the economy, and on different groups within the economy.

Technology

Technology is the knowledge which humans collectively possess regarding how to produce goods and services in more efficient ways.

Terms of Trade

The ratio of the average price of a country’s exports, to the average price of its imports, is its terms of trade. In theory, an improvement in a country’s terms of trade raises its real income (since it can “convert” a given amount of its own output into a larger amount of consumable products through trade)

Tradeable

A product (a good or service) is tradeable if its purchaser can buy it far away from the place where it is produced.

Transfer Payments

Governments typically redistribute a share of tax revenues back to specified groups of individuals in the form of various social programs (such as welfare benefits, unemployment insurance, public pensions, or child benefits).

Trade-off

The definition of trade off is an exchange where you give up one thing in order to get something else that you also desire. An example of a trade off is when you have to put up with a half hour commute in order to make more money.

Total Revenue

The overall measure of all sources of a company’s income, including its sales, for a given period of time. This number is not the same as the profits or the earnings of the company.

Traditional Economy

A traditional economy is defined by three characteristics:
1. It is based on agriculture, fishing, hunting, gathering or some combination of the above.
2. It is guided by traditions.
3. It may use barter instead of money.

Tax Incidence

Division of burden of tax between buyers and sellers.

Total Revenue

Total receipt of a firm, from sale of given quantity of service/good.

Total Costs

Total economic cost of inputs used in production by a firm

Underdevelopment

Poor countries can be prevented from progressing through the stages of economic development by barriers such as specialization in natural resources, an overdependence on foreign investment, and an inability to stimulate higher-value manufacturing and services industries.

Unemployment

individuals who would like to be employed, and are actively seeking work, but cannot find a job, are considered “officially” unemployed.

Unemployment Rate

The number of unemployed people measured as a proportion of the labour force.

Unions

Organizations of working people which aim to bargain collectively with employers in order to enhance workers’ bargaining power, raise wages, and regulate working conditions.

Unit Labour Cost

How much an employer pays for the labour required to produce each unit of a good or service. Unit labour cost can be calculated by dividing a worker’s hourly (or annual) labour cost, by the amount (in physical units or value terms) that they produce during that hour (or year).

User fees

A form of tax in which the users of public services are charged a specified fee to cover some or all of the cost of providing that service.

Variable Cost

The costs that changes in proportion to the quantity of output produced

Welfare Economics

Study of how allocation of resources affects social welfare.

Wealth Tax

A tax in which owners of particular forms of wealth (such as financial wealth, real estate, or inheritances) must pay a specified proportion of that wealth to the government, usually on an annual basis.

Working Capital

A business requires a certain revolving fund of finance to pay for regular purchases of raw materials, initial labour, and other inputs to production.

World Bank

An international financial organization formed after World War II and based in Washington D.C. Its supposed goal is to promote the economic development of poor regions of the world through subsidized loans, economic advice, and other forms of assistance, but in practice it has played an important role in reinforcing neoliberal economic policies in developing countries, including through the aggressive use of conditionality strategies.

World Trade Organization

An international economic organization formed in 1995 and based in Geneva, Switzerland, which is dedicated to promoting greater trade and investment among its members. Most countries in the world now belong to the WTO

Wage Labour

A form of work in which employees perform labour for others, under their direction, in return for wages or salaries. The employer owns and controls the product of the labour.