Economics-Glossary-Flashcards Preview

Economics Vocab > Economics-Glossary-Flashcards > Flashcards

Flashcards in Economics-Glossary-Flashcards Deck (357):
1

absolute advantage

Whatever one does better than others. (see comparative advantage and theory of absolute advantage)

2

advertising

The science of arresting human intelligence long enough to get money from it.

3

affectation

A social disease requiring its victims to wear hole-in-the-knee jeans. (see conspicuous consumption)

4

alienation theory

A thesis that explains why some citizens feel they are in, but not part of a society; e.g., the iron law of wages (Karl Marx). or the Vietnamese War. (see reconciliation theory)

5

anti-cyclical

Any market behavior that drives the price toward the trend line or moving average. Buying or selling that stabilizes the market price by minimizing the vagaries of the cycle. (see pro-cycle

6

anti-prosperity

tenet (see pro-prosperity tenet)

7

antitrust trilogy

The Sherman, Clayton, and Robinson-Patman Acts.

8

a priori

(Latin) At the outset; that which exists prior to examination.

9

arbitrage

A simultaneous transaction in two or more markets, buying in the cheap (low price) market and selling in the dear (high price) market.

10

archaist

Someone who studies or praises the past, or whose intellectual perspective and values are shaped by reverence for the past. (see futurist)

11

area of decreasing marginal cost

Any quantity of production before the minimum point on the marginal cost function; i.e., before the inflection point on the total cost function. The area of increasing returns.

12

area of decreasing returns

Any quantity of production beyond the point of diminishing returns. The area of increasing marginal cost.

13

area of increasing marginal cost

Any quantity of production beyond the minimum point on the marginal cost function; i.e., beyond the inflection point on the total cost function. The area of decreasing returns.

14

area of increasing returns

Any quantity of production before the point of diminishing returns. The area of decreasing marginal cost.

15

arithmetic progression

A series of numbers increasing at a decreasing rate; i.e., 1, 2, 3, 4. (see geometric progression and rate of increase)

16

Arrow's Impossibilities Theorem

That which is mathematically impossible may, in the marketplace, occur. Kenneth Arrow's observation that no method of calculating consumer data can accurately predict market behavior 100% of the time; i.e., aggregating individual preferences does not necessarily forecast group preference. (see Voter's Paradox)

17

artificial barrier to trade

A non-economic barrier to a market such as a union contract, an intellectual property law, or crime.

18

asymptote

A function which continuously approaches a line or axis without meeting it at any finite distance; e.g., an indifference curve or average fixed cost function. Technically, a tangent at infinity.

19

asymptotic

What happens if you get scared half-to-death ? twice.

20

auction with reserve

The seller reserves the right to influence the price by setting a minimum price, using a shill, or withdrawing the item prior to the falling of the gavel.

21

average costs (AC)

Total costs (TC) divided by the number of units produced (q ).

22

average fixed cost function

An asymptote found by dividing fixed cost by the number of units produced.

23

balance sheet

(see Note on Accounting and Finance)

24

bank

A place where money automatically increases in value when you need to borrow it.

25

banker

Someone who will loan you an umbrella when the sun is shining and want it back when it starts to rain.

26

bankruptcy

A court ruling which provides permanent relief (Chapter 7); or temporary relief to a municipality or county (Chapter 9), a firm (Chapter 11), or an individual (Chapter 13). Such relief may be granted if insolvency exists or is anticipated. (see insolvency)

27

Benelux

An acronym for the common market that pre-dated (and is now included in) the European Community formed by the nations of Belgium, Netherlands, and Luxembourg.

28

best-seller

A book that is bought by as many people that attend a single USC football game.

29

black hole

Where God divided by zero. (see Note on Algebraic Terms and Operations, NN 9)

30

black market

An illegal transaction; i.e., the sale of a prohibited good or service.

31

blue chip stock

A major corporation with a reputation for financial stability and an excellent history of dividend payments. (see glamour stock)

32

bookcase

A piece of furniture used in America to display bowling trophies and Elvis collectibles. break-even point, where total revenue (TR) equals total cost (TC).

33

broker

What a broker makes people.

34

bullionist

An English mercantilist. The word is derived from the British use of small gold bars called bullion. (see mercantilism and Colbertist)

35

business cycle

Variations above and below the trend line of an economy or the price of a stock, with periods measured from trough to trough. Economists have identified major cycles of 50 years (Nikolai Kondratieff), 20 years (Karl Marx), and four years (Roy Harrod and Evsey Domar). (see cycles)

36

capacity point

The optimal level of production, when all factors of production are being employed at their highest and best use. The minimum point on the average cost curve.

37

capital

In economics, a good (e.g., machine, truck, warehouse, etc.) used by the business sector to produce another good. (see factor of production)

38

capitalism

A legal system that safeguards private property and permits free enterprise without government interference.

39

cardinal numbers

Numbers that assign specific value; e.g., 1, 2, 10. (see ordinal numbers)

40

cartel

A syndicate of two or more firms that divide up the market (by geography, quantity, or product differentiation) for the purpose of colluding. (see collusion)

41

caveat emptor

(Latin) In business, let the buyer beware. In economics, this term encapsulates the essence of the market system; i.e., that everyone must be responsible for his or her own economic decisions.

42

cease and desist order

A ruling by a judge ordering one party to stop what they're doing and to not do it again. Such rulings include TRO's (temporary restraining orders), preliminary injunctions, and permanent injunctions.

43

ceteris paribus

(Latin) All else remains constant. Examining the changes in two or three variables while assuming that all other variables do not change.

44

chancery court

A court of equity, originally (13th century England) held in the residence (chancery) of a church bishop.

45

classical economics

The doctrines (theories) and paradigms (models) developed from 1752 through 1867 that formed an academic discipline originally called "political economy." The founders of this subject matter, called "Ricardians," promoted free trade as their universal tenet and believed that the concept of price was explained by the labor theory of value.

46

classical rent doctrine

David Ricardo's theory that surplus value is captured by the landlord. (see labor theory of value)

47

Clayton Antitrust Act

In addition to outlawing specific anticompetitive behaviors, this 1914 law authorized federal judges to issue preliminary injunctions when they hear evidence that the Sherman Antitrust Act has been violated. (see Antitrust Trilogy)

48

Colbertist

A French mercantilist. The word reflects the enormous power and influence of Jean Colbert, Finance Minister to Louis XIV. (see mercantilism and bullionist)

49

collusion

Two or more firms acting in concert to manipulate the market to their benefit, thereby adversely affecting the consumer. (see mergers and acquisitions, cartel, and price fixing)

50

comic nose

An anagram for economics.

51

common market

An economic territory with the absence of internal tariffs, a common external tariff, and factor mobility.

52

communism

The liberation of the people from the burdens of liberty.

53

comparative advantage

Something that A (one person or country) does better than B (another person or country) relative to everything else that A does. (see absolute advantage)

54

complementary goods

When the use of one good requires the use of another ; i.e., they are mutually dependent. (see substitution good, factor good, and interdependent markets)

55

concave vs. convex

A description of a curvilinear function as per its relationship to a point of reference. A bowl is concave relative to the ceiling, but convex relative to the table it sits on. The lunar surface is convex from the perspective of the earth, but concave relative to the center of the moon. (see Note on Geometric Terms and Operations, No 4)

56

conspicuous consumption

Thorstein Veblen's thesis that some goods are preferred to others because of their social implications; i.e., that prestige is afforded as a function of price. (see affectation and reverse substitution effect)

57

constant costs

Marginal costs (per unit) that remain the same regardless of the number of units produced.

58

consultant

1. An expert who is hired to support a decision that has already been made. 2. A guru who knows that you can't solve the problem until you know whose problem it is. 3. A jobless person who shows executives how to work.

59

consumer price line

The average revenue function; the demand curve.

60

consumer surplus

Utility received, but not paid for.

61

consumption good

A good or service used by the household sector. (see investment good)

62

contract

An enforceable agreement; i.e., an understanding between two or more parties that entitles an aggrieved party to present a dispute to the trier of fact in a court of law. (see elements of a contract)

63

conventional wisdom

That which is believed by common fools.

64

convex

(see concave vs. convex)

65

corporate culture

One of the supreme oxymorons of our time.

66

corporation

A business organization (entity) having a legal status, with liability limited to the assets of the corporation. (see proprietorship)

67

cost-push inflation

When factor shortages raise marginal costs and thereby push prices up the aggregate demand function. (see demand-pull inflation)

68

counterpart funds

Soft currency of de minimis value that is used to offset commodity transfers between nations; e.g., the payment of taka by Bangladesh to the United States in exchange for a shipment of food.

69

credit card

A plastic passport to the valley of the shadow of debt. customs duty A tax on imports; i.e., a tariff.

70

customs union

An economic partnership with an absence of internal tariffs and a common external tariff.

71

cycles

A succession of periodically recurring events. (see business cycle)

72

cynic

Someone who knows the price of everything and the value of nothing.

73

debt

An ingenious substitute for the chain and whip.

74

deductive logic

Reasoning from the general to the particular. The use of an internally consistent hypothesis. (see methodology and inductive logic)

75

demand

1. Both the ability and willingness to enter the market at some specific price. (see effective demand) 2. An anagram of damned.

76

demand-pull inflation

When deficit spending pulls prices up the aggregate supply function; i.e., more dollars are chasing the same quantity of goods. (see cost-push inflation)

77

demography

The study of populations.

78

Department of Justice

DOJ

79

dialectic

Plato's system of inductive logic that begins with a thesis (an initial assumption of reality) tempered by an antithesis (an observed exception) to form a synthesis (the new thesis). (see Hegelian logic and dialectical materialism)

80

dialectical materialism

The Marxian application of Hegelian logic to the study of economic history. (see dialectic and Hegelian logic)

81

differentiated products

Competitive goods made different by physical characteristics or distinguished by advertising. (see homogenous products)

82

diminishing marginal utility

(see law of diminishing marginal utility)

83

diminishing returns

Decreasing returns to the variable factor. (see law of diminishing returns)

84

distribution theory

A model that explains for whom the economy produces. (see feudalism, Marxism_ and meritocracy)

85

doctrine

Used in economics, especially during the 19th century, as a synonym for theory; i.e., a scientific principle or prediction. (see theory) duopoly Two producers.

86

Dutch auction

A reverse auction. where the offering price begins high and proceeds down until there is a buyer.

87

dynamics

An analysis which considers all significant variables over a time series. (see statics)

88

econometrics

The combined use of statistical methods and mathematical economics to measure, estimate, and forecast quantitative economic relationships, variables, and outcomes. (see mathematical economics)

89

economic development

(see growth and development)

90

economic good

A good (tangible product) or service (intangible commodity).

91

economic good vs. free good

Carl Menger's distinction between a good which is scarce (an economic good) and therefore commands a price, and one that is not scarce and therefore is free.

92

economic growth

(see growth and development)

93

economic history

The study of history in terms of economic causes and effects; e.g., The Industrial Revolution, The Potato Famine, The Gold Rush, etc. (see history of economic thought and megaeconomics)

94

economic rent

A payment to a factor of production. (see quasi rent)

95

economics

1. The study of scarcity. 2. The study of natural laws. 3. The metaphysics of accounting. 4. A counter-intuitive thought process for comprehending social order.

96

economist

I. Someone who does it with models. 2. Someone who gets rich explaining why others are poor. 3. Someone who sees something work in practice and asks if it would work in theory. 4. Someone who won't sell his children because he believes that their market value will increase in the future.

97

economists

1. A large group of academics, if laid end to end, would not reach a conclusion. 2. A small group of academics who refuse to speak English so that no one else can understand them.

98

economy vs. efficiency

To economize is to minimize inputs with the given output. To make efficient is to maximize output with the given inputs.

99

educational vouchers

State issued tuition warrants permitting parents to enroll their children at the school of their choice, public or private.

100

effective demand

Both the ability and willingness to pay the current market price. (see demand)

101

efficiency

(see economy vs. efficiency)

102

elasticity

Responsiveness of a dependent variable to a change in an independent variable. In economics, Q = f(P ).

103

elements of a contract

The necessary conditions of an enforceable agreement; i.e., offer (proposal), acceptance (affirmative notification), and consideration (quid pro quo). (see contract)

104

eminent domain

The right or power of the state to take private property for public use, usually for adequate compensation.

105

empiricism

Extrapolation of the future from the past. The logic of experience.

106

entitlement

A unilateral transfer payment from the government to the household sector required by law. (see unilateral transfer payment and welfare)

107

entrepreneurial capacity constraint

Milton Friedman's explanation of how decreasing cost industries eventually experience diminishing returns when "reach exceeds the grasp" of the CEO. When an organization becomes so vertical that a decision to innovate becomes confused in communication, enthusiasm for change lost in translation, and feedback from subordinates too muffled to be heard.

108

entrepreneurship

The fourth factor of production (as defined by Joseph Alois Schumpeter) can be pursued in one or more of five ways: 1. Introduction of new products (e.g., Edison), 2. New methods of production (e.g., Ford), 3. Opening of new markets (e.g., Russia), 4. Development of productive factors (e.g., General Motors Institute), and 5. Catalyst of productive factors (e.g., NASA).

109

equilibrium price

The price that clears the market; i.e., the price at which the quantity supplied equals the quantity demanded. The quintessence of supply and demand theory.

110

equilibrium theory

Leon Walras' synthesis of two disparate mathematical concepts; i.e., supply and demand. Arguably the most important natural law of economics, whether applied to a market (partial equilibrium) or an economy (general equilibrium).

111

Eurodollar

US dollars on deposit at a European bank or banks in the British Caribbean.

112

excellence

It's an attitude.

113

excess profit

The accounting profit in excess of normal profit.

114

exchange control

A form of trade restriction whereby a government controls the foreign currency market by establishing an official rate and location of exchange, and retains the foreign currency for use as determined by the political leadership.

115

exchange rate

The price at which one nation's currency is traded for another.

116

expected R/C ratio (E)

In probability theory. the revenue from an event divided by its cost. For example, a savings bond with a maturity value of S 100 which may be purchased for $25 has an expected R/C ratio of 4; i.e., E = 100 = 25 = 4. (see fair bet, measure of risk, and Note on Probability Theory)

117

external economy vs. external diseconomy

An autonomous (independent) economic activity with beneficial spreading effects; called an external diseconomy if the effects are detrimental.

118

external tariff

A customs duty on goods imported into an economic area of business zone from states or political entities not members of that area. (see internal tariff)

119

fact

The result of research; unfinished, but presently abandoned. (see theory)

120

factor good

A good used in the production of another good. When a change in the market price of a good (e.g., autos) affects the market price of a factor good (e.g., steel), the two goods are said to be interdependent. (see intermediate good, factors of production, substitution good, complementary good, and interdependent markets)

121

factor oriented industry

A business that reduces cost by locating near a factor of production; e.g., highly skilled labor, specialized land use, or an exceptionally heavy input. (see location theory and weight-subtracting industry)

122

factors of production

Land (T), labor (L), and capital (K) are the classical factors. Land and labor are the primary factors; they exist a priori. Capital is the secondary factor; it is produced by land and labor. Modern economists are also concerned with entrepreneurship, energy, and information. (see capital, a priori, and entrepreneurship)

123

fair bet

A risk where the probability of success times the expected R/C ratio equals 1; i.e., pxE = 1. (see expected R/C ratio, measure of risk, and Note on Probability Theory)

124

fallacy of composition

Assuming what is true for the part to be true for the whole.

125

featherbedding

Paying an employee to produce nothing; i.e., disguised unemployment.

126

feudalism

A distribution system based on birthright. (see distribution theory)

127

FEUR

(see full-employment-unemployment-rate)

128

finance

The art of passing currency from hand to hand until it finally disappears.

129

fixed cost (FC )

A cost that is incurred regardless of the level of production; i.e., even if output were zero. The height of the total cost function; i.e., where TC crosses the vertical axis.

130

fixed supply

Totally inelastic supply; i.e., the quantity supplied remains the same regardless of price. (see price taker)

131

General Theory

(...of Employment.. Interi_ and Ntone ) The foundations of macroeconomic analysis by John Maynard Keynes.

132

general theory of employment

John Maynard Kent's' explanation that employment is a function of aggregate demand; i.e.. consumption.. investment and government expenditures. (see special theory of employment)

133

general theory of relativity

Albert Einstein's proposition that space is curved and time slows down near a gravitating mass. (see special theory of relativity)

134

genius

A person whom all idiots oppose.

135

geometric progression

A series of numbers increasing at a constant rate; e.g., 1, 2, 4, 8. (see arithmetic progression and rate of increase)

136

gestalt

The whole, where the whole is greater than the sum of the parts.

137

Giffen good

(see inferior good)

138

glamour stock

A corporation perceived by the market to have enormous growth potential. (see blue chip stocks)

139

gross national product

GNP

140

government paternalism

The condition that exists when the political leadership believes that the principle of caveat emptor cannot or should not be relied upon.

141

gross domestic product

GDP

142

gross domestic product (GDP)

The total dollar value of all new goods and services sold during a fiscal year, which were produced within the geographic borders of a country regardless of the nationality of the producers. (see gross national product)

143

gross national product (GNP)

The total dollar value of all new goods and services sold during a fiscal year, which were produced by a nation's permanent residents, regardless of where they produced it. (see gross domestic product)

144

gross profit

(see Note on Accounting and Finance)

145

growth and development

As defined by Joseph Alois Schumpeter, economic growth means more, as opposed to economic development which means change. Economic development is the result of entrepreneurial innovation. (see innovation and entrepreneurship)

146

hard vs. soft science

An academic discipline is considered hard or soft as a reflection of the degree to which mathematics is used to describe or teach the subject matter.

147

Harrod-Domar Accelerator Principle

In a growing economy, the rate of growth must continually increase to create the requisite new capital and simultaneously replace worn out capital, thus guaranteeing that continuous growth is impossible.

148

hedging

Paying a premium to another party (e.g.._ insurance company) to bear or absorb a risk.

149

hedonism

Aristotle set forth this natural law: All men seek pleasure and avoid pain.

150

Hegelian logic

Georg Wilhelm Friedrich Hegel's application of Plato's dialectics (thesis, antithesis, synthesis) to the study of history. (see dialectic and dialectical materialism)

151

height of a function

Where a function intersects the y-axis when x = 0.

152

history of economic thought

The study of the development of economic principles and analysis. (see economic history)

153

homestead

In law, a state statute that protects real estate from seizure by creditors.

154

homogeneity

The condition that exists when all physical characteristics are identical.

155

homogenous products

Goods standardized by government regulation or industrial convention. (see differentiated products)

156

hypothesis

In logic, a conditional proposition, i.e., an assumption or set of assumptions provisionally accepted as a basis for reasoning or argument. It may be internally consistent, as in a syllogism, or experimental, as in a scientific proposition advanced as possibly true.

157

illiquidity

When current liabilities are greater than current assets. (see Note on Accounting and Finance)

158

imperialism

The use of force to establish the authority of one nation over another for the extension of its political sphere, the exploitation of raw materials, the development of foreign trade, or genocide; e.g., 19th century English colonies, the Soviet Union, or Chinese hegemony over Tibet.

159

import license

Government authorization that requires the recording of transactions and is sometimes used to restrict the amount and/or kinds of products that can be imported.

160

incidence of a tax

The ultimate burden of a tax. The tax paid that would otherwise be captured by the buyer or seller if there were no tax.

161

income effect

When the price of a good is decreased and it thereby increases real income, and, as a result, the quantity demanded is increased. (see substitution effect, superior good, and reverse income effect)

162

income redistribution

The result of a change in government policy whereby one group or sector is made better off by making another group or sector worse off; e.g., a Robin Hood scheme.

163

income statement

(see Note on Accounting and Finance)

164

indifference curve

A function that shows how much of one good it takes to make someone ambivalent to a given amount of some other good. An asymptotic isoquant that assumes convexity, rationality, and transitivity.

165

inductive logic

Reasoning from the particular to the general. The logic of empiricism; extrapolating the future from the experience of the past. (see methodology and deductive logic)

166

infant industry argument

The presumption that a new (or new to a country) industry would become internationally competitive if it were protected and/or subsidized by the government.

167

inferior good

A good that is bought in smaller quantities as real income increases, or vice versa; a Giffen good. (see superior good and reverse income effect)

168

inflection point

The point on a function where the course changes from clockwise (cw) to

169

innovation

As opposed to invention, innovation is defined by its impact on the market. More than a mere improvement of present methods, an innovation is a significant step forward in technology, management, or product development. (see entrepreneurship)

170

input

A factor of production.

171

insolvency

When total liabilities are greater than total assets; i.e., when net worth is negative. (see Note on Accounting and Finance and bankruptcy)

172

interdependent markets

To the extent that a price change in one market affects either the supply or demand in another market, the two markets are said to be interdependent. (see complementary good, substitution good, and factor good)

173

intermediate good

In national income accounting, a good (e.g., wheat) or service (e.g., advertising) sold and counted in one period, when the final product (e.g., bread) is sold in a subsequent period. (see factor good)

174

internal tariff

A customs duty on goods transported between members of an economic area or business zone. (see external tariff)

175

intrinsic value

The value an item would have in the absence of emotional or social considerations. For example, although salt is essential to life, we can buy all the salt we need for less than the price of a neck-tie, which has little intrinsic value.

176

The number that predicts how someone will perform on future I.Q. tests.

I.Q.

177

investment good

Capital; a good or service used by the business sector. (see capital and consumption good)

178

Invisible Hand Doctrine

Adam Smith's principle that: "Every individual endeavors to employ his capital so that its produce may be of greatest value. He generally neither intends to promote the public interest, nor knows how much he is promoting it. He intends only his own security, only his own gain. And he is in this led by an invisible hand to promote an end which was no part of his intention. By pursuing his own interest, he frequently promotes that of society more effectually than when he really intends to promote it." (see Wealth of Nations)

179

iron law of wages

Karl Marx's characterization of David Ricardo's stationary state doctrine that explained why wages ultimately settled at the subsistence level.

180

isoquant

A curve that shows the various combinations of inputs that will produce the same amount of output.

181

labor theory of value

David Ricardo's theory that the value of an output is equal to the sum of the value of its labor inputs.

182

laissez faire

(French) Let it be; i.e., leave government hands off commerce.

183

law

What a monopolist of power chooses to enforce.

184

law of comparative advantage

(see comparative advantage)

185

law of demand

Alfred Marshall's law of downward sloping demand; i.e., the quantity demanded increases as the price decreases.

186

law of diminishing marginal utility

Carl Menger's observation that the amount of extra satisfaction received per unit of consumption decreases as the quantity consumed increases; i.e., the slope of the marginal utility function (the second derivative) is always negative. (see law of substitution)

187

law of diminishing returns

(Thomas Robert Malthus) When equal increments of a variable input are successively added to a fixed input, the extra output will eventually diminish due to unbalanced growth. (see point of diminishing returns)

188

law of substitution

The assumption in ordinal utility theory that the trading value of each unit increases as the number of units decreases. (see law of diminishing marginal utility)

189

leadership

Leaders are not the residue of spontaneous combustion. They light themselves on fire.

190

leverage

The use of borrowed money at a fixed rate to invest (or speculate) in a security or other asset, thereby increasing the risk; i.e., the percentage of potential gain or loss. For example, buying stock on margin.

191

limits of trade

In international economics, the maximum benefit gained by either side of a transaction while the other side neither gains nor loses. Part of David Ricardo's explanation of why the actual trading ratio, called the terms of trade, takes place between these two extremes.

192

location theory

The subject in economics that considers where to produce. A site may be selected because it is near the factors of production, the market, or for some other rationale. (see factor oriented industry, market oriented industry, and footloose industry)

193

long run

In economics, the time it takes to change all the factors of production. (see short run and momentary period)

194

lottery

1. A tax on people who are mathematically challenged. 2. The equivalent of betting that the pet-store parrot speaks Flemish.

195

luxury

In economics, a good for which the elasticity of demand is greater than one. (see necessity)

196

macroeconomics

The study of an economic system as a whole; i.e., national income analysis. (see megaeconomics and microeconomics)

197

Madison Avenue

A euphemism for the advertising industry. The street in New York where most of the powerful advertising agencies once had their headquarters.

198

Magna Carta

The great charter of English political and civil liberties granted by King John at Runnymede on June 15, 1215.

199

marginal cost

(MC, TC') The change in total cost caused by the production of one additional unit.

200

marginalists

(marginal utility school) Led by Leon Walras, William Stanley Jevons, and Carl Menger, these economists resolved Adam Smith's water-diamond paradox by examining the relationship between incremental desirability and price. (see Note on Intellectual Heritage, N2 3 and water-diamond paradox)

201

marginality

The concept of slope or differential calculus; also called the marginal function, the first derivative, y prime (y' ), the rise over the run, et. al.

202

marginal efficiency of capital

MEC

203

marginal efficiency of capital (MEC)

What a business decision-maker uses to determine the efficacy of an investment; i.e., the interest rate, alone, is not the critical determinant. Investment decisions are the result of a comparison between the expected return on an investment and the cost of that investment.

204

marginal output

Extra output; the difference between the current output and the previous output. Back in the day, the term of art for extra output was marginal physical product (MPP ).

205

marginal physical product

(see marginal output)

206

marginal revenue (MR, TR')

The change in total revenue caused by the sale of one additional unit.

207

marginal utility (MU, TU')

The change in total utility caused by the consumption of one additional unit; the slope of TU. (see total utility)

208

market

All the potential buyers and sellers of a particular good or service. (see market price)

209

market oriented industry

A business that locates near the customer to beat the competition, to avoid trade restrictions, or to reduce distribution cost. (see location theory and weight-adding industry) market price

210

market price

The competitively arrived at price of one good, in one place, at one time.

211

Marshallian Cross vs. Keynesian Cross

(see Note on Macroeconomic Notation, No. 9)

212

Marshallian economists

The neo-classical economists who developed the models and theories of modern market economics.

213

Marxism

A system that distributes wealth according to need. (see distribution theory)

214

mathematical anxiety

1. The lifelong fear of two trains approaching each other at different speeds. 2. The result of being diagonally parked in a parallel universe.

215

mathematical economics

The use of graphs and mathematical symbols to express and explain economic principles. (see econometrics)

216

measure of risk

The probability of success (p) times the expected R/C ratio (E). For example, if a state lottery ticket costing $1 returns $50 and pays off 1% of the time, pxE = 0.01 X (50 ? 1) = 0.5. (see Note on Probability Theory, N2 3, expected R/C ratio, and fair bet)

217

megaeconomics

The study of the comings and goings of civilizations, empires, and cultures. (see macroeconomics and microeconomics).

218

mentoring

An attempt to spare a prot?g? ten years of mistakes by imparting the wisdom gleaned ? from 30 years of mistakes.

219

mercantilism

The economic philosophy based on the premise that precious metal is wealth. Dominant during the 16th, 17th, and 18th centuries, mercantilist governments increased their gold holdings by restricting imports and subsidizing export industries. (see bullionist and Colbertist)

220

merger

When 1 + 1 = 1, with the remainder going on unemployment.

221

mergers and acquisitions

Narrowly viewed in the prism of economic theory, these could be explicit forms of collusion which may be scrutinized by the Antitrust Division of the U.S. Justice Department for evidence of behavior that threatens competitive markets. (see collusion)

222

meritocracy

A system that distributes wealth to those who contribute that which is most scarce. (see distribution theory)

223

metaphysics

The branch of philosophy which examines the ultimate existence of things; i.e., what is beyond (Greek: meta = after) physics. Medieval scholars believed that the essential and irreducible constituents of a composite entity were earth, air, fire, and water. Beyond these, the concept of life is explained by the quintessence, or fifth element. (see scholastics)

224

method

A way, system, or procedure for doing anything. (see methodology)

225

methodology

Principles of orderly thought; a logic system or thought process. (see method, deductive logic, and inductive logic)

226

microeconomics

The study of individual markets, prices, and firms. (see macroeconomics and megaeconomics)

227

minimum average cost

The capacity point; i.e., an optimal level of production where output cannot be increased without increasing the cost per unit. Where MC = AC. Where the slope of a vector from the origin is equal to the slope of the total cost function.

228

minimum marginal

cost The inflection point on the total cost function; i.e., the point of diminishing returns.

229

minimum price line

The marginal cost function; the price below which a rational producer will not sell.

230

minimum wage

Based on the Fair Labor Standards Act of 1938, the minimum compensation that may be agreed to by employers and employees.

231

momentary period

In economics, when the market supply is fixed. (see short run and long run)

232

monetize

To tie or connect a commodity to money; e.g., a precious metal is monetized when stored (hoarded) to support a currency.

233

monopoly

A single seller; i.e., one with no close substitutes. Monopoly? Go directly to jail. Do not pass GO. Do not collect $200.

234

monopsony

A single buyer. MPP (see marginal output) MU/P ratio Satisfaction per dollar spent. (see marginal utility)

235

MU/P ratio standard

The unique MU/P ratio that an individual consumer requires with each purchase.

236

Murphy's Law

After a mishap at Edwards Air Force Base in 1949, Capt. Ed Murphy, an enaineer, remarked, "If anything can go wrong, it will."

237

mutually exclusive vs. mutually dependent

(see substitution goods and complementary goods)

238

natural law

A rule of conduct inherent in man's nature and discoverable by reason alone. A law of social science.

239

necessary condition

An essential requirement for a specific outcome. (see sufficient condition)

240

necessity

In economics, a good for which the elasticity of demand is less than one. (see luxury)

241

negative income tax

Milton Friedman's proposal that would replace welfare entitlement programs with automatic payments from the IRS to those with incomes below the poverty line, thereby eliminating unnecessary bureaucracies.

242

neoclassical economics

A synthesis of classical economics and marginal utility theory with the economic doctrines and paradigms developed from 1874 through 1933. Sometimes called the Cambridge school, this body of thought is based chiefly on the equilibrium theory (the law of supply and demand) of Leon Walras (1834-1910) and the work of Alfred Marshall (1842-1924). Also called Marshallian economics, it includes the concepts of elasticity, consumer surplus, and profit maximization, and adopts mathematical economics as a method of explanation. (see classical economics and mathematical economics)

243

net profit

(see Note on Accounting and Finance)

244

network effect

1. The value of a good or service directly affected by the general popularity of that good or service; e.g., the future sale of fax machines is a function of the number of people that presently own a fax machine. 2. The result of doing lunch with a fellow moron.

245

normal good

In demand theory, a good or service which has two characteristics, both of which are necessary conditions; a substitution effect and an income effect.

246

normal profit

The amount of accounting profit required to maintain a business without attracting competitors.

247

normative ambiguity

Two tenets (maxims or principles) of social behavior that suggest counter-directional outcomes when applied arbitrarily to the same set of circumstances.

248

O'Brien's Law

Captain Murphy was an optimist. oligopoly A few sellers.

249

oligopsony

A few buyers. opportunity cost 1. The profit that is not made in the best opportunity foregone. 2. What you would have made in the best thing you did not do.

250

ordinal numbers

Numbers that assign rank; e.g., first, second, tenth. (see cardinal numbers)

251

Occupational Safety and Health Administration output A good or service ready for sale. ownership rights. (see private property rights)

OSHA

252

Pareto optimality

The condition that exists when no one can be made better off without making someone worse off (see income redistribution)

253

Parkinson's Law

A book by British historian Cyril Northcote Parkinson that explains how work expands to fill the time available for its completion.

254

peak-load pricing

A legal form of price discrimination whereby buyers pay more during periods of high demand; e.g., airlines, telephones.

255

perfect competition

Alfred Marshall's theory of markets demonstrating that an economy will eventually optimize the use of its scarce productive resources if no single firm can significantly affect the market price, goods are standardized, and there are no artificial barriers to trade.

256

perfectionist

What someone who doesn't care calls someone who does.

257

permanent injunction

(see cease and desist order and preliminary injunction)

258

Peter Principle

A book by Laurence J. Peter that explains how every employee tends to rise to his level of incompetence; e.g., the Buffalo Bills in the Super Bowl.

259

physiocracy

The school of economic thought which holds that agriculture is the source of all real growth, productivity, and wealth. (see Francois Quesnay in Note on Intellectual Heritage)

260

point of diminishing returns

The minimum point on the marginal cost function. The inflection point on the total cost or variable cost function. The benchmark beyond which a business must go to maximize profits. (see law of diminishing returns)

261

positive-sum game

1. Any competitive activity where, regardless of individual gains or losses, the group of participants, taken as a collective, is better off. 2. Where a rising tide raises all ships.

262

preliminary injunction

An order that may be issued at the outset of a case if the judge believes that the prima facie evidence is substantially valid and that the plaintiff will ultimately prevail against the defendant, thereby resulting in a permanent injunction. (see cease and desist order)

263

price discrimination

The act of inducing different buyers to pay different prices for the same good.

264

price fixing

The elimination of price competition through illegal collusion, regulated monopolies, or government permitted "fair trade" pricing. (see collusion)

265

price line

(see consumer price line and producer price line)

266

price maker

The buyer if demand is totally elastic (e.g., wheat) or supply is totally inelastic (e.g., a rare painting); the seller if supply is totally elastic (e.g., paper clips) or demand is totally inelastic (e.g., salt). (see price taker)

267

price taker

The buyer if demand is totally inelastic or supply is totally elastic; the seller if supply is totally inelastic or demand is totally elastic. (see price maker)

268

prima facie

(Latin) At first view; so far as it first appears.

269

primary factors

Land and labor. (see factors of production)

270

private property rights

Exclusive use and transfer. Adam Smith argued that government should restrict its economic activity to the protection of these rights; i.e., by providing an army, police, and judicial enforcement. (see laissez faire)

271

pro-cyclical

Any market behavior that drives the price away from the trend line or moving average. Buying or selling that destabilizes the market price by exaggerating the vagaries of the cycle. (see anti-cyclical)

272

producer price line

The marginal cost function; i.e., the minimum price the seller can charge and still cover marginal cost.

273

production possibilities curve

The frontier line of maximum output possible when all available factors of production are fully employed at their highest and best use; i.e., when all goods and services are produced at the minimum average cost.

274

production vs. productivity

Production is output. Productivity is output per unit of input. For example, 100 finished widgets represent production; 20 widgets per worker reflect productivity.

275

productivity descriptions

Six possible outcomes from a change in production: 1. Increasing returns to scale; 2. Constant returns to scale; 3. Decreasing returns to scale; 4. Increasing returns to the variable factor; 5. Constant returns to the variable factor; and 6. Decreasing returns to the variable factor. (see diminishing returns)

276

profit maximization point

Where marginal cost (MC) equals marginal revenue (MR).

277

profit theory

Any model that explains how a business enterprise maximizes profit. (see theory of the firm)

278

proprietorship

A business organization that operates as a DBA (doing business as) for the owner(s) who are personally responsible for all taxes and liabilities. (see corporation)

279

pro-prosperity tenet

A maxim or life principle, if followed, that would result in material well-being. The opposite of an anti-prosperity tenet that would have detrimental economic consequences.

280

quantity theory of money

(see Note Macroeconomic Notation, No. 7)

281

quasi rent

A premium in excess of economic rent paid to a factor of production which is experiencing abnormal scarcity. (see economic rent)

282

quid pro quo

(Latin) This for that; something for something. (see elements of a contract)

283

quota

A trade restriction which protects a domestic producer by limiting the amount of a particular good that may be imported from a specific foreign nation.

284

rate of increase

The percentage change between two numbers: the rate of increase from 4 to 5 is 25%; i.e., 5 - 4 = 1, 1+4 = 0.25 = 25%. (see arithmetic progression and geometric progression)

285

rationality

The assumption in ordinal utility theory that more is preferred to less.

286

real transfer vs. money transfer

Real refers to the good or service in a transaction, as opposed to money which is the payment for that good or service; i.e., the recipient of the real transfer is the initial beneficiary of a trade.

287

reconciliation theory

A thesis that encourages alienated citizens to feel themselves part of a society, as: From each according to ability, to each according to need (Karl Marx); or Arnold Toynbee's challenge-response mechanism. (see alienation theory)

288

returns to scale

A production theory term used to indicate that all inputs have been increased proportionately; i.e., by the same percentage. (see returns to the variable factor)

289

returns to the variable factor(s)

A production theory term used to indicate that the factors of production have been increased disproportionately; i.e., that at least one input has been increased while at least one input has remained fixed. (see returns to scale)

290

reverse income effect

When the price of a good is decreased and it thereby increases real income, and, as a result, the quantity demanded is decreased. (see income effect and inferior good)

291

reverse substitution effect

When the price of a good is increased and it thereby becomes an attractive alternative to another good previously purchased. (see substitution effect and conspicuous consumption)

292

reward

In economics, reward is its own virtue.

293

Ricardians

The classical economists.

294

Robinson-Patman Act

The 1936 law that forbids certain forms of price discrimination. (see antitrust trilogy)

295

satiation point

The point on a total utility function where satisfaction is maximized; i.e., where marginal utility equals zero.

296

scarcity

In economics, any condition that causes a good or service to command a market price. (see economic good)

297

scholastics

The monks of the Dominican and Franciscan orders that recovered and copied Greek and Roman scholarly works during the revival of learning between the ninth and fourteenth centuries. Obsessed with metaphysics, these "school men," led by St. Thomas Aquinas (1225-1274), sought a synthesis between Aristotelian rationalism and Christian dogma. (see metaphysics)

298

scientific tariff

A tax on imports equal to the difference between domestic and foreign production costs. A law acminst the law of comparative advantage.

299

scrambled eggs doctrine

Jean Monnet's theory that the nations of Europe would be disinclined to wage war over historical disagreements if their economies were interdependent.

300

secondary factor

Capital; i.e., a production good. (see capital and factors of production)

301

service

An intangible commodity, deed, or utility. (see economic good)

302

Sherman Antitrust Act

The 1890 law that makes monopolistic restraint of trade illegal. (see antitrust trilogy)

303

shill

An agent of the seller.

304

short run

In economics, the time it takes to change some, but not all, factors of production; i.e., when there are both fixed and variable inputs. (see long run and momentary period)

305

shut-down point

Where total revenue ( TR) equals variable cost (VC ).

306

special theory of employment

John Maynard Keynes' sarcastic observation that the classical economists required the assumption of full employment in the models they designed to solve the problem of mass unemployment. (see general theory of employment)

307

special theory of relativity

Albert Einstein's assertion that the speed of light is absolute; but time, space, and mass are relative. As one consequence, E = mc2; i.e., energy equals mass times the speed of light squared. (see general theory of relativity)

308

standardized products

(see homogenous products)

309

stare decisis

(Latin) The decision stands. The legal principle that a precedent decision is binding; that all future decisions must be in common with the previous decision.

310

statics

An analysis that considers a limited number of variables and time frames. (see dynamics)

311

stationary state doctrine

(see iron law of wages)

312

statistics

A precise analysis using numbers, 42.7 percent of which are made up on the spot.

313

subsidy

A unilateral transfer payment from the government to the business sector. (see welfare)

314

substitution effect

When the price of a good is decreased and it thereby becomes an attractive alternative to another good previously purchased, and, as a result, the quantity demanded is increased. (see income effect and reverse substitution effect)

315

substitution good

When the use of one good precludes the use of another; i.e., they are mutually exclusive. (see complementary good, factor good, and interdependent markets)

316

sufficient condition

A guarantee of a specific outcome. (see necessary condition)

317

superior good

A good that is bought in larger quantities as real income increases, or vice versa; i.e., a normal income effect. (see income effect and inferior good)

318

supply curve

A horizontal aggregation of marginal cost functions beyond the point of diminishing returns for all member firms in a market.

319

surplus value

The difference between the labor value and the market price. (see labor theory of value)

320

syllogism

An internally consistent hypothesis. The deductive logic of Aristotle commonly referred to as set theory. (see Note on Set Theory)

321

tabula rasa

(Latin) A clean slate. Without a preconceived notion.

322

tariff

A tax on imports; i.e., a customs duty.

323

tautology

In logic, a statement that is necessarily true by virtue of its structure, such as, Either you have an MBA, or you don't.

324

To be explained later. What the professor says when asked about the meaning of life.

TBEL

325

teacher

An underpaid talk show host, frequently tuned out by a portion of the audience, some of whom will be forced to watch reruns.

326

temporary restraining order

This order may be issued ex parte (without the defendant present) if the judge believes the alleged danger is imminent and potential damage irreparable. (see cease and desist order)

327

terms of trade

The Ricardian name for market price. (see limits of trade)

328

theoretical framework

The boughs on which an author hangs the foliage of his thesis. Construction workers on a break.

329

theory

In economics, a reasoned proposition derived from established assumptions which explains the past or predicts the future. (see fact)

330

theory of absolute advantage

Hypothesis: that a division of labor ?> (leads to) specialization ?> (that leads to) increasing returns. Stated simplistically, "every individual and every nation should do what they do best." (see productivity descriptions)

331

theory of bureaucratic displacement

Max Gammon's thesis that the more bureaucratic an organization, the greater the extent to which useless work tends to displace useful work. (see Parkinson's Law)

332

theory of the firm

Alfred Marshall's profit theory; i.e., an explanation of how a business maximizes profit.

333

tie-in-sales

A transaction whereby the initial sale (usually low-priced) requires an additional purchase of a related good or service only from the original seller; e.g., Polaroid cameras, video game systems, or home alarm services.

334

total cost (TC )

Fixed cost (FC ) plus variable cost (VC ). total revenue ( TR) Price times quantity.

335

total utility (TU)

The total satisfaction derived from all units consumed. (see marginal utility)

336

transitive

Mathematically logical.

337

temporary restraining order.

TRO

338

unilateral transfer payment

A payment for which there is no return good or service. (see entitlement, welfare, and subsidy)

339

usury

The practice of charging an exorbitant or illegal rate of interest.

340

util

An introspective unit of satisfaction; i.e., a quantitative measure of utility that reports one's own feelings exclusively.

341

utility

The satisfaction derived from consuming a good or service.

342

utility commission

A government agency, whose members, appointed by a governor, establish prices and service standards for natural monopolies such as water and power.

343

variable cost (VC)

A cost that is zero at zero production and increases as production increases.

344

vigorish

A transaction fee paid by a gambler to a bookie or a casino.

345

voters' paradox

When transitive individual preferences produce an intransitive collective outcome; e.g., voters prefer Adams to Bennett and Bennett to Cooper, but Cooper gets elected. (see transitive and Arrow's Impossibilities Theorem)

346

wage-fund doctrine

David Ricardo's theory that maximum wages require the optimal ratio (mix) of land, labor, and capital. John Stuart Mill explained that given this optimum, an attempt to increase wages would reduce the reward to the other factors, alter the ratio, produce less. and ultimately reduce wages; i.e., more is less.

347

water-diamond paradox

Adam Smith's conundrum that asks why diamonds, a luxury, are worth more than water, which is essential to life.

348

Wealth of Nations

(An Inquiry into the Nature and Causes of the...) Adam Smith's magnum opus that debunks mercantilism and sets forth the principles of free trade using the Invisible Hand Doctrine as the theoretical framework. (see Invisible Hand Doctrine)

349

weight-adding industry

A business with an output that is much larger or heavier than the parts used in its manufacture; e.g., an assembly plant or a brick factory. (see location theory)

350

weight-subtracting industry

A business with an output that weighs significantly less than the raw materials used to manufacture it; e.g., a steel mill. (see location theory)

351

welfare

A unilateral transfer payment made to the household sector. (see unilateral transfer payment, entitlement, and subsidy.)

352

welfare economics

The study of public policy from the perspective of consumer benefit.

353

welfare effects

The ultimate impact of political, social, or economic behavior on price, quantity, average cost, excess profit, and, ultimately, consumer surplus. welfare triangle Vilfredo Pareto's description of consumer surplus. (see consumer surplus)

354

widget

An undefined good or service.

355

work

Something people look for until they find a job.

356

Called the GATT before 1995, the World Trade Organization promotes the reduction of trade restrictions among member nations.

WTO

357

zero-sum game

1. Any competitive activity where, regardless of the results, the group of participants, taken as a collective, is neither better off nor worse off. 2. A game in which someone gains only at another's expense.