Glossary EC Flashcards
Business cycle
The naturally varying cycle of economic growth, which can rise or fall over time, is measured as the growth of real GDP.
Thinkers: Schumpeter and Fisher.
Ceteris Paribus
A standard assumption in positive economics that is usually translated as ‘all else being equal’. In measuring the effect of one variable on another, all other variables are kept constant.
Thinkers: Marshall
Command system
A system in which the government or state decides the quantity, types, and prices of the goods being produced. It is usually considered one of the main characteristics of a communist economy, in which the central planner replaces the price mechanism of the market system.
Consumption
The act of consuming of a good or service with the aim of satisfying human wants.
Thinkers: Smith and Marshall
Custom system
A system in which society is organized around tradition and habits. Custom introduces elements of regularity, predictability, and conformity into social relationships.
Factor of production
A factor of production is an input that is used in the production of goods or services. The factors of production include labor, land, and capital. The price of labor is wage, the price of land is rent, and the price of capital is the interest rate, which is equal to the opportunity cost of using capital. In more modern theories entrepreneurship or ‘human capital is added as a fourth factor of production.
Fiscal policy
The use of taxation and expenditure policies by the government to regulate and stimulate economic activity.
Thinkers: Keynes
Inflation
The rate at which prices in a market rise and the purchasing power falls.
Thinkers: Fisher
Market system
The third way of organizing economic society, besides custom and command. The market system is a decentralized economic system in which firms and consumers pursue their own material objectives and prices are determined by demand and supply of a country’s individual citizens and businesses respectively. Government interference is minimal and the government does not engage in central planning.
Thinkers: Smith, Marshal, Hayek
Markets
Markets are institutions in which individuals exchange goods and services usually using money as a medium of exchange. Markets can be distinguished according to the goods or services traded in them (e.g., financial markets, housing markets, labor markets), according to their scope (e.g., regional, national, international markets), or according to their structure (e.g., competitive markets, oligopolistic markets, monopolistic markets).
Monetary policy
The set of actions and regulations by the central bank used to control and maintain the size and growth rate of the money supply, the cost, and availability of credit, and the composition of the national debt.
Thinkers: Friedmann
Paradigm
The orthodox framework containing the assumptions, ways of thinking, and methodology underlying (economic) theories that are most commonly accepted by members of a scientific community.
Thinkers: Kuhn, Popper
Production
The act of creating or manufacturing a certain good or service, for which factors of production are used. Forms the basis of the supply curve in the Marshallian framework.
Thinkers: Marshall
Scarcity
The insufficiency or shortness in availability of time, resources, skills and goods, due to the unlimited wants of mankind. Scarcity is the ultimate problem underlying economics and drives actors to allocate resources efficiently.
School of thought
A particular set of ideas held by a specific group. School of thoughts create paradigms.
Chrematistiké
Economic activity with the goal of sheer profit making, which was considered unnatural and hence unjust.
Thinkers: Aristotle
Division of labour
The separation of tasks in the supply chain which allows for specialization and therefore increased quality and quantity of production.
Thinkers: Xenophon, Smith, Marx
Exchange value
The quantitative aspect of value of a good or service. It indicates what (quantity of) other commodities it will exchange for, if traded.
Thinkers: Xenophon, Marx
Feudalism
The medieval system in which people were given land and protection by people of a higher social class in exchange for their loyalty and service.
Guild
An association of producers which regulate the supply of a good or service in a local market. All suppliers work within a framework of shared regulations of production and pricing.
Just price doctrine
A doctrine advanced as response to the ethical debate surrounding usury in the Middle Ages. For Aquinas the just price is the current price, which depends on location, time and risk of transport. Willingness to pay should not influence the price and profit-making is only virtuous if there is a just price in exchange.
Thinkers: Aristotle, Aquinas
Manorial system
Economic system preceding the market system, in which local lords were centres of polical, military, economic and social power.
Normative economics
Normative economis is the branch of economics that expresses value judgements about economic fairness, the goals of public policy or what the outcomes of economic activity should be.
Thinkers: Amartya Sen
Oikonomia
Household management, which was the only virtuous form of economic activity in the eyes of Aristotle. It comes from οἶκος (oîkos, “house”) + νόμος (nómos, “law”).
Thinker: Aristotle
Philosopher king
The ideal ruler of the state in the eyes of Plato. The The philosopher king pursues true knowledge and has access to Plato’s ‘idea-world’. The rationale behind a philosopher as ruler is that “a true pilot must of necessity pay attention to the seasons, the heavens, the stars, the winds, and everything proper to the craft if he is really to rule a ship.” – Plato - The Republic, 6,488d)
Thinkers: Plato
Positive economics
Positive economics is the branch of economics that concerns the description and explanation of verifiable economic phenomena. (is the branch of economics that concerns the description, quantification and explanation of economic phenomena. It focuses on facts and cause-and-effect behavioral relationships and notes that economic theories must be consistent with existing observations.)
Thinkers: Marshall, Friedman
Telos
The purpose of things. According to Aristotle usury was agianst the telos of money, as the purpose of money is facilitating exchange.
Thinker: Aristotle
Use value
Subjective, qualitative value of a good or service.
Thinkers: Xenophon, Marx
Usury
Lending of money against interest.
Thinkers: Aristotle, Acquinas
Bullionism
An economic theory that defenis a country’s wealth by the amount of precious metals it owns.
Thinkers: Jean-Baptiste Colbert.
Capital
Capital is one of the three production factors, used to invrease the productivity of labour of workers.
Thinkers: Ricardo, Marx
Diamond-water paradox
The paradox, also known as the Paradox of Value, that water is generally more useful and versatile in terms of survival but worth a lot less than a diamond concering market value.
Thinkers: Smith, Samuelson
Impartial spectator
The part of you that can detach and observe what the rest of you is doing, which is considered the guardian of correct moral behaviour according to Adam Smith. It is one of the main concept used in his ‘Theory of Moral Sentiments’.
Thinker: Smith.
Invisible hand
Methaphor for the market system, which solves the economic problem without invervention from custom and command. The unobservable force that drives supply and demand to an equilibrium in a free market with multiple actors.
Thinkers: Smith
Labour theory of value
The value theory of the Classical Economist. that states that the price of a good or service is determined by the amount of labour needed to produce it instead of the utility someone acquires from it.
Thinkers: Smith, Ricardo, Marx
Law of population
The theory, invented by Thomas Malthus, that states that the population grows at a geometric rate (or exponentially), while the world’s food supply grows at an arithmetic rate (or an equal proportioned rate). The law is concerned flawed due to fact that it did not take into account factors such as the development of technology, disease, war etc.
Thinkers: Malthus
Market price
The current (short-run) price at which a product or service is sold/bought in a market. The market price is a nominal price, meaning the value is not adjusted for inflation. Thinkers: Smith
Mercantilism
The economic policy/system of a country that focuses on the accumulation of wealth, or more specifically precious metals, through maximizing exports and limiting imports via tariffs and quotas. It was mainly utilised between the 16th and 18th century. Mercantilists saw international trade as a zero-sum game, which means that gains in wealth from one country are at the expense of the other.
Thinkers: Jean-Baptiste Colbert, Thomas Mun
Natural price
The price to which goods and services seem to gravitate naturally in the long run.
Thinkers: Smith
Physiocracy
Economic school of thought during the second half of the 18th century, which mainly resided in France. The Physiocrats thought that the entire wealth of a nation derived solely from land agriculture, also known as the Gift of Nature.
Thinkers: François Quesnay
Price-specie flow mechanism
Famous critique, invented by David Hume, against the use of Mercantilism as main economic policy. The price-specie flow mechanism states that countries with positive trade balances are effectively importing gold (money) in exchange for their exports while those with negative trade balances are exporting gold in exchange for imports. The increase in gold in countries with positive trade balances causes inflation, which makes prices rise and in turn makes imports more competitive. Conversely, the decrease in gold in countries with negative trade balances causes deflation, which makes price fall and exports more competitive internationally. This causes the balance of trade to shift in both countries. Thus, Hume argued that a trade balance is relatively unimportant because it tends to balance itself out in the long term.
Thinkers: David Hume
Real price
The nominal price adjusted for the inflation rate. The real prices give a more realistic picture of economic purchasing power.
Thinkers: Smith
Trade balance
The difference between a country’s exports and its imports over a certain amount of time.
Thinkers: David Hume
Comparative advantage
Comparative advantage is an economoc law referring to the ability of any given economic actor to produce goods and services at a lower opportunity cost than other economic actors. Comparative advantage is contrasted with absolute advantage. Absolute advantage refers to the ability to produce more or better goods and services than somebody else. Comparative advantage refers to the ability to produce goods and services at a lower opportunity cost, not necessarily at a greater volume.
Thinker: David Ricardo
Corn laws
Mercantilist tariffs placed on the import of corn in the UK between 1815 and 1846, designed to protect the British agricultural sector. When the prices reach a floor level, imports are banished.
Felicific Calculus
Methodology invented by Jeremy Bentham to calculate pleasure and pain, which is considered one of the main precursors of cost-benefit analysis. It bases its calculations on the factors of intensity, duration, propinquity and many more.
Thinkers: Jeremy Bentham
General Glut
A general glut exists when there is excess supply in all markets. That is, there is a general shortage of demand to consume the total production. Jean-Baptiste Say argued that general gluts could not occur because supply creates its own demand, a result known as Say’s Law. Malthus famously rejected Say’s Law.
Thinkers: Jean-Baptiste Say, Thomas Malthus
