Economics Flashcards
Absolute advantage
Absolute advantage refers to the ability of a country, individual, or firm to produce a good or service more efficiently than another, using fewer inputs of labor and resources.
Active management
A branch of investment management that attempts to outperform other investors by selecting a limited number of assets, and trading them regularly. See also passive management.
Adverse selection
A risk associated with insurance, and linked to asymmetric information. People who are sick will be more inclined to pay for health insurance than those who are healthy. One way to avoid the problem is to make insurance compulsory for all, as happens with car ownership.
Agency costs
The expense involved in using a third party to carry out a task. Examples include hiring a fund manager to look after an individual’s investment portfolio, or the cost to shareholders of having professional managers run a business. See also principal-agent problem.
