Glossary EC Flashcards
(119 cards)
1
Q
Business cycle
A
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.
2
Q
Ceteris Paribus
A
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
3
Q
Command system
A
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.
4
Q
Consumption
A
The act of consuming of a good or service with the aim of satisfying human wants.
Thinkers: Smith and Marshall
5
Q
Custom system
A
A system in which society is organized around tradition and habits. Custom introduces elements of regularity, predictability, and conformity into social relationships.
6
Q
Factor of production
A
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.
7
Q
Fiscal policy
A
The use of taxation and expenditure policies by the government to regulate and stimulate economic activity.
Thinkers: Keynes
8
Q
Inflation
A
The rate at which prices in a market rise and the purchasing power falls.
Thinkers: Fisher
9
Q
Market system
A
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
10
Q
Markets
A
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).
11
Q
Monetary policy
A
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
12
Q
Paradigm
A
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
13
Q
Production
A
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
14
Q
Scarcity
A
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.
15
Q
School of thought
A
A particular set of ideas held by a specific group. School of thoughts create paradigms.
16
Q
Chrematistiké
A
Economic activity with the goal of sheer profit making, which was considered unnatural and hence unjust.
Thinkers: Aristotle
17
Q
Division of labour
A
The separation of tasks in the supply chain which allows for specialization and therefore increased quality and quantity of production.
Thinkers: Xenophon, Smith, Marx
18
Q
Exchange value
A
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
19
Q
Feudalism
A
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.
20
Q
Guild
A
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.
21
Q
Just price doctrine
A
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
22
Q
Manorial system
A
Economic system preceding the market system, in which local lords were centres of polical, military, economic and social power.
23
Q
Normative economics
A
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
24
Q
Oikonomia
A
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
25
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
26
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
27
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
28
Use value
Subjective, qualitative value of a good or service.
| Thinkers: Xenophon, Marx
29
Usury
Lending of money against interest.
| Thinkers: Aristotle, Acquinas
30
Bullionism
An economic theory that defenis a country's wealth by the amount of precious metals it owns.
Thinkers: Jean-Baptiste Colbert.
31
Capital
Capital is one of the three production factors, used to invrease the productivity of labour of workers.
Thinkers: Ricardo, Marx
32
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
33
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.
34
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
35
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
36
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
37
Market price
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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
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38
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
39
Natural price
The price to which goods and services seem to gravitate naturally in the long run.
Thinkers: Smith
40
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
41
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
42
Real price
The nominal price adjusted for the inflation rate. The real prices give a more realistic picture of economic purchasing power.
Thinkers: Smith
43
Trade balance
The difference between a country's exports and its imports over a certain amount of time.
Thinkers: David Hume
44
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
45
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.
46
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
47
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
48
Industrial revolution
A collective name for the extreme social, political and economic changes that occurred during the 18th and 19th century. The Industrial Revolution is characterized by the replacement of hand tools and inefficient manual labour by power tools and large mechanized concentrated production in city establishments. Production efficiency went up by an extreme amount and the technological invention, such as the steam engine and the locomotive, changed the way society was structured concerning its social classes, population density and traditions.
49
Iron law of wages
Theory, popular amongst the Classical Economists, that when wages increase, workers will have more children. This has two effects: there is pressure on the food supply, which lowers the standard of living. And there is more labor in the economy, which lowers wages. From the law the Classical Economists concluded that the natural price of labor is equal to the subsistence wage.
Thinkers: David Ricardo, Thomas Mathus
50
Marginal land
The last piece of land that is being cultivated in the agricultural process. According to Ricardo's theory of rent, no rent is charged on the marginal land.
Thinkers: David Ricardo
51
Poor laws
Legislation regulating poverty relief in the UK, which was completely redesigned in the 1830’s with the Poor Law Amendment Act. The Poor Laws were heavily influenced by the insights of Malthus’ Iron Law of Wages. Poverty was a result of population pressure and all poverty relief would defeat its purpose, as population pressure would only increase.
Thinkers: David Ricardo, Thomas Malthus
52
Positive checks
Circumstances that increase the number of deaths.
| Thinkers: Thomas Malthus
53
Preventative checks
Circumstances that decrease the number of births.
| Thinkers: Thomas Malthus
54
Recession
A sequence of two or more business quarters of economic decline.
55
Ricardo's theory on rent
Theory that determines the economic advantage obtained by the use of land for production. It states that the rent for a piece of land should be the difference in production output between that piece of land and marginal land of the same size.
Thinkers: David Ricardo
56
Stationary State
The state of the economy in which there is no economic growth anymore. Considered negative by Ricardo and Malthus, Mill saw the stationary state as a way to end the rat-race of industrial life.
Thinkers: John Stuart Mill, David Ricardo
57
Utilitarianism
a theory of morality that advocates actions that foster happiness or pleasure and oppose actions
Thinkers: Jeremy Bentham, John Stuart Mill
58
Alienation
The process of being separated from your own individual ‘self’ due to living in a society with established social classes. One is distanced from his or her humanity due to being a mechanistic part of the society and more specifically the production process. Workers are deprived from their right to think due to having to execute a simple repetitive task for the production of a good with capital owned by the bourgeoisie.
Thinkers: Karl Marx
59
Capitalism
Most common mode of economic organization in our time. Capitalism relies on the market system for its economic order. The capitalist, the owner of the firm is the residual claimant of the fruits of production after workers are being paid their wage. Marx considered Capitalism a necessary precursor of Socialism and Communism.
Thinkers: Karl Marx
60
Class struggle
The conflict of interests concerning the proletariat and the bourgeoisie in a capitalist society, which according to Marx would finally lead to an uprising of the proletariat and the seizing of the means of production, thereby ending Capitalism.
Thinkers: Karl Marx, Friedrich Engels
61
Commodity
A good produced with the sole intention to be sold on the market. It is considered the opposite of a private good.
62
Communism
The economic system, advocated for by Karl Marx, in which the means of production and resources are owned by the ‘common’. Production is planned by a central planning agency and the market is controlled by the government. Resources are plentiful till the extent that any citizens can take or use resources according to his or her needs. Marx considers this the final stage of the six modes of production that society has to go through and the most beneficial form of society for the entire population.
Thinkers: Karl Marx, Friedrich Engels
63
Dialectic materialism
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Marx’ philosophy, based on Hegel’s Dialectism (development of ideas as a loop of thesis, antithesis, synthesis), in which every economic society is built as an economic base of workers and a superstructure of non-economic activity and thought (ideas, laws, ethos). Superstructures cannot be selected randomly and rebellion takes place due to the invention of new technology and production processes that render the traditional production processes obsolete. The clash of rigid superstructure and dynamic base leads to class struggle and revolution.
Thinkers: Karl Marx
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64
Exploitation
The process of creating surplus value by the capitalist at the expense of the worker.
Thinkers: Karl Marx
65
Proletariat
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Marxian term to describe the working class as a collective.
Thinkers: Karl Marx
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66
Socialism
An economic system that would occur as a transitional stage between capitalism and communism. Means of production are owned by the government, but income and consumer goods are private. Production is centrally planned.
Thinkers: Karl Marx, Oskar Lange
67
Surplus value
Surplus value refers to the value remaining when the cost of maintaining the worker (his subsistence cost) has been subtracted from the total value of the product he produces.
Thinkers: Karl Marx
68
Consumer Surplus/Producer Surplus/Social Surplus
The consumer surplus is a measure of the benefit of the consumer from a transaction, which is analyzed through calculating the difference between what consumers are willing to pay for a good or service and what they are actually paying, i.e. the market price. The producer surplus is the difference between the market price a producer receives and the cost of production needed to produce the good. The sum of these two surpluses is known as the social surplus, sometimes also called the economic surplus. It is considered as a good measure of welfare.
Thinkers: Alfred Marshall
69
General equilibrium theory
Economic theory that tries to analyze the emergence of an equilibrium of supply and demand over multiple interacting markets.
Thinkers: Léon Walras
70
Gossen's first law
Economic law that states there is decreasing marginal utility of consumption.
Thinkers: Hermann Heinrich Gossen
71
Gossen's second law
The law that states that the ratio of marginal utility/price needs to be the same for all goods at the utility maximizing level. The law is considered a core concept in the modern theory of consumer behaviour.
Thinkers: Hermann Heinrich Gossen, Carl Menger
72
Marginal utility
The extra utility derived from the last unit of consumption.
| Thinkers: William Stanley Jevons
73
Marginalist theory of value
Value theory stating that value is determined at the margin of consumption and production. The value to the consumer of the last unit of consumption is equal to the cost of the last unit of production.
Thinkers: William Stanley Jevons, Carl Menger
74
Partial Equilibrium theory
The analysis of the relationship of a limited number of variables in one market, while the rest of the variables is kept constant in the analysis (ceteris paribus assumption). It is often considered the opposite approach to general equilibrium theory.
Thinkers: Alfred Marshall
75
Process of tâtonnement
A metaphor for the workings of the market: the Walrasian auctioneer shouts out a price and all participants in an imaginary auction send in their demand and supply at the given price. The Walrasian auctioneer then changes the price and repeats the process until demand equals supply.
Thinkers: Léon Walras
76
Saleableness
Also known as liquidity, saleableness is the degree to which an object or service is easily sold to other actors. The most saleable good is money.
Thinkers: Carl Menger
77
Spontaneous order
Order that comes from the undesigned actions of man, it is a key concept in Libertarian theory.
Thinkers: Carl Menger, Ludwig Von Mises, Friedrich Hayek
78
Walrasian auctioneer
Metaphor for the price adjustment mechanisms in the market. Key element of the process of tâtonnement.
Thinkers: Léon Walras
79
Conspicuous consumption
The concept, invented by Veblen, describing the purchase of certain goods and services to display one's wealth (and social class).
Thinkers: Thorstein Veblen
80
Human capital
The term that refers to the stock of supply of knowledge, habits, social and personal attributes embodied in the capability to produce labour and hence economic value.
Thinkers: Gary Becker
81
Institutions
Set of rules, norms, habits and behaviors that can be seen as an indispensable part of society.
Thinkers: Thorstein Veblen
82
Institutional school
School of thought that views markets as a result of the complex interaction of economic, political, cultural and social institutions.
Thinkers: Thorstein Veblen, Gary Becker
83
Nudging
Influencing economic decision making without legislative coercion or financial repercussions. It is considered as one of the main innovative concepts in the discipline of behavioral economics.
Thinkers: Richard Thaler
84
Organisations
Structured units of people that are managed and guided towards pursiong collective goals.
Thinkers: Kenneth Arrow, Herbert Simon
85
Animal spirits
The instincts and emotions that underlie irrational human behaviour.
Thinkers: Keynes
86
Austerity
Collective name for policies aimed at cutting government spending wih the goal to decrease government debt.
Thinkers: Keynes
87
Automatic stabiliser
Self-activating policies and programs that reduce fluctuations in the economy.
88
Boom/Bust
Natural deviations from the long-rum equilibrium in the economy. Booms and busts together form business cycles.
89
Debt-quota
Amount of debt as proportion of a country's GDP.
90
Great depression
Heralded by the stock market crash known as Black Tuesday in 1929, the Great Depression was a global economic depression in the 1930s, in which global GDP fell by 15% and the unemployment rate in the US climbed up to 25%. According to Keynes the Great Depression was induced by austerity of the US government, however Friedman argued that it was caused by a monetary contraction.
Thinkers: Keynes, Friedman
91
Keynesian multiplier
Government spending brings about positive externalities that cause an increase of GDP larger than the original spending. This size of this positive effect is represented by the Keynesian multiplier.
Thinkers: Keynes
92
Macroeconomics
Field in economics that analyzes movements in the overall economy, trends in prices, output and unemployment. Macroeconomics also investigates the effectiveness of government policy.
Thinkers: Fisher, Keynes, Friedman
93
Marginal propensity to consume
The marginal propensity to consume measures how large of a proportion an indivudual would spend rather than save when his income increases. It lies between 0 and 1.
Thinkers: Keynes
94
Cantillon effect
An increase in the supply of money has localized effects on inflation. Thus, as new money ripples through the economy, different goods experience price changes at different moments.
Thinkers: Cantillon.
95
Creative destruction
Technical innocation that induces the destruction of the old economic structure, and allows for economic profit. Schumpeter believed that in the long run creative destruction would result in the end of capitalism.
Thinkers: Schumpeter.
96
Debt deflation
Deflation causes the real value of debt to rise. Therefore governments have to cut spending further, consumers default on their loans and banks turn insolvent. Thus, deflation causes recessions. According to Fisher debt deflation was the main cause of the Great Depression.
Thinkers: Fisher
97
Kitchin cycle
Economic cycle of 3 to 5 years caused by inventory fluctuations
Thinkers: Fisher, Schumpeter
98
Juglar cycle
Economic cycle of 7 to 11 years caused by fluctuations in investment in fixed capital.
Thinkers: Fisher, Schumpeter
99
Kondratieff cycle
Economic cycle of 45 to 60 years caused by long-run technological innovation
Thinkers: Fisher, Schumpeter
100
Money illusion
The tendency of people to think in nominal, instead of real, terms. This causes stickness of prices and the lack of indexing for inflation of contracts.
Thinkers: Fisher, Keynes
101
Quantity theory of money
The equation: MV = PV with M the amout of money in circulation. V the velocity of money. P the aggregate price level and Y the output in the economy. Assuming that the output in the economy is fixed by the production function and the factors of production and assuming that the velocity of money is also fixed due to spending habits, the price level is proportional to the amount of money in the economy.
Thinkers: Fisher
102
Risk
A situation where different possible outcomes can occur, each of which has a known probailty of occuring. Risk should be distinguished from uncertainty, which is a situation where different possible outcomes can occur, but where the probabilities of these outcomes occuring are unkown.
Thinkers: Von Neumann, Oskar Morgenstern
103
Austrian school
School of thought, founded in the late 19th century by Carl Menger. That believes social phenomena are the results of the actions and motivations of individuals, often referred to as methodological individualism. The school is famous for advocating economic liberalism and its critical views on mainstream economics.
Thinkers: Menger, von Mises, Hayek
104
Game theory
The study of strategic decision making by rational players in situations of potential co-operation and/or conflict.
Thinkers: von Neumann, Morgenstem, Nash
105
Libertarianism
The collection of ideas and paradigms that advocate for the upholding of liberty as the most important principle. Libertarianism seeks to maximize politicial freedom and autonomy and is sceptic towards the expansion of the state's authority and control.
Thinkers: Locke, von Mises, Hayek, Friedman
106
Methodological individualism
The methodology of the Austrian school that explains social phenomena on the basis of individual choice behaviour.
Thinkers: Menger, von Mises, Hayek
107
Microeconomics
Discipline in economics that studies how individuals and firms make choices in the allocation of scare resources in various market settings.
Thinkers: Marshall, Pigou, Samuelson, Arrow, Akerlof, Stiglitz
108
Prisoner's dilemma
Famous game where both players have a dominant strategy that leads to an outcome where both are being worse-off.
Thinkers: Tucker
109
Totalitarianism
Form of government that does not permet individual freedom and that seeks to subordinate all aspects of individualism to the authority of the state.
Thinkers: von Mises, Hayek
110
Behavioural economics
Field of economics that studies the influence of psychology, social enviroment, cognition and emotions on economic decision making. The most distinct feature is that it does not assume rationality of economic actors.
Thinkers: Simon, Tversky, Kahneman, Thaler
111
Bounded rationality
The ability of rational decision making of economic actors is bounded by both cognitive and time limitations. By using shortcuts, non-optimal economic decisions are made.
Thinkers: Simon
112
Capabilities approach
The Capability approach focusses upon individuals’ capability of achieving the kind of lives they have reason to value. It has been employed extensively in the context of human development, for example, by the United Nations Development Programme, as a broader, deeper alternative to narrowly economic metrics such as growth in GDP per capita. Here ‘poverty’ is understood as deprivation in the capability to live a good life, and ‘development’ is understood as capability expansion.
Thinkers: Amartya Sen
113
Econometrics
Field in economics that investigates economic relationships using mathematical and statistical techniques.
Thinkers: Tinbergen
114
Loss aversion
Is an important concept with prospect theory and is encapsulated in the expression ''losses loom larger than gains''. It is through that the pain of losing is psychologically about twice as powerful as the pleasure of gaining.
Thinkers: Tversky, Kahneman
115
Mental accounting
Is the cognitive operations used by indivuduals and households to organize, evaluete, and keep track of financial activities. Individuals classify personal funds differently and for that reason engage in irrational decision-making in spending and investment behaviour. Mental accounting is considered on eof the fundamental concepts in the branch of behavioural economics.
Thinkers: Thaler
116
Monetarism
Economic school of thought that emphasizes that the money supply is the chief determinant of shortrun economic activity. Monetary policy is deemed such more important than fiscal policy.
Thinkers: Friedman
117
Prospect theory
Shows how people decide between altivernatives that involve risk and uncertainty. It demostrates that people think in terms of expected utility relative to a reference point rather than absolute outcomes. Prospect theory indicates that people are loss-averse; since individuals dislike losses more than equivalent gains, they are more willing to take risks to avoid to a loss.
Thinkers: Tversky, Kahneman
118
Theory of satisficing
The strategy in decision making that rather focuses on obtaining an adequate or satisfactory resut than attaining the most ideal outcome. It is a certain form of pragmatism that states the attainment of the most optimal solutions might cause unnecessary expenditure of rime, energy and resources.
Thinkers: Simon
119
Tinbergen rule
Rule that states that for each policy objective there is need for at least one policy instrument.
Thinkers: Tinbergen
