Part Four Flashcards
Government Paternalism
The condition that exists when the political leadership believes that the principle of caveat emptor cannot or should not be relied upon
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)
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 residences, regardless of where they produced it. (See gross domestic product)
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)
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 type of subject matter
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 possible.
Hedging
Paying a premium to another party (e.g., insurance company) to bear or absorb a risk
Hedonism
Aristotle set for this natural law: All men seek pleasure and avoid pain.
Hegelian Logic
George Wilhelm Friedrich Hegel’s application of Plato’s dialectics (thesis, antithesis, synthesis) to the study of history. (See dialectic and dialectical materialism)
Height of Function
Where a function intersects the y-axis when x=o
History of Economic Thought
The study of the development of economic principles and analysis. (See economic history)
Homestead
In law, a state statute that protects real estate from seizure from creditors
Homogeneity
The condition that exists when all physical characteristics are identical
Homogenous Products
Goods standardized by government regulation or industrial convention. (See differentiated products)
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 scientific proposition advanced as possibly true.
Illiquidity
When current liabilities are greater than current assets. (See Note on Accounting and Finance)
Imperialism
The use of force to establish 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.
Import License
Government authorization that requires the recording or transactions and is sometimes used to restrict the amount and/or kinds or products that can be imported
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
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)
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.
Income Statement
(See note on Accounting and Finance)
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 asymptomatic isoquant that assumes convexity, rationality, and transitivity.
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)
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.
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)
Inflection Point
The point on a function where the course changes form clockwise (cw) to counterclockwise (ccw), or from ccw to cw. A point on a function formed by the tangency of two arcs. (See Note of Geometric Slope, No 9)
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)
Input
A factor of production
Insolvency
When total liabilities are greater than total assets; i.e., when net worth is negative. (See Note on Accounting and Finance and bankruptcy)
Interdependent Markets
To the extent that a price change in one market affects either the supply or the demand in another market, the two markets are said to be interdependent. (See complementary good, substitution good, and factor good)
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 sld in a subsequent period. (See factor good)
Internal Tariff
A customs duty on goods transported between members of an economic area or business zone. (See external tariff)
Intrinsic Value
The value of 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.
Investment Good
Capital; a good or service used by the business sector. (See capital and consumption good)
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 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.
IQ
The number that predicts how someone will perform on future IQ tests
Iron Law of Wages
Karl Marx’s characterization of David Ricardo’s stationary state doctrine that explained by wages ultimately settled at the subsistence level.
Isoquant
A curve that shows the various combinations of inputs that will produce the same amount of output.
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.
Laissez Faire
(French) Let it be; leave government hands off commerce
Law
What a monopolist of power chooses to enforce
Law of Demand
Alfred Marshall’s law of downward sloping demand; i.e., the quantity demanded increases as the price decreases
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)
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 return)
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)
Leadership
Leaders are not the residue of spontaneous combustion. They light themselves on fire.
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.
Limits of Trade
In international economics, the maximum benefit gained by either side of a transaction while the other side neither gains nor looses. Part of David Ricardo’s explanation of why the actual trading ratio, called the terms of trade, takes place between these two extremes.
Location Theory
The subject is 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.)
