The A to Z of economics Flashcards
Absolute advantage
A concept that helps to explain international trade. If country A is better at making toasters than country B, and B is better at making kettles than A, it makes sense for each country to focus on the area where they have this advantage, and then trade toasters for kettles. But see, more importantly, comparative advantage.
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.
Activist investing
Fund managers who take a stake in a company and then agitate for a change of management, or strategy, in the belief that this will increase profits, and thus the share price.
Adverse selection
A risk associated with insurance, and linked to asymmetric information. People who are worried about their health will be more inclined to pay for health insurance than those who are fighting fit. One way to avoid the problem is to make insurance compulsory for all, as happens with car ownership. For more detail, see our Schools Brief.
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.
