Your SlideShare is downloading. ×
Encyclopedia economics, Terms and Definitions
Prochain SlideShare
Chargement dans... 5

Thanks for flagging this SlideShare!

Oops! An error has occurred.

Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

Encyclopedia economics, Terms and Definitions


Published on

2658 terms and definitions on Economics. ...

2658 terms and definitions on Economics.

Powered by
your visual business knowledge
(try our free membership offer)

Published in: Affaires

0 commentaires
5 mentions J'aime
  • Soyez le premier à commenter

Aucun téléchargement
Total des vues
Sur Slideshare
À partir des ajouts
Nombre d'ajouts
Ajouts 0
No embeds

Signaler un contenu
Signalé comme inapproprié Signaler comme inapproprié
Signaler comme inapproprié

Indiquez la raison pour laquelle vous avez signalé cette présentation comme n'étant pas appropriée.

No notes for slide


  • 1. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. ManagementA to Z Keyword Definition Topic 0-9 Economics 2x2x2 Model The Heckscher-Ohlin Model with 2 factors, 2 goods, and 2 countries. A Economics Abnormal profit Abnormal profit is any profit in excess of normal profit - also known as supernormal profit. In balance of payments accounting, this refers to those transactions that are included in calculating the balance of payments A Economics Above the line surplus or deficit. Transactions below the line, typically official reserve transactions and sometimes short term capital flows, are not included. A Economics Absolute advantage Absolute advantage occurs when a country or region can create more of a product with the same factor inputs. Absolute advantage The idea, advocated by opponents of globalization, that a country should import only goods in which other countries have an A Economics trade policy absolute advantage, particularly goods that the importing country cannot (or cannot "reasonably") produce itself. Absolute poverty measures the number of people living below a certain income threshold or the number of households unable A Economics Absolute poverty to afford certain basic goods and services. Page 1 of 379
  • 2. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Total demand for final goods and services by all residents (consumers, producers, and government) of a country (as opposed A Economics Absorption to total demand for that countrys output). The term was introduced as part of the Absorption Approach. A way of understanding the determinants of the balance of trade, noting that it is equal to income minus absorption. Due to A Economics Absorption approach Alexander (1952) Available in large supply. Usually meaningful only in relative terms, compared to demand and/or to supply at another place or A Economics Abundant time. The factor in a countrys endowment with which it is best endowed, relative to other factors, compared to other countries. May A Economics Abundant factor be defined by quantity or by price. Academic A group of academic economists and lawyers who are specialized in international trade policy and international economic law. A Economics Consortium on ACITs purpose is to prepare and circulate policy statements and papers that deal with important, current issues of International Trade international trade policy. Planned capital investment by private sector businesses is linked to the growth of demand for goods and services. When consumer or export demand is rising strongly, businesses may increase investment to expand their production capacity and A Economics Accelerator effect meet the extra demand. This process is known as the accelerator effect. But the accelerator effect can work in the other direction! A slowdown in consumer demand can create excess capacity and may lead to a fall in planned investment demand. A Economics Accession The process of adding a country to an international agreement, such as the GATT, WTO, EU, or NAFTA. Page 2 of 379
  • 3. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A Economics Accession country A country that is waiting to become a member of the EU. In the balance of payments, a transaction that is a result of actions taken officially to manage international payments; in Accommodating A Economics transaction contrast with autonomous transaction. Thus official reserve transactions are accommodating, as may be short-term capital flows that respond to expectations of intervention. The acquisition of an increasing quantity of something. The accumulation of factors, especially capital, is a primary mechanism A Economics Accumulation for economic growth. A Economics ACIT Academic Consortium on International Trade A group of African, Caribbean, and Pacific less developed countries that were included in the Lomé Convention and now the A Economics ACP Countries Cotonou Agreement. As of June 2007, the group included 79 countries. A Economics Actionable subsidy A subsidy that is not prohibited by the WTO but that member countries are permitted to levy countervailing duties against. A Economics Actual protection rate Implicit tariff. Page 3 of 379
  • 4. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A Economics AD Anti-dumping A Economics Ad valorem Per unit of value (i.e., divided by the price). Ad valorem The ad valorem tariff that would be equivalent, in terms of its effects on trade, price, or some other measure, to a nontariff A Economics equivalent barrier. An indirect tax based on a percentage of the sales price of a good or service. The best known example in the UK is Value A Economics Ad valorem tax Added Tax. One of the founding fathers of modern economics. His most famous work was the Wealth of Nations (1776) - a study of the A Economics Adam Smith progress of nations where people act according to their own self-interest - which improves the public good. Smiths discussion of the advantages of division of labour remains a potent idea in the economic literature. A Economics ADB African Development Bank Group An exchange rate that is pegged, but for which it is understood that the par value will be changed occasionally. This system A Economics Adjustable peg can be subject to extreme speculative attack and financial crisis, since speculators may easily anticipate these changes. Page 4 of 379
  • 5. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Corrected for price changes to yield an equivalent in terms of goods and services. The adjustment divides nominal amounts for A Economics Adjusted for inflation different years by price indices for those years -- e.g. the CPI or the implicit price deflator -- and multiplies by 100. This converts to real values, i.e. valued at the prices of the base year for the price index. Government program to assist those workers and/or firms whose industry has declined, either due to competition from imports Adjustment A Economics assistance (trade adjustment assistance) or from other causes. Such programs usually have two (conflicting) goals: to lessen hardship for those affected, and to help them change their behavior -- what, how, or where they produce. Adjustment A Economics mechanism The theoretical process by which a market changes in disequilibrium, moving toward equilibrium if the process is stable. A price for a good or service that is set and maintained by government, usually requiring accompanying restrictions on trade if A Economics Administered price the administered price differs from the world price. Protection (tariff or NTB) resulting from the application of any one of several statutes that respond to specified market Administered A Economics protection circumstances or events, usually as determined by an administrative agency. Several such statutes are permitted under the GATT, including anti-dumping duties, countervailing duties, and safeguards protection. Administrative A unit of government charged with the administration of particular laws. In the United States, those most important for A Economics agency administering laws related to international trade are the ITC and ITA. Advance deposit A requirement that some proportion of the value of imports, or of import duties, be deposited prior to payment, without A Economics requirement competitive interest being paid. Page 5 of 379
  • 6. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A Economics Advanced country Developed country. Usually refers to a cost advantage, though it could refer to a strategic advantage (such as first mover advantage) or to a A Economics Advantage superiority of technology or quality. The tendency for insurance to be purchased only by those who are most likely to need it, thus raising its cost and reducing its A Economics Adverse selection benefits. Adverse terms of A terms of trade that is considered unfavorable relative to some benchmark or to past experience. Developing countries A Economics trade specialized in primary products are sometimes said to suffer from adverse or declining terms of trade. Developing consumer loyalty by establishing branded products can make successful entry into the market by new firms much A Economics Advertising more expensive. Advertising can cause an outward shift of the demand curve and also make demand less sensitive to changes in price. A Economics AEC African Economic Community African Development A Economics Bank Group A multinational development bank for Africa. Page 6 of 379
  • 7. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. An organization of African countries that aims to promote economic, cultural and social development among the African African Economic A Economics Community economies. Among other things, it intends to promote the formation of FTAs and customs unions among regional groups within Africa that will eventually merge into an African Common Market. African Growth and U.S. legislation enacted May 2000 providing tariff preferences to African countries that qualify. As of May 2007, 38 countries A Economics Opportunity Act had qualified. A Economics AFTA ASEAN Free Trade Area An increase in the average age of the population arising from an increase in life expectancy and a fall in the birth rate. In the long run, an ageing population has important implications for both the level and pattern of demand in the economy. There are A Economics Ageing population also widespread consequences for government welfare spending (egg on state pensions) and the demand for health and other need services. A Economics Agenda 21 A plan of action adopted at the Rio Summit to promote sustainable development. A Economics Agent One who acts on behalf of someone else. The phenomenon of economic activity congregating in or close to a single location, rather than being spread out uniformly over A Economics Agglomeration space. Page 7 of 379
  • 8. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Agglomeration Any benefit that accrues to economic agents as a result of having large numbers of other agents geographically close to them, A Economics economy thus tending to lead to agglomeration. This is a basic feature of the New Economic Geography. As an adjective or noun (with stress on the first syllable), this refers to the sum or total of multiple items. As a verb (with stress A Economics Aggregate on the last syllable), this means to combine such items or add them up. The total demand for a countrys output, including demands for consumption, investment, government purchases, and net A Economics Aggregate demand exports. Aggregate demand The aggregate-demand curve shows the quantity of goods and services that households, firms, and the government want to A Economics curve buy at each price level. Aggregate measure A Economics of support Variation of aggregate measurement of support. Aggregate The measurement of subsidy to agriculture used by the WTO as the basis for commitments to reduce the subsidization of A Economics measurement of agricultural products. It includes the value of price supports and direct subsidies to specific products, as well as payments that support are not product specific. Aggregate production A Economics possibility frontier The production possibility frontier, or curve obtained by adding the production possibilities of two or more countries or regions. Page 8 of 379
  • 9. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Aggregate supply (AS) measures the volume of goods and services produced within the economy at a given price level. In simple terms, aggregate supply represents the ability of an economy to produce goods and services either in the short-term or A Economics Aggregate supply in the long-term. It tells us the quantity of real GDP that will be supplied at various price levels. The nature of this relationship will differ between the long run and the short run. Aggregate A Economics transformation curve Aggregate production possibility frontier The combining of two or more kinds of an economic entity into a single category. Data on international trade necessarily A Economics Aggregation aggregate goods and services into manageable groups. For macroeconomic purposes, all goods and services are usually aggregated into just one. A Economics AGOA African Growth and Opportunity Act Agreement on A Economics Textiles and Clothing The 10-year transitional program of the WTO to phase out the quotas on textiles and apparel of the MFA. A Economics Agricultural good A good that is produced by agriculture. Contrasts with manufactured good. Production that relies essentially on the growth and nurturing of plants and animals, especially for food, usually with land as an A Economics Agriculture important input; farming. Contrasts with manufacturing. Page 9 of 379
  • 10. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Agriculture The agreement within the WTO that commits member governments to improve market access and reduce trade-distorting A Economics Agreement subsidies in agriculture, starting with the process of tariffication. Assistance provided by countries and by international institutions such as the World Bank to developing countries in the form of A Economics Aid monetary grants, loans at low interest rates, in kind, or a combination of these. A Economics ALADI Asociación Latinoamericana de Integración (Spanish for Latin-American Integration Association) A Economics ALCA Acuerdo de Libre Comercio de las Américas (Spanish for Free Trade Area of the Americas ) A Economics ALCAN Acuerdo de Libre Comercio de América del Norte (Spanish for North American Free Trade Agreement) An assignment of economic resources to uses. Thus, in general equilibrium, an assignment of factors to industries producing A Economics Allocation goods and services, together with the assignment of resulting final goods and services to consumers, within a country or throughout the world economy. Allocative efficiency occurs when the value that consumers place on a good or service (reflected in the price they are willing A Economics Allocative efficiency and able to pay) equals the cost of the resources used up in production. The technical condition required for allocative efficiency is that price = marginal cost. When this happens, total economic welfare is maximised. Page 10 of 379
  • 11. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Alternative Trade An addition to the US program of trade adjustment assistance, enacted in 2002, that provides wage insurance for a limited A Economics Adjustment group of older workers. Assistance The category of subsidies in the WTO Agriculture Agreement the total value of which is to be reduced. It includes most A Economics Amber box domestic support measures that distort production and trade. A document filed in a legal proceeding by an interested party who is not directly part of the case. In the WTO an issue has A Economics Amicus brief been whether to permit dispute settlement panels to accept such submissions, especially from NGOs. A Economics Amortization The deduction of an expense in installments over a period of time, rather than all at once. The extent of the up and down movements of a fluctuating economic variable; that is, the difference between the highest and A Economics Amplitude lowest values of the variable. A Economics AMS Aggregate measure of support. A Economics ANCERTA Australia-New Zealand Closer Economic Relations Trade Agreement. Also ANZCERTA and just CER. Page 11 of 379
  • 12. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. An organization of five Andean countries -- Bolivia, Colombia, Ecuador, Peru, and Venezuela -- formed in 1997 out of the A Economics Andean Community Andean Pact. It provides for economic and social integration, including regional trade liberalization and a common external tariff, as well as harmonization of other policies. The Cartagena Agreement of 1969, which provided for economic cooperation among a group of five Andean countries; A Economics Andean Pact predecessor to the Andean Community. Andean Trade US legislation enacted in 2002 authorizing the U.S. president to provide tariff preferences to countries in the Andean region in A Economics Promotion and Drug connection with the effort to curtail production of illegal drugs. Eradication Act Animal spirits refers to the expectations of businesses, entrepreneurs and consumers. When business confidence is high, we expect to see a rise in planned capital investment at each rate of interest. If there is a downturn in business confidence, for A Economics Animal spirits example during a recession, then planned investment may fall and some capital investment projects may be scrapped even when interest rates are fairly low. Anti competitive A Economics behaviour Anti-competitive practices are business strategies designed deliberately to limit the degree of competition inside a market. A Economics Anticipated inflation Anticipated inflation is expectations about future price rises which households & firms use when planning economic decisions. Tariff levied on dumped imports. The threat of an anti-dumping duty can deter imports, even when it has not been used, and A Economics Anti-dumping duty anti-dumping law is therefore a form of nontariff barrier. Page 12 of 379
  • 13. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A complaint by a domestic producer that imports are being dumped, and the resulting investigation and, if dumping and injury A Economics Anti-dumping suit are found, anti-dumping duty. A Economics Anti-trust policy U.S. term for competition policy. A Economics AOA Agreement on Agriculture A Economics APC Average propensity to consume A Economics APEC Asia-Pacific Economic Cooperation Clothing. The apparel sector is important for trade because, as a very labor intensive sector, it is a likely source of comparative A Economics apparel advantage for developing countries. Apparent Production plus imports minus exports, sometimes also adjusted for changes in inventories. The intention here is not to A Economics consumption distinguish different uses for a good within the country, but only to infer the total that is used there for any purpose. Page 13 of 379
  • 14. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A Economics Appellate Body The standing committee of the WTO that reviews decisions of dispute settlement panels. A Economics Applied tariff rate The actual tariff rate in effect at a countrys border. A rise in the value of a countrys currency on the exchange market, relative either to a particular other currency or to a weighted A Economics Appreciation average of other currencies. The currency is said to appreciate. Opposite of "depreciation." A combination of transactions designed to profit from an existing discrepancy among prices, exchange rates, and/or interest A Economics Arbitrage rates on different markets without risk of these changing. Simplest is simultaneous purchase and sale of the same thing in different markets, but more complex forms include triangular arbitrage and covered interest arbitrage. Argument for A Economics protection A reason given (not necessarily a good one) for restricting imports by tariffs and/or NTBs. The assumption that internationally traded products are differentiated by country of origin. Due to Armington (1969) in an Armington A Economics assumption international macroeconomic context, but now a standard assumption of international CGE models, used to generate smaller and more realistic responses of trade to price changes than implied by homogeneous products. A Economics Armington elasticity The elasticity of substitution between products of different countries. Page 14 of 379
  • 15. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A Economics Article XIX The Safeguards Clause of the GATT. The article of the GATT that permits countries to form free trade areas and customs unions as exceptions to the MFN A Economics Article XXIV principle. The model and/or diagram that determines the level of aggregate economic activity through the interaction of aggregate supply A Economics AS-AD and aggregate demand. A Economics ASEAN Association of Southeast Asian Nations ASEAN Free Trade A Economics Area A free trade area announced in 1992 among the ASEAN countries that is in the process of being implemented. A Economics Asian Crisis A major financial crisis that began in Thailand in July 1997 and quickly spread to other East Asian countries. Asian Development A multilateral institution based in Manila, Philippines, that provides financing for development needs in countries of the Asia- A Economics Bank Pacific region. As of June 2007, ADB had 44 developing member countries. Page 15 of 379
  • 16. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A Economics Asian Tigers The Four Tigers. Asia-Pacific An organization of countries in the Asia-Pacific region, launched in 1989 and devoted to promoting open trade and practical A Economics Economic economic cooperation. As of June 2007, APEC had 21 member countries. Cooperation An item of property, such as land, capital, money, a share in ownership, or a claim on others for future payment, such as a A Economics Asset bond or a bank deposit. A theory of determination of the exchange rate that focuses on its role as the price of an asset. With high capital mobility, A Economics Asset approach equilibrium requires that expected returns on comparable domestic and foreign assets be the same. A Economics Asset position See net foreign asset position. How to use macroeconomic policies to achieve both internal balance and external balance; specifically, with only monetary and A Economics Assignment problem fiscal policies available under fixed exchange rates, which instrument should be "assigned" to which goal? Mundell (1962) showed that monetary policy should be assigned to external balance. A Economics Assimilative capacity The extent to which the environment can accommodate or tolerate pollutants. Page 16 of 379
  • 17. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Association A Economics Agreement Early predecessor to the Europe Agreements but excluding provision for political dialogue. Association of Natural An inter-governmental organization, formed by natural rubber producing countries to promote the overall interests of the A Economics Rubber Producing commodity. Countries Association of An organization of countries in southeast Asia, the purpose of which is to promote economic, social, and cultural development A Economics Southeast Asian as well as peace and stability in the region. Starting with five member countries in 1967, it had expanded to ten members as of Nations June 2007. Asymmetric Information relating to a transaction in a market where there is imbalance in the information available to either the buyer or the A Economics information seller. Asymmetric information can distort the working of the market mechanism and lead to market failure. An exogenous change in macroeconomic conditions affecting differently the different parts of a country, or different countries A Economics Asymmetric shock of a region. Often mentioned as a source of difficulty for countries sharing a common currency, such as the Euro Zone. At equality. Two currencies are said to be "at par" if they are trading one-for-one. The significance is more psychological then A Economics At par economic, but the long decline of the Canadian dollar "below par" with the U.S. dollar, and the more recent variation of the euro between above and below par, also with the U.S. dollar, has been cause for concern. A Economics ATAA Alternative Trade Adjustment Assistance Page 17 of 379
  • 18. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A Economics ATC Agreement on Textiles and Clothing A Economics ATPDEA Andean Trade Promotion and Drug Eradication Act Australia-New A free trade agreement formed in 1983 between Australia and New Zealand. Said to be one of the most comprehensive Zealand Closer A Economics Economic Relations bilateral free trade agreements in the world, it was also the first to include trade in services. Identified as ANCERTA, ANZCERTA, and CER. Trade Agreement A Economics Autarkic Associated with the situation of autarky. The situation of not engaging in international trade; self-sufficiency. (Not to be confused with "autarchy," which in at least some A Economics Autarky dictionaries is a political term rather than an economic one, and means absolute rule or power.) Price in autarky; that is, the price of something within a country when it is not traded by that country. Relative autarky prices A Economics Autarky price turn out to be the most theoretically robust (but empirically elusive) measures of comparative advantage. The licensing of imports or exports for which licenses are assured, for gathering information, or as a holdover from when A Economics Automatic licensing licenses were not automatic. Depending on how the licensing is administered, automatic licensing can add to the bureaucratic and/or time cost of trade. Page 18 of 379
  • 19. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. An institutional feature of an economy that dampens its macroeconomic fluctuations, e.g., an income tax, which acts like a tax A Economics Automatic stabilizer increase in a boom and a tax cut in a recession. Refers to an economic variable, magnitude, or entity that is caused independently of other variables that it may in turn A Economics Autonomous influence; exogenous. That portion of consumption that is autonomous. For example, if the consumption function has the form C=C 0+cY , where C 0 Autonomous A Economics consumption and c are parameters and Y is income, then C 0 may be called autonomous consumption. An increase in autonomous consumption then represents an upward shift in the consumption function. Autonomous In the balance of payments, a transaction that is not itself a result of actions taken officially to manage international payments; A Economics transaction in contrast with accommodating transaction. A theory of the determinants of international trade, due to Kravis (1956), that says that countries import what they do not have A Economics Availability theory available domestically and export what they do. The theory can be said to encompass explanations of trade that stress factor endowments, technological differences, and product differentiation. A Economics Average cost Total cost divided by output. Earnings are the total factor reward to labour. Average earnings comprise basic pay + wage drift (I.e. extra income from A Economics Average earnings productivity related pay, overtime and other bonuses). Page 19 of 379
  • 20. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A Economics Average product Total output divided by the total units of labour employed. A Economics Average propensity The fraction of total income spent on an activity, such as consumption or imports. Average propensity to A Economics consume The fraction of total (or perhaps disposable) income spent on consumption. Contrasts with marginal propensity to consume. Average propensity to A Economics import The fraction of total income spent on imports; thus the ratio of imports to GDP. Contrasts with marginal propensity to import. The proportion of gross income paid in tax. With a progressive income tax system, the average rate of tax rises as income A Economics Average rate of tax rises. This is because the marginal rate of tax goes up at certain income levels. An average of a countrys tariff rates. This can be calculated in several ways, none of which are ideal for representing how A Economics Average tariff protective the countrys tariffs are. Most common is the trade-weighted average tariff, which under-represents prohibitive tariffs, since they get zero weight. Refers to the activities of a firm that are necessary to its functioning but are not directly part of production, such as accounting. B Economics Back office Such activities, despite the name that suggests a location behind the shop or shop floor, are increasingly done at remote locations, including in other countries, as business process outsourcing. Page 20 of 379
  • 21. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Refers to a curve that reverses direction, usually if, after moving out away from an origin or axis, it then turns back toward it. B Economics Backward bending The term is used most frequently to describe supply curves for which the quantity supplied declines as price rises above some point, as may happen in a labor supply curve, the supply curve for foreign exchange, or an offer curve. B Economics Backward indexation The setting of wages based in part on past performance of prices. B Economics Backward integration Acquisition by a firm of its suppliers. B Economics Backward linkage The use by one firm or industry of produced inputs from another firm or industry. Acronyms for the 12 original members and non-members of the Euro Zone. BAFFLING PIGS = Belgium, Austria, Finland, BAFFLING PIGS and B Economics DUKS France, Luxembourg, Ireland, Netherlands, Germany, Portugal, Italy, Greece, and Spain. DUKS = Denmark, United Kingdom, and Sweden. Balance of B Economics merchandise trade The value of a countrys merchandise exports minus the value of its merchandise imports. The balance of payments (BOP) records all financial transactions between the UK and the Rest of the World. The BOP figures B Economics Balance of payments tell us about how much is being spent by British consumers and firms on imported goods and services, and how successful UK firms have been in exporting to other countries and markets. Page 21 of 379
  • 22. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Balance of payments Any process, especially any automatic one, by which a country with a payments imbalance moves toward balance of payments B Economics adjustment equilibrium. Under the gold standard, this was the specie flow mechanism. mechanism Balance of payments A common reason for restricting imports, especially under fixed exchange rates, when a country is losing international reserves B Economics argument for due to a trade deficit. It can be said that this is a second best argument, since a devaluation could solve the problem without protection distorting the economy and therefore at smaller economic cost. Balance of payments B Economics deficit A negative balance of payments surplus. Meaningful only under a pegged exchange rate, this referred to equality of credits and debits in the balance of payments using Balance of payments B Economics equilibrium a traditional definition of the capital account. A surplus or deficit implied changing official reserves, so that something might ultimately have to change. A number summarizing the state of a countrys international transactions, usually equal to the balance on current account plus Balance of payments B Economics surplus the balance on financial account, but excluding official reserve transactions, or omitting also other volatile short-term financial- account transactions. It indicates the stress on a regime of pegged exchange rates. The value of a countrys exports minus the value of its imports. Unless specified as the balance of merchandise trade, it B Economics Balance of trade normally incorporates trade in services, including earnings (interest, dividends, etc.) on financial assets. Balance on capital B Economics account A countrys receipts minus payments for capital account transactions. Page 22 of 379
  • 23. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Balance on current A countrys receipts minus payments for current account transactions. Equals the balance of trade plus net inflows of transfer B Economics account payments. B Economics Balanced budget A government budget surplus that is zero, thus with net tax revenue equaling expenditure. B Economics Balanced growth Growth of an economy in which all aspects of it, especially factors of production, grow at the same rate. B Economics Balanced trade A balance of trade equal to zero. Balassa-Samuelson The hypothesis that an increase in the productivity of tradables relative to nontradables, if larger than in other countries, will B Economics Effect cause an appreciation of the real exchange rate. Due to Balassa (1964) and Samuelson (1964). The consumption possibility frontier for a large country, constructed as the envelope formed by moving the foreign offer curve B Economics Baldwin envelope along the countrys transformation curve. Due to Baldwin (1948). A trade dispute between the EU and the U.S. over EU preferences for bananas from former colonies. On behalf of U.S.-owned B Economics Banana war companies exporting bananas from South America and the Caribbean, the U.S. complained to the WTO, which ruled in favor of the U.S. Page 23 of 379
  • 24. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The international currency proposed by Keynes for use as the basis for the international monetary system that was being B Economics Bancor constructed at the end of World War II. Instead, the Bretton Woods System that emerged was based on the U.S. dollar. Bank for International B Economics Settlements An international organization that acts as a bank for central banks, fostering cooperation among them and with other agencies. The Bank of England ( is charged with the task of maintaining the integrity and value of the currency. The Bank pursues this objective through the use of monetary policy. Above all, this involves maintaining price B Economics Bank of England stability, as defined by the inflation target set by the Government, as a precondition for achieving a wider goal of sustainable economic growth and high employment. Since 1997, the BoE has had operational independence in the setting of interest rates. The Bank aims to meet the Bank of England B Economics independence Governments inflation target - currently 2.0 per cent for the consumer price index- by setting short-term interest rates. Interest rate decisions are taken by the Monetary Policy Committee (MPC) at their monthly meetings. B Economics Bank rate The interest rate charged by a central bank to commercial banks for very short term loans; the discount rate. B Economics Barcelona Process The Euro-Mediterranean Partnership. Any impediment to the international movement of goods, services, capital, or other factors of production. Most commonly a B Economics Barrier trade barrier. Page 24 of 379
  • 25. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. B Economics Barriers to entry Barriers to entry are designed to block potential entrants from entering a market profitably. B Economics Barter The exchange of goods for goods, without using money. An economic model of international trade in which goods are exchanged for goods without the existence of money. Most B Economics Barter economy theoretical trade models take this form in order to abstract from macroeconomic and monetary considerations. B Economics Base money Monetary base. The year used as the basis for comparison by a price index such as the CPI. The index for any year is the average of prices for B Economics Base year that year compared to the base year; e.g., 110 means that prices are 10% higher than in the base year. The base year is also the year whose prices are used to value something in real terms or after adjusting for inflation. Also known at Basel I, this was an agreement in 1988 by the Basel Committee of central bankers to measure the credit risk of B Economics Basel Capital Accord commercial banks and set minimum standards for bank capital in order to reduce the likelihood of international repercussions due to bank failures. B Economics Basel I The Basel Capital Accord Page 25 of 379
  • 26. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. B Economics Basel II A substantially revised set of standards for capital adequacy of banks, with an agreed text first issued in June 2004. One of the more frequently used measures of the balance of payments surplus or deficit under pegged exchange rates, the B Economics Basic balance basic balance was equal to the current account balance plus the balance of long-term capital flows. B Economics Basis point One one-hundredth of a percentage point. Small changes in interest rates are commonly measured in basis points. One of two conditions needed for infant industry protection to be welfare-improving, this requires that the protected industry be B Economics Bastables test able to pay back an amount equal to the national losses during the period of protection. B Economics BEA Bureau of Economic Analysis The idea that if costs of entering a market, such as through exports, become sunk costs, then a temporary change in market B Economics Beachhead effect conditions such as an exchange rate can cause a lasting change in trade patterns. As one explanation for hysteresis in international trade, this was named by Baldwin (1988). A trade dispute that began in 1989 when the EC banned imports of beef from cows that had been injected with growth B Economics Beef hormone case hormones, arguing that the health effects of these hormones were suspect. The U.S. eventually complained under the WTO in 1996, arguing the absence of scientific evidence of any harm, and in 1997 the WTO panel agreed with the U.S. Page 26 of 379
  • 27. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. For a country to use a policy for its own benefit that harms other countries. Examples are optimal tariffs and, in a recession, B Economics Beggar thy neighbor tariffs and/or devaluation to create employment. A branch of economics which focuses on understanding the nature of human decision making and which explores how Behavioural B Economics economics decisions are taken when economic agents do not have access to full and free information and when their behaviour is not automatically assumed to be rational. B Economics Benefit-cost analysis Same as cost-benefit analysis. Refers to doing nothing about a problem, in the hope that it will not be serious or will be solved by others. Said to be U.S. policy B Economics Benign neglect toward its balance of payments deficit in the late 1960s, based on other countries need for dollar reserves. Bergsonian social A social welfare function that takes as arguments only the levels of utility of the individuals in society. Due to Bergson (1938) as B Economics welfare function interpreted by Samuelson (1981). Also called a Bergson-Samuelson social welfare function. The assumption, sometimes assumed to be made by firms in an oligopoly, that other firms hold their prices constant as they B Economics Bertrand competition themselves change behavior. Contrasts with Cournot competition. Both are used in models of international oligopoly, but Cournot competition is used more often. Bias of a trade Refers to whether the structure of protection favors importables or exportables, based on comparing their effective rates of B Economics regime protection. If these are equal, the trade regime is said to be neutral. Page 27 of 379
  • 28. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Refers to economic growth through factor accumulation and/or technological progress and whether if favors one sector or B Economics Bias of growth another. Growth is said to be export biased if the export sector expands faster than the rest of the economy, import biased if the import-competing sector does so. Either change or difference, refers to a shift towards or away from use of a factor. The exact meaning depends on the B Economics Bias of technology definition of neutral used to define absence of bias. Factor bias matters for the effects of technological progress on trade and welfare. In the elasticities approach to analyzing effects of exchange rates, the condition for a depreciation to have a positive effect on the trade balance: [hX hM (1 + eX + eM ) – eX eM  (1 – hX   –  hM )] / [(eX + hX )(eM + hM )] > 0, where eI (hI ) is the supply B Economics Bickerdike-Robinson- (demand) elasticity of I=X ,M exports and imports respectively. If supply elasticities are infinite, it reduces to the Marshall- Lerner Condition. Due to Bickerdike (1920), Robinson (1947), and Metzler (1948). With regard to the process of multilateral trade liberalization, the theory that if it ceases to move forward (i.e., achieve further B Economics Bicycle Theory liberalization), then it will collapse (i.e., past liberalization will be reversed). The idea was suggested by Bergsten (1975) and named by Bhagwati (1988). B Economics BID Banco Interamericano de Desarrollo (Spanish for Inter-American Development Bank) The difference between the price that a buyer must pay on a market and the price that a seller will receive for the same thing. B Economics Bid/ask spread The difference covers the cost of, and provides profit for, the broker or other intermediary, such as a bank on the foreign exchange market. An index of PPP exchange rates based solely on the prices of the Big Mac sandwich in McDonalds restaurants around the B Economics Big Mac Index world, published each spring by the Economist. Page 28 of 379
  • 29. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. B Economics Bilateral Between two countries, in contrast to plurilateral and multilateral. B Economics Bilateral agreement An agreement between two countries, as opposed to a multilateral agreement. B Economics Bilateral aid Aid from a single donor country to a single recipient country, in contrast to multilateral aid. Bilateral exchange The exchange rate between two countries currencies, defined as the number of units of either currency needed to purchase B Economics rate one unit of the other. A market in which a single seller faces a single buyer. The final determination of price and output is such a situation is B Economics Bilateral monopoly uncertain - much depends on the relative bargaining strength between the two parties concerned. An import (or export) quota applied to trade with a single trading partner, specifying the amount of a good that can be imported B Economics Bilateral quota from (exported to) that single country only. The trade between two countries; that is, the value or quantity of one countrys exports to the other, or the sum of exports and B Economics Bilateral trade imports between them. Page 29 of 379
  • 30. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. B Economics Bilateral transfer A transfer payment from one country to another. B Economics Bill of exchange Any document demanding payment. The receipt given by a transportation company to an exporter when the former accepts goods for transport. It includes the B Economics Bill of lading contract specifying what transport service will be provided and the limits of liability. As an adjective, this refers to a restriction that is met exactly, and is therefore having an effect on behavior, in contrast to B Economics Binding nonbinding. B Economics BIS Bank for International Settlements A black market (or shadow market) is an illegal market in which the normal market price is higher than a legally imposed price ceiling (or maximum price). Black markets develop where there is excess demand (or a shortage) for a commodity. Some B Economics Black market consumers are prepared to pay higher prices in black markets in order to get the goods or services they want. When there is a shortage, higher prices act as a rationing device. Good examples of black markets include tickets for major sporting events, rock concerts and black markets for childrens toys and designer products that are in scarce supply. A special category of subsidies permitted under the WTO Agriculture Agreement, it includes payments that are linked to B Economics Blue box production but with provisions to limit production through production quotas or requirements to set aside land from production. Page 30 of 379
  • 31. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. B Economics BM Banco Mundial (Spanish for World Bank) A debt instrument, issued by a borrower and promising a specified stream of payments to the purchaser, usually regular B Economics Bond interest payments plus a final repayment of principal. Bonds are exchanged on open markets including, in the absence of capital controls, internationally, providing a mechanism for international capital mobility. The market for bonds, in which the prices of the bonds, and therefore the corresponding interest rates, are determined by the B Economics Bond market interaction of buyers and sellers. B Economics Bonds The issue of debt is done by the central bank and involves selling debt to the bond and bill markets. A pattern of performance over time in an economy or an industry that alternates between extremes of rapid growth (booms) B Economics Boom-bust cycle and extremes of slow growth or decline (busts), as opposed to sustained steady growth. For an economy, this indicates an extreme form of the business cycle. B Economics BOP Balance of payments. A discontinuity that exists in prices or in quantities of trade at the border between countries. If the price of a good is higher on B Economics Border effect one side of a border than the other, this is a border effect. If a gravity equation includes a dummy for trade across a border and that dummy is significant, that also indicates a border effect. Page 31 of 379
  • 32. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. B Economics Border price The price of a good at a countrys border. In the context of trade policy, this refers to policies such as tariffs and quotas that enhance profits and employment in a B Economics Border protection domestic industry, as opposed to other policies such as production subsidies that might have similar effects without restricting trade. Border tax Rebate of indirect taxes (taxes on other than direct income, such as a sales tax or VAT) on exported goods, and levying of B Economics adjustment them on imported goods. May distort trade when tax rates differ or when adjustment does not match the tax paid. B Economics Borderless world The concept that national borders no longer matter, perhaps for some specified purpose. The amount that an entity, usually a country or its government, has borrowed. Thus often the (negative of) the net foreign asset B Economics Borrowing position or the national debt. B Economics BOT Balance of trade. B Economics Bound rate See tariff binding. Page 32 of 379
  • 33. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. B Economics Bound tariff See tariff binding. Curved. "Bowed out" is used to describe a typical transformation curve, which is concave to the origin. In contrast, a B Economics Bowed transformation curve reflecting increasing returns to scale might be "bowed in" toward the origin. Used with a color, a category of subsidies based on status in WTO: red=forbidden, amber=go slow, green=permitted, B Economics Box blue=subsidies tied to production limits. Terminology seems only to be used in agriculture, where in fact there is no red box. B Economics Box diagram The Edgeworth Box. To protest by refusing to purchase from someone, or otherwise do business with them. In international trade, a boycott most B Economics Boycott often takes the form of refusal to import a countrys goods. In the Mundell-Fleming model, the curve representing balance of payments equilibrium. It is normally upward sloping because B Economics BP-Curve an increase in income increases imports while an increase in the interest rate increases capital inflows. The curve is used under pegged exchange rates for effects on the balance of payments and under floating rates for effects on the exchange rate. B Economics BPO Business process outsourcing Page 33 of 379
  • 34. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The migration of skilled workers out of a country. First applied to the migration of British-trained scientists, physicians, and B Economics Brain drain university teachers in the early 1960s, mostly to the United States. Branch plant An economy that relies heavily on branch plants, i.e., production subsidiaries, of foreign companies, and therefore on foreign- B Economics economy owned capital and technology. A distinctive product offering which is created by the use of a logo, symbol, name, design, packaging or combination thereof. B Economics Brand The key in designing and building a brand is to differentiate it from competitors. Brand loyalty exists when consumers regard one particular brand of a product differently from competing products. Persuasive advertising seeks to reinforce and strengthen brand loyalty and thereby make the demand for the product more inelastic. Brand B Economics Brand loyalty loyalty can be seen as a potential entry barrier in a market. It makes it more difficult and costly for a new product to break into the market when there are established suppliers enjoying a substantial degree of brand loyalty. The break even output is the volume of goods or services that have to be sold in order for the business to make neither a loss B Economics Break even nor a profit. The break even price is when price = average total cost. B Economics Break even output The break-even output occurs when AR=ATC (at this output, normal profit only is made). A town in New Hampshire at which a 1944 conference launched the IMF and the World Bank. These, along with the B Economics Bretton Woods GATT/WTO became known as the Bretton Woods Institutions, and together they comprise the Bretton Woods System. Page 34 of 379
  • 35. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. B Economics Bribe A payment made to person, often a government official such as a customs officer, to induce favorable treatment. B Economics Brokers fee The fee for a transaction charged by an intermediary in a market, such as a bank in a foreign-exchange transaction. Brown field FDI that involves the purchase of an existing plant or firm, rather then construction of a new plant. Contrasts with green field B Economics investment investment. Brussels Tariff An international system of classification for goods that was once widely used for specifying tariffs. It was changed, in name B Economics Nomenclature only, to the CCCN in 1976 and later superseded by the Harmonized System of Tariff Nomenclature B Economics BTN Brussels Tariff Nomenclature A rise in the price of an asset based not on the current or prospective income that it provides but solely on expectations by B Economics Bubble market participants that the price will rise in the future. When those expectations cease, the bubble bursts and the price falls rapidly. Term for an economy in which the presence of one or more bubbles in its asset markets is a dominant feature of its B Economics Bubble economy performance. Japan was said to be a bubble economy in the late 1980s. Page 35 of 379
  • 36. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. For an individual or household, the condition that income equals expenditure (in a static model), or that income minus B Economics Budget constraint expenditure equals the value of increased asset holdings (in a dynamic model). When the government is running a budget deficit, it means that in a given year, total government expenditure exceeds total tax B Economics Budget deficit revenue. As a result, the government has to borrow through the issue of debt such as Treasury Bills and long-term government. B Economics Budget deficit The negative of the budget surplus; thus the excess of expenditure over income. Refers in general to an excess of income over expenditure, but usually refers specifically to the government budget, where it is B Economics Budget surplus the excess of tax revenue over expenditure (including transfer and interest payments). A large quantity of a commodity held in storage to be used to stabilize the commoditys price. This is done by buying when the B Economics Buffer stock price is low and adding to the buffer stock, selling out of the buffer stock when the price is high, hoping to reduce the size of price fluctuations. See international commodity agreement. One way to smooth out the fluctuations in prices is for the government to operate price support schemes through the use of B Economics Buffer stock schemes buffer stocks. Buffer stock schemes seek to stabilize the market price of agricultural products by buying up supplies of the product when harvests are plentiful and selling stocks of the product onto the market when supplies are low. B Economics Building block See stumbling block. Page 36 of 379
  • 37. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Issues that were scheduled for continued negotiations within the WTO in the Uruguay Round agreement. In addition to B Economics Built-in Agenda reviewing the implementation of various agreements, these included negotiations for further liberalization in agriculture and services. B Economics Built-in stabilizer Automatic stabilizer. Bureau of Economic The government agency within the United States Department of Commerce that collects macroeconomic data, especially the B Economics Analysis National Income and Product Accounts, as well as data on balance of payments and international investment. The state of business confidence can be vital in determining whether to go ahead with an investment project. When confidence B Economics Business confidence is strong then planned investment will rise. The business, trade or economic cycle is when actual GDP tends to move up and down in a regular pattern causing booms B Economics Business cycle and slumps (depressions), with recession and recovery as intermediate stages. Business Cycle B Economics Dating Committee See National Bureau of Economic Research. Business ethics is concerned with the social responsibility of management towards the firm‘s major stakeholders, the  B Economics Business ethics environment and society in general. Page 37 of 379
  • 38. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Business process The outsourcing and/or offshoring of business processes, such as the back office functions such as accounting, human B Economics outsourcing resource management, etc. U.S. legislation requiring that government purchases give preference to domestic producers unless imports are at least a B Economics Buy American Act specified percentage cheaper. This is an example of a government procurement NTB that was partially given up under the Tokyo Round. A US law enacted in 2000 requiring that revenues from anti-dumping duties and countervailing duties be given to the US B Economics Byrd Amendment domestic producers who had filed the cases. Navigation and trade by ship along a coast, especially between ports within a country. Restricted in the U.S. by the Jones Act C Economics Cabotage to domestic shipping companies. C Economics CACM Central American Common Market. C Economics CAFTA U.S.-Central American Free Trade Agreement. Cairnes-Haberler C Economics Model A trade model in which all factors of production are assumed immobile between industries. See specific factors model. Page 38 of 379
  • 39. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A group of agricultural exporting countries, currently (2007) numbering 19, that was formed in 1986 to act as a counterweight C Economics Cairns Group especially to the EU in international negotiations on agriculture. Named after the city in Australia where the group first met, in August 1986. In economic models, particularly computable general equilibrium models, this refers to the assignment of values to parameters C Economics Calibration so as to align the model with real-world data. C Economics CAN Comunidad Andina (Spanish for Andean Community) Canada-US Auto The "Canada-United States Automotive Products Agreement of 1965" which reduced trade barriers on specified trade between C Economics Pact Canada and the United States in automobiles and original-equipment auto parts. Canada-US Free C Economics Trade Agreement A free trade agreement between Canada and the United States signed in 1989 and superseded by the NAFTA in 1994. The 5th ministerial meeting of the WTO held in Canc?exico, September 2003 as part of the Doha Round of multilateral trade C Economics Cancún Ministerial negotiations. The meeting failed to reach agreement on a framework text for the round because of disagreements between the US/EU and the G-20, mostly over agricultural subsidies. Canonical model of This term has been used to refer to the model that Krugman (1979) presented of a currency crisis that results when domestic C Economics currency crises policy is pursued in a manner inconsistent with a pegged exchange rate. Page 39 of 379
  • 40. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. C Economics CAP Common Agricultural Policy The term used repeatedly in the Doha Declaration referring to the assistance to be provided to developing countries in C Economics Capacity building establishing and administering their trade policies, conducting analysis, and identifying their interests in trade negotiations. The term capital means investment in goods that are used to produce other goods in the future. Fixed capital includes C Economics Capital machinery, plant and equipment, new technology, factories and buildings - all of which are capital goods designed to increase the productive potential of the economy in future years. A country is capital abundant if its endowment of capital is large compared to other countries. Relative capital abundance can C Economics Capital abundant be defined by either the quantity definition or the price definition. A countrys international transactions arising from changes in holdings of real and financial capital assets (but not income on C Economics Capital account them, which is in the current account). Includes FDI, plus changes in private and official holdings of stocks, bonds, loans, bank accounts, and currencies. Capital account C Economics balance Balance on capital account Capital account C Economics deficit Debits minus credits on capital account. See deficit. Page 40 of 379
  • 41. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Capital account C Economics surplus Credits minus debits on capital account. Same as balance on capital account. See surplus. The process by which the stock of capital inputs is increased. For the capital stock to grow, gross investment needs to be C Economics Capital accumulation higher than that required simply to replace worn out or obsolete machinery and technology. Net investment must be positive. Capital adequacy The ratio of a banks capital to its risk-weighted credit exposure. International standards recommend a minimum for this ratio, C Economics ratio intended to permit banks to absorb losses without becoming insolvent, in order to protect depositors. Said of a technological change or technological difference if one production function produces the same as if it were the other, C Economics Capital augmenting but with a larger quantity of capital. Same as factor augmenting with capital the augmented factor. Also called Solow neutral. Capital consumption C Economics allowance The name used in the National Income and Product Accounts for depreciation of capital. C Economics Capital control Any policy intended to restrict the free movement of capital, especially financial capital, into or out of a country. C Economics Capital depreciation See depreciation. Page 41 of 379
  • 42. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. C Economics Capital flight Large financial capital outflows from a country prompted by fear of default or, especially, by fear of devaluation. C Economics Capital flow International capital movement. The increase in value that the owner of an asset experiences when the price of the asset rises, including when the currency in C Economics Capital gain which the asset is denominated appreciates. Contrasts with capital loss. Producer or capital goods such as plant (factories) and machinery are useful not in themselves but for the goods and services C Economics Capital goods they can help produce in the future. A net flow of capital, real and/or financial, into a country, in the form of increased purchases of domestic assets by foreigners C Economics Capital inflow and/or reduced holdings of foreign assets by domestic residents. Recorded as positive, or a credit, in the balance on capital account. C Economics Capital infusion An increase in financial capital provided from outside a bank, corporation, or other entity. A measure of the relative use of capital, compared to other factors such as labor, in a production process. Often measured by C Economics Capital intensity the ratio of capital to labor, or by the share of capital in factor payments. Page 42 of 379
  • 43. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Describing an industry or sector of the economy that relies relatively heavily on inputs of capital, usually relative to labor, C Economics Capital intensive compared to other industries or sectors. See factor intensity. This is investment spending by companies on fixed capital goods such as new plant and equipment and buildings. Investment C Economics Capital investment also includes spending on working capital such as stocks of finished goods and work in progress. The decrease in value that the owner of an asset experiences when the price of the asset falls, including when the currency in C Economics Capital loss which the asset is denominated depreciates. Contrasts with capital gain. Capital market Anything that interferes with the ability of economic agents to borrow and lend as much as they wish at a fixed rate of interest C Economics imperfection that truly reflects probability of repayment. A common source of imperfection is asymmetric information. The ability of capital to move internationally. The degree of capital mobility depends on government policies restricting or taxing C Economics Capital mobility capital inflows and/or outflows, plus the risk that investors in one country associate with assets in another. C Economics Capital movement Capital inflow and/or outflow. A net flow of capital, real and/or financial, out of a country, in the form of reduced holdings of domestic assets by foreigners C Economics Capital outflow and/or increased holdings of foreign assets by domestic residents. Recorded as negative, or a debit, in the balance on capital account. Page 43 of 379
  • 44. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. C Economics Capital output ratio The ratio of the quantity of capital to the quantity of output, usually in the one-sector economy of a simple growth model. A country is capital scarce if its endowment of capital is small compared to other countries. Relative capital scarcity can be C Economics Capital scarce defined by either the quantity definition or the price definition. C Economics Capital stock The total amount of physical capital that has been accumulated, usually in a country. C Economics Capitalism An economic system in which capital is mostly owned by private individuals and corporations. Contrasts with communism. C Economics Capitalist An owner (or sometimes only a manager) of capital. An economic system organised along capitalist lines uses market-determined prices to guide our choices about the production C Economics Capitalist economy and distribution of goods; these economies generally have productive resources which are privately owned and managed. State intervention is kept to a minimum. One key role for the state is to maintain the rule of law and protect private property. The ratio of the quantity of capital (usually only physical) to the quantity of labor, usually as employed in a particular industry, C Economics Capital-labor ratio but sometimes referring to the entire factor endowment of a country. Page 44 of 379
  • 45. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A technological change or technological difference that is biased in favor of using less capital, compared to some definition of C Economics Capital-saving neutrality. A technological change or technological difference that is biased in favor of using more capital, compared to some definition of C Economics Capital-using neutrality. Caribbean Basin A preferential trading arrangement originally enacted in 1983 by the United States, providing duty-free access to a group of C Economics Initiative Caribbean countries for selected products. It was renewed and extended in 2000. The Caribbean Community and Common Market was formed among four Caribbean countries in 1973 and had 15 members Caribbean C Economics Community as of 2007. Its purpose is the promotion of economic integration among the member countries and coordination of foreign policies. C Economics CARICOM Caribbean Community and Common Market. Carriage of Goods by C Economics Sea Act U.S. legislation governing ocean transport of cargo. C Economics Carrier A firm that provides transportation of persons or goods. Page 45 of 379
  • 46. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The practice of borrowing in the currency of a country where interest rates are low and lending the proceeds in the currency of C Economics Carry trade a country where interest rates are higher, in hopes of profiting from the difference. Success depends on exchange rates remaining relatively constant. Also known as uncovered interest arbitrage. Cartagena C Economics Agreement The 1969 agreement, also known as the Andean Pact, that led ultimately to the Andean Community. A producer cartel seeks to maximise joint profits in a market by engaging in price fixing. This can be achieved by controlling C Economics Cartel market output. C Economics Cascading tariffs Same as tariff escalation. C Economics CBI Caribbean Basin Initiative C Economics CCCN Customs Cooperation Council Nomenclature A 1988 report by a group of experts, chaired by Paolo Cecchini, examining the benefits and costs of creating a single market in C Economics Cecchini Report Europe, in accordance with provisions of the Treaty of Rome. Page 46 of 379
  • 47. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. C Economics CEEC Central and Eastern European countries. C Economics CEFTA Central European Free Trade Agreement. C Economics Ceiling See price ceiling. A group of Central American countries -- El Salvador, Guatemala, Honduras, and Nicaragua -- that formed a common market Central American C Economics Common Market in 1960, with Costa Rica added in 1962. It largely disintegrated in the 1970s and 80s due to military conflicts, but reformed as the Central American Free Trade Zone (but without Costa Rica) starting in 1993. Central and Eastern C Economics European countries Refers, informally, usually to the former Communist countries of Europe. The institution in a country (or a currency area) that is normally (but see currency board) responsible for managing the supply C Economics Central bank of the countrys money and the value of its currency on the foreign exchange market. Central bank C Economics intervention See exchange market intervention. Page 47 of 379
  • 48. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Central bank C Economics reserves International reserves. Central banks occupy pivotal positions in the financial systems of their respective countries. In the UK for example, the Bank of England controls the supply of cash into the economic system and has the responsibility for setting official short term interest C Economics Central banks rates. Most leading central banks are now independent from government and have control over domestic monetary policy. Interest rates inside the Euro Area are now set by the European Central Bank. Central European A free trade agreement initiated 1993 among the Czech Republic, Hungary, Poland, Slovakia, and Slovenia, now also including C Economics Free Trade Bulgaria and Romania. Its purpose was in part to reverse the bias against trade among these neighboring countries that had Agreement developed during the process of transition. Central Intelligence C Economics Agency Intelligence gathering (and espionage) agency of the United States government, publisher of the World Fact Book. C Economics Central parity Par value. The guidance of the economy by direct government control over a large portion of economic activity, as contrasted with C Economics Central planning allowing markets to serve this purpose. Comision Economica para America Latina y el Caribe (Spanish for Economic Commission for Latin America and the C Economics CEPAL Caribbean. Page 48 of 379
  • 49. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. C Economics CER Australia-New Zealand Closer Economic Relations Trade Agreement. Precise knowledge of an economic variable, as opposed to belief that it could take on multiple values. Contrasts with C Economics Certainty uncertainty. One aspect of complete information. A function with constant elasticity of substitution. CES is popular for both production and utility functions. Used extensively in New Trade Theory as the Dixit-Stiglitz utility function for differentiated products under monopolistic competition. With C Economics CES Function arguments X = (X 1,...,X n ), the function is F (X ) = A [Si a i X i r]1/r, where a i , A are positive constants and s = 1/(1-r) is the elasticity of substitution. Due to Arrow et al. (1961). C Economics CET function Constant elasticity of transformation function. Ceteris paribus means all other things being equal. Economists recognise that many factors affect an economic variable. Egg C Economics Ceteris paribus demand is influenced by the price of the good, income, taste, etc. To simplify and enable analysis, economists isolate the relationship between two variables by assuming ceteris paribus - i.e. that all other influencing factors are held constant. C Economics CGE Computable general equilibrium. A form of large business in South Korea, a conglomerate consisting of many companies centered around a parent company. C Economics Chaebol They are family controlled and have strong ties to government. They are similar to the keiretsu of Japan, except that the chaebol do not own banks. Page 49 of 379
  • 50. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A ranking of goods or countries in order of comparative advantage. With two countries and many goods, goods can be ranked Chain of comparative C Economics advantage by comparative advantage (e.g., by relative unit labor requirements in the Ricardian model). A countrys exports will then lie nearer one end of the chain than its imports. With two goods, many countries can be ordered similarly. Change in consumer The change in consumer surplus due to a change in market conditions, usually a price change. For a price change, it is C Economics surplus measured by the area to the left of the demand curve between the two prices, indicating a gain if price falls and a loss if it rises. The change in producer surplus due to a change in market conditions, usually a price change. For a price change, it is Change in producer C Economics surplus measured by the area to the left of the (upward sloping part of the) supply curve between the two prices, indicating a gain if price rises and a loss if it falls. In NAFTA, this portion deals with foreign direct investment. Most controversially, it includes a provision for a firm from one C Economics Chapter 11 member country that has invested in another to bring action against a unit of government in that country if it has acted to reduce the value of its investment. C Economics CHF Acronym for the currency of Switzerland, the Swiss franc, standing for Confœderatio Helvetica Franc. A trade dispute between the U.S. and the EEC that began in 1962 when the EEC extended the variable levy of the CAP to C Economics Chicken War poultry, tripling German tariffs on U.S. chickens. A GATT panel quantified the damage and led to U.S. retaliatory tariffs on cognac, trucks, and other goods. The U.S. 25% tariff on trucks today is a remnant of the chicken war. C Economics Child labor Employment of children under a specified minimum age. Page 50 of 379
  • 51. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Chinese Economic C Economics Area Unofficial name for the area comprising Hong Kong, Taiwan, and either China as a whole or just its Special Economic Zones. Because of scarcity, choices have to be made on a daily basis by individual consumers, firms and governments. Making a C Economics Choices choice made normally involves a trade-off - in simple terms, choosing more of one thing means giving up something else in exchange. Because wants are unlimited but resources are finite, choice is an unavoidable issue in economics. C Economics CIA Central Intelligence Agency The price of a traded good including transport cost. It stands for "cost, insurance, and freight," but is used only as these initials C Economics CIF (usually lower case: c.i.f.). It means that a price includes the various costs, such as transportation and insurance, needed to get a good from one country to another. Contrasts with FOB. The circular flow of income is a diagrammatic representation of economic activity in a given time period. It identifies the main C Economics Circular flow sectors in the economy (households, firms the government and overseas) and linkages between sectors e.g. wages government spending & interest payments. C Economics CIS Commonwealth of Independent States Convention on International Trade in Endangered Species of Wild Fauna and Flora, an agreement among originally 80 C Economics CITES governments effective in 1975 to prevent trade in wild animals and plants from threatening their survival. It works by requiring licensing of trade in covered species. Page 51 of 379
  • 52. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The name used to encompass a wide and self-selected variety of interest groups, worldwide. It does not include for-profit C Economics Civil society businesses, government, and government organizations, whereas it does include most NGOs. Civil society C Economics organization Non-governmental organization Referring to the writings, models, and economic assumptions of the first century of economics, including Adam Smith, David C Economics Classical Ricardo, and John Stuart Mill. A market is said to clear if supply is equal to demand. Market clearing can be brought about by adjustment of the price (or the C Economics Clear exchange rate, in the case of the exchange market), or by some form of government (or central bank) intervention in or regulation of the market. An arrangement among financial institutions for carrying out the transactions among them, including canceling out offsetting C Economics Clearing system credits and debits on the same account. Closed currency A commitment to take or make delivery of a currency in the future that is covered by a contract in the forward market; opposite C Economics position of an open position. C Economics Closed economy An economy that does not permit economic transactions with the outside world; a country in autarky. Page 52 of 379
  • 53. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Closer Economic C Economics Relations See Australia-New Zealand Closer Economic Relations Trade Agreement. C Economics CMEA Council for Mutual Economic Assistance The proposition that the allocation of property rights does not matter for economic efficiency, so long as they are well defined C Economics Coase Theorem and a free market exists for the exchange of rights between those who have them and those who do not. Due to Coase (1960). A popular functional form for production and utility functions. With arguments X = (X1,...,Xn), the function is F(X) = APiXiai, Cobb-Douglas C Economics function where Siai = 1 and A are positive constants. This function has elasticity of substitution between arguments equal to one. As a production or utility function, it has competitive expenditure shares equal to ai. This is the "food code," consisting of standards, codes of practice, guidelines, and recommendations for producing and C Economics Codex Alimentarius processing food. It is administered by the Codex Alimentarius Commission. C Economics Coefficient A number or symbol multiplied by a variable. C Economics COGSA Carriage of Goods by Sea Act. Page 53 of 379
  • 54. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Collective action C Economics problem The difficulty of getting a group to act when members benefit if others act, but incur a net cost if they act themselves. Unions might seek to exercise their collective bargaining power with employers to achieve a mark-up on wages compared to C Economics Collective bargaining those on offer to non-union members. Collusion is any explicit or implicit agreement between suppliers in a market to avoid competition. Producers may decide to control market supply by entering into a collusive agreement and opt to fix prices rather than engage in competition. The main C Economics Collusion aim of this is to reduce market uncertainty and achieve a level of joint profits similar to that which might be achieved by a pure monopolist. C Economics Collusive oligopoly When several large firms in an industry act to restrict price or output. C Economics COMECON Council for Mutual Economic Assistance C Economics COMESA Common Market of Eastern and Southern Africa An economy in which decisions about production and allocation are made by government dictate, rather than by decentralized C Economics Command economy responses to market forces. Page 54 of 379
  • 55. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. An institution that accepts and manages deposits from households, firms and governments and uses a portion of those C Economics Commercial bank deposits to earn interest by making loans and holding securities. C Economics Commercial paper Short-term, negotiable debt of a firm; thus a bond of short maturity issued by a company. Government policies intended to influence international commerce, including international trade. Includes tariffs and NTBs, as C Economics Commercial policy well as policies regarding exports. Could refer to any good, but in a trade context a commodity is usually a raw material or primary product that enters into C Economics Commodity international trade, such as metals (tin, manganese) or basic agricultural products (coffee, cocoa). Commodity C Economics agreement See international commodity agreement. Commodity pattern of The trade pattern of a country or the world, focusing on goods and services traded as opposed to the factor content of that C Economics trade trade. C Economics Commodity prices Usually means the prices of raw materials and primary products. Page 55 of 379
  • 56. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The Common Agricultural Policy has been in place now for over forty five years and is one of the most controversial aspects of Common Agricultural the European Union. To many economists, the CAP is a grossly inefficient form of farm support and is in need of fundamental C Economics Policy (CAP) reform. To others, the CAP has done much to increase the efficiency of the European farm system and has met many of its original objectives. C Economics Common currency A currency that is shared by more than one country. Thus the currency of a currency area. Common external C Economics tariff The single tariff rate agreed to by all members of a customs union on imports of a product from outside the union. A group of countries that eliminate all barriers to movement of both goods and factors among themselves, and that also, on C Economics Common market each product, agree to levy the same tariff on imports from outside the group. Equivalent to a customs union plus free mobility of factors. Common Market of A trade agreement involving 21 nations of Eastern and Southern Africa. It went into effect in 1994, replacing a Preferential C Economics Eastern and Southern Trade Area that had begun in 1982, with the aim of forming a free trade area by 2000 and achieving other trade liberalization Africa and transport facilitation over a period of 16 years. C Economics Common tangent A straight line that is tangent to two or more curves. Used in the Lerner diagram. Commonwealth of C Economics Independent States An organization formed in 1991 of the nations that had been part of the USSR. Page 56 of 379
  • 57. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. C Economics Communism An economic system in which capital is owned by government. Contrasts with capitalism. One of a family of indifference curves intended to represent the preferences, and sometimes the well-being, of a country as a Community C Economics indifference curve whole. This is a handy tool for deriving quantities of trade in a two-good model, although its legitimacy depends on the existence of community preferences, which in turn requires very restrictive assumptions. See Leontief (1933). A set of consumer preferences, analogous to those of an individual as might be represented by a utility function, but Community C Economics preferences representing the preferences of a group of consumers. The existence of well-behaved community preferences requires restrictive assumptions about individual preferences and/or incomes. Comparative C Economics advantage Comparative advantage exists when a country has lower opportunity cost in the production of a good or service. Refers to a comparison of two equilibria from a static model, usually differing by the effects of a single small change in an C Economics Comparative static exogenous variable. A demand curve constructed under the assumption that demanders income is not held constant, but rather is varied to hold Compensated C Economics demand curve level of utility at a constant level. The change in consumer surplus calculated from particular compensated demand curves measures compensating variation and equivalent variation. An amount of money that just compensates a person, group, or whole economy, for the welfare effects of a change in the Compensating C Economics variation economy, thus providing a monetary measure of that change in welfare. Same as willingness to pay. Contrasts with equivalent variation. Page 57 of 379
  • 58. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Compensating wage Wage differentials in part act as a compensation for people who have to work unsocial hours or who are exposed to different C Economics differentials degrees of risk at work, both in the short term and long run. The GATT principle that members who violate GATT rules must compensate other countries by lowering tariffs or making C Economics Compensation other concessions, or be subject to retaliation. As a basis for welfare comparisons, the idea that if a policy change (such as a tariff reduction) could be Pareto improving if it Compensation C Economics principle were accompanied by appropriate lump-sum transfers from winners to losers, then it is viewed as beneficial even when those transfers do not occur. C Economics Compensation trade Countertrade, including especially payment for foreign direct investment out of the proceeds from that investment. The interactions between two or more sellers or buyers in a single market, each attempting to get or pay the most favorable C Economics Competition price. Economists usually interpret and model these interactions as among individual economic agents -- firms or consumers. Popular terminology extends also to competition among nations, especially competing exporters. The Competition Commission carries out inquiries into matters referred to it by the other UK competition authorities concerning Competition monopolies, mergers and the economic regulation of utility companies. The Appeal Tribunals hear appeals against decisions C Economics Commission of the Director General of Fair Trading and the regulators of utilities in respect of infringements concerning anti-competitive agreements and abuse of a dominant position. C Economics Competition policy Government policy which seeks to promote competition and efficiency in different markets and industries. Page 58 of 379
  • 59. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Policies intended to prevent collusion among firms and to prevent individual firms from having excessive market power. Major C Economics Competition policy forms include oversight of mergers and prevention of price fixing and market sharing. Called "anti-trust policy" in the U.S. One of the Singapore Issues. C Economics Competitive Used alone, this usually means perfectly competitive. Contrasts with imperfectly competitive. Competitive C Economics advantage Competitiveness. Contrasts with comparative advantage. A competitive market is one where no one firm has a dominant position and where the consumer has plenty of choice when C Economics Competitive market buying goods or services. Firms in a competitive market each have a small market share. There are few barriers to the entry of new firms which allows new businesses to enter the market if they believe they can make sufficient profits. Goods in competitive supply are alternative products a firm could make with its resources. Egg a farmer can plant potatoes or C Economics Competitive supply carrots. An electronics factory can produce VCRs or DVDs. Usually refers to characteristics that permit a firm to compete effectively with other firms due to low cost or superior technology, C Economics Competitiveness perhaps internationally. When applied to nations, instead of firms, the word has a mercantilist connotation. Page 59 of 379
  • 60. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Two complements are said to be in joint demand. Examples include: fish and chips, DVD players and DVDs, iron ore and steel, success and hard work. A rise in the price of a complement to Good X should cause a fall in demand for X. For example Complementary an increase in the cost of flights from London Heathrow to New York would cause a decrease in the demand for hotel rooms in C Economics goods New York and also a fall in the demand for taxi services both in London and New York. A fall in the price of a complement to Good Y should cause an increase in demand for Good Y. For example a reduction in the market price of computers should lead to an increase in the demand for computer peripherals such as printers, scanners and software applications. The assumption that economic agents (buyers and sellers, consumers and firms) know everything that they need to know in C Economics Complete information order to make optimal decisions. Types of incomplete information are uncertainty and asymmetric information. Complete C Economics specialization Production only of goods that are exported or nontraded, but none that compete with imports. A complex monopoly exists if at least one quarter (25%) of the market is in the hands of one or a group of suppliers who, C Economics Complex monopoly deliberately or not, act in a way designed to reduce competitive pressures within a market. A currency defined as a specified combination of two or more currencies, normally existing only as a unit of account rather than C Economics Composite currency as a physical currency. Examples include the SDR and the ECU. Composite demand exists where goods or services have more than one use so that an increase in the demand for one product leads to a fall in supply of the other. The most commonly quoted example is that of milk which can be used for cheese, C Economics Composite Demand yoghurts, cream, butter and other products. If more milk is used for manufacturing cheese, ceteris paribus there is less available for butter. Page 60 of 379
  • 61. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. C Economics Compound tariff A tariff that combines both a specific and an ad valorem component. A legal requirement for the owner of a patent to let other firms produce its product, under specified terms. Countries C Economics Compulsory licensing sometimes require foreign patent holders to license domestic firms so as to improve access to the patented product at lower cost. This is permitted by the TRIPs Agreement for certain purposes, such as protecting public health. Refers to economic models of microeconomic behavior in multiple markets of one or more economies, solved computationally Computable general C Economics equilibrium for equilibrium values or changes due to specified policies. The equations are anchored with data from the countries being modeled, while behavioral parameters are either assumed or adapted from estimates elsewhere. An analogue to covariance for three variables. For three variables x , y , and z with values x i , y i , z i , i= 1,…,n , the comvariance C Economics Comvariance is com(x ,y ,z ) = Si =1…n (x i -m(x ))(y i -m(y ))(z i -m(z )), where m(·) is the mean of the values in its argument. Due to Deardorff (1982). Said of a curve that bulges away from some reference point, usually the horizontal axis or the origin of a diagram. More C Economics Concave formally, a curve is concave from below (or concave to something below it) if all straight lines connecting points on it lie on or below it. Contrasts with convex. C Economics Concentration See industrial concentration. C Economics Concentration ratio Measure the proportion of an industrys output or employment accounted for by, say, the three, five or seven largest firms. Page 61 of 379
  • 62. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The reduction of a countrys highest tariff to the level of the next highest, followed by the reduction of both to the level of the Concertina tariff C Economics reduction next highest after that, and so forth. Also called the concertina rule. This is known to raise welfare if all goods are net substitutes. The term used in GATT negotiations for a countrys agreement to bind a tariff or otherwise reduce import restrictions, usually in C Economics Concession return for comparable "concessions" by other countries. Use of this term, with its connotation of loss, for what economic theory suggests is often a source of gain, is part of what has been called GATT-Speak. Concessional C Economics financing Loans made by a government at an interest rate below the market rate as an indirect method of providing a subsidy. The requirements imposed by the IMF and World Bank on borrowing countries to qualify for a loan, typically including a long C Economics Conditionality list of budgetary and policy changes comprising a structural adjustment program. Cone of C Economics diversification See diversification cone. Conservative Social A social welfare function that takes special account of the costs to individuals of losing relative to the status quo, and that C Economics Welfare Function therefore seeks to avoid large losses to significant groups within the population. Due to Corden (1974). Something that is put into the care of another, as when a batch of traded goods is consigned to a shipper for transport to C Economics Consignment another location. Page 62 of 379
  • 63. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Dollars of constant purchasing power. That is, corrected for inflation. More precisely includes reference to a base year for C Economics Constant dollars comparison, e.g. "in constant 1992 dollars." Same as constant prices. Constant elasticity of C Economics substitution function See CES function Constant elasticity of C Economics transformation A function representing an economys transformation curve along which the elasticity of transformation is constant. function C Economics Constant prices See constant dollars. A property of a production function such that scaling all inputs by any positive constant also scales output by the same Constant returns to C Economics scale constant. Such a function is also called homogeneous of degree one or linearly homogeneous. CRTS is a critical assumption of the H-O Model of international trade. Contrasts with increasing returns and decreasing returns. Constrained revenue Shareholders of a business may introduce a constraint on the price and output decisions of managers – this is known as  C Economics maximisation constrained sales revenue maximisation. The willingness of people to make major spending commitments depends on how confident they are about both their own C Economics Consumer confidence financial circumstances, and also the general health of the economy. Consumer confidence is quite volatile from month to month. Some of the fluctuations are seasonal – but the underlying trend is what really matters. Page 63 of 379
  • 64. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. One of four modes of supply of traded services, this one entails the buyer moving (temporarily) to the foreign location of the C Economics Consumer movement seller, as in the case of tourism. A price index for the goods purchased by consumers in an economy, usually based on only a small sample of what they C Economics Consumer price index consume. Commonly used to measure inflation. Contrasts with the implicit price deflator. Consumers expenditure on goods and services: This includes demand for consumer durables (e.g. washing machines, audio- C Economics Consumer spending visual equipment and motor vehicles & non-durable goods such as food and drinks which are ―consumed‖ and must be  repurchased). Introduced by the OECD to quantify agricultural policies, this measures transfers to or from consumers that are implicit in these Consumer support C Economics estimate policies. Since industrialized-country agricultural producers are routinely supported by raising prices, CSE estimates are usually negative. See also PSE. Consumer surplus is the difference between the total amount that consumers are willing and able to pay for a good or service C Economics Consumer surplus (indicated by the demand curve) and the total amount that they actually pay (the market price). C Economics Consumption Consumption is the use of a good or a service by consumers (households) to satisfy a want or a need. Consumption C Economics externality An externality arising from consumption. Page 64 of 379
  • 65. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. C Economics Consumption function The function relating aggregate consumption to aggregate income and sometimes other variables such as wealth. A graph of the maximum quantities of goods (usually two) that an economy can consume in a specified situation, such as Consumption C Economics possibility frontier autarky and free trade. Used to illustrate the potential benefits from trade by showing that it can expand consumption possibilities. C Economics Contagion The phenomenon of a financial crisis in one country spilling over to another, which then suffers many of the same problems. C Economics Content protection See domestic content protection. C Economics Content requirement See domestic content requirement. Baumol defined contestable markets as existing where ―an entrant has access to all production techniques available to the  C Economics Contestable market incumbents, is not prohibited from wooing the incumbent‘s customers, and entry decisions can be reversed without cost.‖ C Economics Contingent protection Administered protection. Page 65 of 379
  • 66. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. C Economics Continuous time The use of a continuous variable to represent time, as in an economic model. A model in which some entities that are normally discrete and exist in finite numbers are modeled instead by a continuous C Economics Continuum model variable. This can sometimes simplify the treatment of large numbers of entities. In trade theory, the most notable example is the continuum-of-goods model. Continuum-of-goods A class of trade models in which goods are indexed by a continuous variable, approximating the case of very large numbers of C Economics model goods. The classic, original examples are Dornbusch, Fischer, and Samuelson (1977, 1980). In an Edgeworth Box for consumption, the allocations of 2 goods to 2 consumers that are Pareto efficient. Starting with an C Economics Contract curve allocation that may not be on the contract curve, it shows the ways that the consumers might contract to exchange the goods with each other. A country that has signed the GATT. The term Contracting Parties with both words capitalized means all Contracting Parties C Economics Contracting party acting jointly. C Economics Contraction Economic contraction Tending to cause aggregate output (GDP) and/or the price level to fall. Term is typically applied to monetary policy (a decrease C Economics Contractionary in the money supply or an increase in interest rates) and to fiscal policy (a decrease in government spending or a tax increase), but may also apply to other macroeconomic shocks. Contrasts with expansionary. Page 66 of 379
  • 67. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The process of becoming quantitatively more alike. In an international context, it often refers to countries becoming more alike C Economics Convergence in terms of their factor prices or in terms of their per capita incomes, perhaps as a result of trade or other forms of economic integration. A currency that can legally be exchanged for another or for gold. In times of crisis, governments sometimes restrict such C Economics Convertible currency exchange, giving rise to black market exchange rates. Said of a curve that bulges toward some reference point, usually the horizontal axis or the origin of a diagram. More formally, a C Economics Convex curve is convex from below (or convex to something below it) if all straight lines connecting points on it lie on or above it. Contrasts with concave. Cooperation in setting economic policy, especially across countries, so that policies of different governments reinforce each C Economics Coordination other rather than canceling each other out. The legal right to the proceeds from and control over the use of a created product, such a written work, audio, video, film, or C Economics Copyright software. This right generally extends over the life of the author plus fifty years. Copyright is one form of intellectual property that is subject of the TRIPS agreement. C Economics Core inflation The rate of inflation excluding certain sectors whose prices are most volatile, specifically food and energy. The core propositions of the HO Model are the factor price equalization theorem, the Heckscher-Ohlin Theorem, the Stolper- C Economics Core propositions Samuelson Theorem, and the Rybczynski Theorem, according to Ethier (1974). Page 67 of 379
  • 68. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. British regulations on the import and export of grain, mainly wheat, intended to control its price. The laws were repealed in C Economics Corn Laws 1846, signaling a shift toward free trade. A tax on the profits of corporations. Differences in corporate tax rates across countries can be a cause of foreign direct C Economics Corporate income tax investment as well as transfer pricing. There is growing interest in the concept of ethical businesses and corporate social responsibility where the traditional Corporate Social C Economics Responsibility assumption of businesses driven solely by the profit motive is challenged and where businesses are encouraged to take account of their economic, social and environmental impacts. Corporation tax is paid on profits. If the government reduces the rate of corporation tax (or increases investment tax- allowances) there is a greater incentive to invest. Britain has relatively low rates of company taxation compared to other C Economics Corporation tax countries inside the EU. This is a factor that helps to explain why Britain has been a favoured venue for inward investment from overseas during the last decade. A measure of the extent to which two economic or statistical variables move together, normalized so that its values range from - C Economics Correlation 1 to +1. It is defined as the covariance of the two variables divided by the square root of the product of their variances. The correlation is used in trade theory to express weak relationships among economic variables. A theoretical property of models with arbitrary numbers of goods or other variables that takes the form of a correlation among C Economics Correlation result variables rather than a strict prediction for each one. Thus represents a weaker average relationship among the variables. Used for comparative advantage and other properties of trade models in higher dimensions. Dishonest or partial behavior on the part of a government official or employee, such as a customs or procurement officer. Also C Economics Corruption actions by others intended to induce such behavior, such as bribery or blackmail. Page 68 of 379
  • 69. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Possession of a lower cost of production or operation than a competing firm or country. In the case of countries, this could C Economics Cost advantage refer to an absolute advantage, although it is more likeliy a comparative advantage. Governments face choices: do we build new hospitals or new or new schools, etc. Given limited resources how can government decide which projects to prioritise and build and which to reject? Cost Benefit Analysis (CBA) offers a systematic C Economics Cost benefit analysis framework for measuring and evaluating the likely impact of public sector project, takes into account both private and external costs and benefits over the entire life of the project. C Economics Cost function A function relating the minimized total cost in a firm or industry to output and factor prices. Cost push inflation is caused by increases in costs of production e.g. wage increases, increased import price (imported inflation) or higher indirect taxation. Firms put up prices to maintain profit margins. Cost-push inflation can be illustrated by an C Economics Cost push inflation inward shift of the short run aggregate supply curve. The fall in SRAS causes a contraction of real national output together with a rise in the general level of prices. Cost reducing Cost reducing innovations have the effect of causing an outward shift in market supply and they also provide the scope for C Economics innovation businesses to enjoy higher profit margins with a given level of demand. Cost, insurance, C Economics freight See CIF. The use of economic analysis to quantify the gains and losses from a policy or program as well as their distribution across C Economics Cost-benefit analysis different groups in a society. Page 69 of 379
  • 70. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Costs are those expenses faced by a business when producing a good or service for a market. Every business faces costs - C Economics Costs these must be recouped if a business is to make a profit from its activities. In the short run a firm will have fixed and variable costs of production. A partnership agreement between the EU and the ACP Countries signed in June 2000 in Cotonou, Benin, replacing the Lomé C Economics Cotonou Agreement Convention. Its main objective is poverty reduction, "to be achieved through political dialogue, development aid and closer economic and trade cooperation." Council for Mutual An international organization formed in 1956 among the Soviet Union and other Communist countries to coordinate economic C Economics Economic Assistance development and trade. It was disbanded in 1991. Also known as COMECON. C Economics Countertrade Trade in which part or all of payment is made in goods or services. See barter. A tariff levied against imports that are subsidized by the exporting countrys government, designed to offset (countervail) the C Economics Countervailing duty effect of the subsidy. The country in which a good was produced, or sometimes, in the case of a traded service, the home country of the service C Economics Country of origin provider. The risk associated with operating in, trading with, or especially holding the assets issued by, a particular country. In the case C Economics Country risk of assets, country risk helps to explain why borrowers in some country must pay higher interest rates than borrowers from other countries, thus paying a country risk premium. Page 70 of 379
  • 71. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. C Economics Country size Any of many measures of the size of a country. For most economic comparisons, however, country size refers to GDP. The interest payment on a bond, so-named because bonds originally were pieces of paper with small sections, called coupons, C Economics Coupon that were cut off and exchanged for the interest payments. The assumption, often assumed to be made by firms in an oligopoly, that other firms hold their outputs constant as they C Economics Cournot competition themselves change behavior. Contrasts with Bertrand competition. Both are used in models of international oligopoly, but Cournot competition is used more often. That the sum of the balances of payments or of trade across all countries must be zero. Term seems to have been coined by, C Economics Cournots law and perhaps only used by, Mundell (1960, p. 102), who credited it to Cournot (1897). Court of International C Economics Trade See U.S. Court of International Trade. A measure of the extent to which two economic or statistical variables move up and down together. For two variables x and y C Economics Covariance with values xi, yi, i=1,…,n, the covariance is cov(x,y) = Si=1…n(xi-m(x))(yi-m(y)), where m(·) is the mean of the values in its  argument. To use the forward market to protect against exchange risk. Typically, an importer with a future commitment to pay in foreign C Economics Cover currency would buy it forward, and exporter with a future receipt would sell it forward, and a purchaser of a foreign bond would sell forward the expected proceeds at maturity. See hedge. Page 71 of 379
  • 72. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A combination of transactions on two countries securities and exchange markets designed to profit from failure of covered Covered interest C Economics arbitrage interest parity. A typical set of transactions would include selling bonds in one market, using the proceeds to buy spot foreign currency and foreign bonds, and selling forward the return at a future date. See also one-way arbitrage. Equality of returns on otherwise comparable financial assets denominated in two currencies, assuming that the forward market Covered interest C Economics parity is used to cover against exchange risk. As an approximation, covered interest parity requires that i = i* + p where i is the domestic interest rate, i* is the foreign interest rate, and p is the forward premium. The covered interest rate, in a currency other than your own, is the nominal interest rate plus the forward premium on the C Economics Covered interest rate currency; thus the percent you will earn holding the foreign asset while protecting against exchange-rate change by selling the foreign currency forward. C Economics CPI Consumer price index. An exchange rate that is pegged, but for which the par value is changed frequently by small amounts and in a preannounced C Economics Crawling peg fashion in response to signals from the exchange market. C Economics Creation See trade creation. Recorded as positive (+) in the balance of payments, any transaction that gives rise to a payment into the country, such as an C Economics Credit export, the sale of an asset (including official reserves), or borrowing from abroad. Opposite of debit. Page 72 of 379
  • 73. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A shortage of available loans. In well-functioning markets, this would simply mean a rise in interest rates, but in practice it often C Economics Credit crunch means that some borrowers cannot get loans at all, a situation of credit rationing. A country whose assets owned abroad are worth more than the assets within the country that are owned by foreigners. C Economics Creditor nation Contrasts with debtor nation. This term seems to be used both for a rate of inflation that is low but nonetheless high enough to cause problems, and for a C Economics Creeping inflation rate of inflation that itself gradually moves higher over time. Used to describe a capitalist economy in which government or corporate officials and insiders provide lucrative opportunities C Economics Crony capitalism for their friends and relatives. Term became popular during the Asian Crisis to describe some of the victim countries, but is now often used elsewhere as well. Cross price elasticity (CPed) measures the responsiveness of demand for good X following a change in the price of good Y (a Cross price elasticity C Economics of demand related good). With cross price elasticity we make an important distinction between substitute products and complementary goods and services. C Economics Cross rate The exchange rate between two currencies as implied by their values with respect to a third currency. A firm operates a cross subsidy when it uses profits from one line of business to finance losses in another line of business. There are many reasons for maintaining a cross subsidy, either to promote a product new to the market which is making C Economics Cross subsidy losses, or as a form of predatory pricing designed to eliminate an existing competitor, the latter is illegal under UK and European competition law. Page 73 of 379
  • 74. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The provision of an internationally traded service across national borders without requiring physical movement of buyer or C Economics Cross-border supply seller, as when the service can be provided by long-distance communication. One of four such modes of supply of traded services. The simultaneous shipment of the same product in opposite directions over the same route. The export of the same good by C Economics Cross-hauling two countries to each other would be cross-hauling, if it occurs at the same time. C Economics CRS Constant returns to scale = CRTS C Economics CRTS Constant returns to scale C Economics Crude Crude oil. C Economics CSE Consumer support estimate C Economics CSO Civil society organization Page 74 of 379
  • 75. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The view that imports undermine a countrys culture and identity -- for example by changing consumption patterns to ones Cultural argument for C Economics protection more similar to those abroad, or by reducing demands for domestically produced art and music -- and therefore that imports should be restricted. In an anti-dumping case against imports from more than one country, the summation of these imports for the purpose of C Economics Cumulation determining injury. That is, the imports are deemed to have caused injury if all of them together could have done so, even if individually they would not. C Economics Currency The money used by a country; e.g., the national currency of Japan is the yen. A group of countries that share a common currency. Originally defined by Mundell (1961) as a group that have fixed exchange C Economics Currency area rates among their national currencies. C Economics Currency basket A group of two or more currencies that may be used as a unit of account, or to which another currency may be pegged. C Economics Currency bloc A group of countries that share a common currency; a currency area. An extreme form of pegged exchange rate in which management of both the exchange rate and the money supply are taken C Economics Currency board away from the central bank and given to an agency with instructions to back every unit of circulating domestic currency with a specified amount of foreign currency. Operates similarly to the gold standard. Page 75 of 379
  • 76. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Currency C Economics convertibility See convertible currency. The crisis that occurs when particpants in an exchange market come to perceive that an attempt to maintain a pegged C Economics Currency crisis exchange rate is about to fail, causing speculation against the peg that hastens the failure and forces a devaluation. Currency C Economics depreciation See depreciation. The portion of a rate of return that is due to the currency in which the asset is denominated. The currency factor can be C Economics Currency factor nonzero either because of currency risk or because of expected appreciation or depreciation. Currency in The amount of a countrys currency that is in the hands of the public (households, firms, banks, etc), as opposed to sitting in C Economics circulation the vaults of the central bank. C Economics Currency intervention Exchange market intervention. C Economics Currency realignment A change in the par value of a pegged exchange rate. Page 76 of 379
  • 77. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. C Economics Currency reserves This usually means international reserves. C Economics Currency risk Uncertainty about the future value of a currency. To buy or sell a currency in anticipation of its appreciation or depreciation respectively, the intent being to make a profit or C Economics Currency speculation avoid a loss. See speculation. C Economics Currency swap See swap. A group of countries that agree to peg their exchange rates and to coordinate their monetary policies so as to avoid the need C Economics Currency union for currency realignments. A countrys international transactions arising from current flows, as opposed to changes in stocks which are part of the capital C Economics Current account account. Includes trade in goods and services (including payments of interest and dividends on capital) plus inflows and outflows of transfers. The current account balance comprises the balance of trade in goods and services plus net investment incomes from Current account overseas assets. (This income in the form of interest, profits and dividends from external assets located outside the UK is also C Economics balance the difference between GDP and GNP). We also add in the net balance of private transfers between countries and government transfers (e.g. UK government payments to help fund the various spending programmes of the European Union). Page 77 of 379
  • 78. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Current account C Economics deficit Debits minus credits on current account. See deficit. Current account C Economics surplus Credits minus debits on current account. Same as balance on current account. See surplus. Refers to prices in the present, rather than in some base year; e.g., "GDP at current prices" means GDP as measured, in C Economics Current prices contrast to real GDP, or "GDP at XXXX prices," where the latter is measured in the prices of year XXXX. C Economics CUSFTA Canada-US Free Trade Agreement. C Economics CUSTA Same as Canada-US Free Trade Agreement. C Economics Customs area A geographic area that is responsible for levying its own customs duties at its border. Customs C Economics classification The category defining the tariff to be applied to an imported good. Page 78 of 379
  • 79. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Customs Cooperation An international system of classification of goods for specifying tariffs, called the Brussels Tariff Nomenclature prior to 1976, C Economics Council and later superseded by the Harmonized System of Tariff Nomenclature Nomenclature C Economics Customs duty An import tariff. C Economics Customs officer The government official who monitors goods moving across a national border and levies tariffs. The practices used by customs officers to clear goods into a country and levy tariffs. Includes clearance procedures such as C Economics Customs procedure documentation and inspection, methods of determining a goods classification, and methods of assigning its value as the base for an ad valorem tariff. Any of these can impede trade and constitute a NTB. C Economics Customs Service See U.S. Customs Service. C Economics Customs station An office through which imported goods must pass in order to be monitored and taxed by customs officers. A group of countries that adopt free trade (zero tariffs and no other restrictions on trade) on trade among themselves, and that C Economics Customs union also, on each product, agree to levy the same tariff on imports from outside the group. Equivalent to an FTA plus a common external tariff. Page 79 of 379
  • 80. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The method by which a customs officer determines the value of an imported good for the purpose of levying an ad valorem C Economics Customs valuation tariff. When this method is biased against importing, it becomes an NTB. C Economics CVD Countervailing duty Cyclical The portion of unemployment that is due to the business cycle and thus rises in recessions but then disappears eventually after C Economics unemployment the recession ends. A legal term for an amount that is small enough to be ignored, too small to be taken seriously. Used to restrict legal provisions, D Economics De minimis including laws regarding international trade, to amounts of activity or trade that are not trivially small. A loss of social welfare deriving from a policy or action that has no corresponding gain. Deadweight losses of welfare are often D Economics Deadweight loss associated with the economic costs of monopoly power in a market or the effects of negative and positive externalities that remain ignored by the free market mechanism. D Economics Debase To reduce the value of. Classically, a currency is debased if its value in terms of gold or other precious metal is reduced. D Economics Debenture A debt that is not backed by collateral, but only by the credit and good faith of the borrower. Page 80 of 379
  • 81. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Recorded as negative (-) in the balance of payments, any transaction that gives rise to a payment out of the country, such as D Economics Debit an import, the purchase of an asset (including official reserves), or lending to foreigners. Opposite of credit. The amount that is owed, as a result of previous borrowing. A countrys debt may refer to the debt of its government or to that D Economics Debt of the country as a whole. D Economics Debt burden The debt of a country, when large enough that servicing it has become difficult. The most extreme form of debt relief, in which a countrys debts are completely forgiven, so that no repayment of interest or D Economics Debt cancellation principal is required. D Economics Debt crisis A situation in which a country, usually a developing country, finds itself unable to service its debts. A situation in which the external debt of a country is larger than it will be able to repay. Often due to having borrowed in foreign D Economics Debt overhang currency and then had its own currency depreciate. Any arrangement intended to reduce the burden of debt on a country, usually including forgiveness of part or all of what is D Economics Debt relief owed to creditors who may include private banks and other entities, government, or international financial institutions. Page 81 of 379
  • 82. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. D Economics Debt service The payments made by a borrower on its debt, usually including both interest payments and partial repayment of principal. The ability of a debtor country to service its debt on a continuing basis and not go into default. After a debt crisis, sustainability D Economics Debt sustainability may be restored through debt rescheduling. An exchange of debt for equity, in which a lender is given a share of ownership to replace a loan. Used as a method of D Economics Debt/equity swap resolving debt crises. A country whose assets owned abroad are worth less than the assets within the country that are owned by foreigners. D Economics Debtor nation Contrasts with creditor nation. One of ten segments of a distribution that has been divided into tenths. For example, the second-from-the-bottom decile of an D Economics Decile income distribution is those whose income exceeds the incomes of from 10% to 20% of the population. Refers to the provision of government support to an enterprise, usually a farm, in a manner that does not provide an incentive D Economics Decouple to increase production. Farm subsidies that are decoupled are included in the green box and are therefore permitted by the WTO. D Economics Decreasing cost Average cost that declines as output increases, due to increasing returns to scale. Page 82 of 379
  • 83. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A property of a production function such that changing all inputs by the same proportion changes output less than in proportion. Decreasing returns to Example: a function homogeneous of degree less than one. Also called simply decreasing returns. Not to be confused with D Economics scale diminishing returns, which refers to increasing some inputs while holding other inputs fixed. Contrasts with increasing returns and constant returns. Refers to economic integration that goes well beyond removal of formal barriers to trade and includes various ways of reducing D Economics Deep integration the international burden of differing national regulations, such as mutual recognition and harmonization. Contrasts with shallow integration. Failure to repay a loan. International loans by governments and private agents lack mechanisms to deal with default, D Economics Default comparable to the legal mechanisms that exist within countries. Payment to a producer of an amount equal to the difference between a guaranteed price and the market price, with the latter D Economics Deficiency Payment often determined on the world market. Thus a form of subsidy to production. In the balance of payments, or in any category of international transactions within it, the deficit is the sum of debits minus the D Economics Deficit sum of credits, or the negative of the surplus. The method used by a government to finance its budget deficit, that is, to cover the difference between its tax receipts and its D Economics Deficit financing expenditures. The main choices are to issue bonds or to print money. Price deflation is when the rate of inflation becomes negative. I.e. the general price level is falling and the value of money is increasing. Some countries have experienced deflation in recent years – good examples include Japan and China. In Japan,  D Economics Deflation the root cause of deflation was very slow economic growth and a high level of spare (excess) capacity in many industries that was driving prices lower. Page 83 of 379
  • 84. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The ratio of a nominal magnitude to its real counterpart. Usually refers, as with the GDP deflator, when the real magnitude has D Economics Deflator been constructed from underlying data and not by simply deflating the nominal magnitude by a corresponding price index, in which case the deflator itself may be used as though it were a price index. D Economics Deflection See trade deflection. Declining with income or over time. A degressive income tax takes a smaller fraction of higher incomes. Degressivity in trade D Economics Degressive policy might be a tariff the ad valoren size of which is scheduled to decline over time, or a quota that is scheduled to expand faster than demand for imports. Long-term decline in the importance of the manufacturing sector in an economy. We can distinguish between relative decline D Economics Deindustrialisation (e.g. where the share of total national output accounted for by manufacturing declines) and absolute decline. D Economics Delocalization Another term for fragmentation. Used by Leamer (1996). Demand is defined as the quantity of a good or service that consumers are willing and able to buy at a given price in a given D Economics Demand time period. Each of us has an individual demand for particular goods and services. A demand curve shows the relationship between the price of an item and the quantity demanded over a period of time. For normal goods, more of a product will be demanded as the price falls. This is because at lower prices, consumers can afford to D Economics Demand curve purchase more with their income. A fall in prices causes an increase in a consumers real income. Secondly, a fall in price makes one good relatively cheaper than a substitute encouraging consumers to switch their demand in favour of the lower priced product. Page 84 of 379
  • 85. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A bank deposit that can be withdrawn "on demand." The term usually refers only to checking accounts, even though depositors D Economics Demand deposit in many other kinds of accounts may be able to write checks and thus regard their deposits as readily available. Normally the price elasticity of demand. References to other elasticities of demand, such as the income elasticity are normally D Economics Demand elasticity explicit. See import demand elasticity. The mathematical function explaining the quantity demanded in terms of its various determinants, including income and price; D Economics Demand function thus the algebraic representation of the demand curve. Demand Demand management occurs when the government attempts to influence the level and growth of AD hence the levels of D Economics management national income, employment, rate of inflation, growth and the balance of payments position. The price at which a given quantity is demanded; thus the demand curve viewed from the perspective of price as a function of D Economics Demand price quantity. D Economics Demand schedule A list of prices and corresponding quantities demanded, or the graph of that information. Thus a demand curve. Demand-pull inflation is likely when there is full employment of resources and aggregate demand is increasing at a time when SRAS is inelastic. Demand pull inflation is largely the result of AD being allowed to grow too fast compared to what the supply- D Economics Demand-pull inflation side capacity can meet. The result is excess demand for goods and services and pressure on businesses to raise prices in order to increase their profit margins. Page 85 of 379
  • 86. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Merit goods are good for you. In contrast, de-merit goods are thought to be bad for you. Examples include alcohol, cigarettes and various drugs. The consumption of de-merit goods can lead to negative externalities which causes a fall in social welfare. D Economics De-merit goods The government normally seeks to reduce consumption of de-merit goods. Consumers may be unaware of the negative externalities that these goods create - they have imperfect information. Demographic The change that typically takes place, as a country develops, in the birth and death rates of its population, both of which tend D Economics transition eventually to fall as per capita income rises. D Economics Dependency ratio The ratio of dependent population (the young and the elderly) to the working age population. The theory that less developed countries are poor because they allow themselves to be exploited by the developed countries D Economics Dependency Theory through international trade and investment. D Economics Deposit An amount of money placed with a bank for safekeeping, convenience, and/or to earn interest. D Economics Depreciate See depreciation. A fall in the value of a countrys currency on the exchange market, relative either to a particular other currency or to a weighted D Economics Depreciation average of other currencies. The currency is said to depreciate. Opposite of "appreciation." Page 86 of 379
  • 87. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. De-regulation or liberalisation means the opening up of markets to greater competition. The aim of this is to increase market supply (driving prices down) and widen the range of choice available to consumers. The discipline of competition should also D Economics Deregulation lead to greater cost efficiency from producers – who are keen to hold onto their existing market share. Good examples of  deregulation to use include: urban bus transport, parcel delivery services, mortgage lending, telecommunications, and gas and electricity supply. The demand for a product X might be strongly linked to the demand for a related product Y - giving rise to the idea of a derived demand. For example, the demand for coal is derived in part on the demand for fossil fuels to burn in the process of D Economics Derived demand generating energy. Likewise the demand for steel is strongly linked to the demand for new vehicles and many other manufactured products, so that when an economy goes into a downturn or recession, so we would expect the demand for steel to decline likewise. As used in the trade literature, this seems to mean a departure from the established rules, as when a countrys policies are D Economics Derogation said to constitute a derogation from the GATT. Destabilizing Speculation that increases the movements of the price in the market where the speculation occurs. Movement may be defined D Economics speculation by amplitude, frequency, or some other measure. See stabilizing speculation. The principle in international taxation that value added taxes be kept only by the country where the taxed product is being sold. D Economics Destination principle Under the destination principle, value added taxes are collected on imports and rebated on exports. Contrasts with the origin principle. A fall in the value of a currency that has been pegged, either because of an announced reduction in the par value of the D Economics Devaluation currency with the peg continuing, or because the pegged rate is abandoned and the floating rate declines. D Economics Develop To experience a sustained and substantial increase in per capita income; thus to undergo economic development. Page 87 of 379
  • 88. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. D Economics Developed country A country whose per capita income is high by world standards. A country whose per capita income is low by world standards. Same as less developed country. As usually used, it does not D Economics Developing country necessarily connote that the countrys income is rising. D Economics Development Economic development A multilateral institution that provides financing for development needs of a regional group of countries. Examples include the D Economics Development bank African, Asian, and Inter-American Development Banks. D Economics Development finance Provision of credit to a developing country to permit it to undertake development projects that it could not otherwise afford. A project intended to increase a developing countrys ability to produce in the future. Such projects are most commonly D Economics Development project additions to the countrys capital stock, but they may involve improvements in infrastructure, educational facilities, discovery or development of natural resources, etc. D Economics DFI Direct Foreign Investment Page 88 of 379
  • 89. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. D Economics DFS Model One of the continuum-of-goods models of Dornbusch, Fischer, and Samuelson (1977, 1980). D Economics Differential treatment See special and differential treatment. D Economics Differentiated product A firms product that is not identical to products of other firms in the same industry. Contrasts with homogeneous product. The fifth round of multilateral trade negotiations that was held under GATT auspices, commencing 1960 and completed 1961. D Economics Dillon Round It was the first to be given a name, after C. Douglas Dillon, U.S. Undersecretary of State under Eisenhower and Treasury Secretary under Kennedy. The Law of Diminishing Returns occurs because factors of production are not perfect substitutes for each other. Resources D Economics Diminishing returns used in producing one type of product are not necessarily as efficient when switched to the production of another good or service. The law of diminishing returns lies at the heart of conventional production and cost theory. A measure of factor content that includes only the factors used in the last stage of production, ignoring factors used in D Economics Direct factor content producing intermediate inputs. Contrasts with direct-plus-indirect factor content. Direct foreign D Economics investment Foreign direct investment Page 89 of 379
  • 90. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Direct taxation is levied on income, wealth and profit. Direct taxes include income tax, national insurance contributions, capital D Economics Direct taxation gains tax, and corporation tax. Refers to the particular countries and kinds of countries toward which a countrys exports are sent, and from which its imports D Economics Direction of trade are brought, in contrast to the commodity composition of its exports and imports. Thus the pattern of its bilateral trade. Directly Unproductive Activities that have no direct productive purpose (neither increasing consumer utility nor contributing to production of a good or D Economics Profit-Seeking service that would increase utility) and are motivated by the desire to make profit, typically from market distortions created by Activities government policies. Examples are rent seeking and revenue seeking. Term coined by Bhagwati (1982). D Economics Director General Title given to the persons who head certain international organizations, including the WTO. A measure of factor content that includes factors used in producing intermediate inputs, factors used in producing intermediate Direct-plus-indirect D Economics factor content inputs to the intermediate inputs, and so forth. That is, it includes all primary factors that contributed however indirectly to production of the good. Contrasts with direct factor content. Centrally planned; that is, under the direction of a central authority, normally the government. Contrasts with decentralized, or a D Economics Dirigiste system in which economic decisions are determined by market forces in a market economy. D Economics Dirty float Same as managed float. Page 90 of 379
  • 91. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The absence of linkage among sectors of an economy, so that growth in some does not spill over into improved productivity D Economics Disarticulation and well being in others. D Economics DISC Domestic International Sales Corporation D Economics Discount Any reduction in price or value, especially when below a stated or normal price. The rate, per year, at which future values are diminished to make them comparable to values in the present. Can be either D Economics Discount rate subjective (reflecting personal time preference) or objective (a market interest rate). People who leave the active labour force - often because they have been structurally unemployed for a long time and have lost motivation to engage in active job search. The tax and benefit system may create disincentives for them to search and take D Economics Discouraged workers jobs. The Labour Governments New Deal programme seeks to bring more of the discouraged workers back into the active labour supply in the economy. D Economics Discrete time The division of time into indivisible units. In economic models, these units represent periods, such as days, quarters, or years. Discretionary fiscal changes are deliberate changes in direct and indirect taxation and government spending – for example a  Discretionary fiscal D Economics policy decision by the government to increase total capital spending on the road building budget or increase the allocation of resources going direct into the NHS. Page 91 of 379
  • 92. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Discretionary D Economics licensing See licensing. A higher tariff against one source of imports than against another. Except in special circumstances, such as anti-dumping D Economics Discriminatory tariff duties, this is a violation of MFN and is prohibited by the WTO against other members. There are nearly always limits to the potential to achieve economies of scale. Indeed when a business expands beyond a Diseconomies of certain size, average costs per unit may start to increase. This is known as diseconomies of scale. Diseconomies of scale D Economics scale arise mainly through problems of management. As a firm grows, management finds it more difficult to organize production efficiently. It is much easier to lose control of costs in a large organization than in a small business. D Economics Disequilibrium Inequality of supply and demand. D Economics Disintegration Another term for fragmentation. Used by Feenstra (1998). To allow a stock of capital to become smaller over time, either by selling parts of it or by allowing it to depreciate without D Economics Disinvest replacing it. D Economics Disparity Inequality, usually income disparity. Page 92 of 379
  • 93. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Disposable income measures income available for households to spend and is important when looking at the factors that D Economics Disposable income determine consumer spending and saving. Personal disposable income = Gross UK Household income - Personal taxation + transfer payments. D Economics Dispute settlement In the GATT, the adjudication of disputes among parties. In the WTO this is done by the dispute settlement mechanism. Dispute Settlement The entity within the WTO that formally deals with disputes between members. It consists of all WTO members meeting D Economics Body together to consider reports of panels and the Appellate Body. Dispute settlement The procedure by which the WTO settles disputes among members, primarily by means of a three-person panel that hears the D Economics mechanism case and issues a report, subject to review by the Appellate Body. D Economics Dissipate rent To use up, in real resources, the full value of the economic rents that are being sought by rent seeking. Any departure from the ideal of perfect competition that therefore interferes with economic agents maximizing social welfare D Economics Distortion when they maximize their own. Includes taxes and subsidies, tariffs and NTBs, externalities, incomplete information, and imperfect competition. D Economics Distribution The productive activity of getting produced goods from the factory into the hands of consumers. Page 93 of 379
  • 94. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. For given prices in the Heckscher-Ohlin Model, a set of factor endowment combinations that are consistent with producing the D Economics Diversification cone same set of goods and having the same factor prices. Such a set has the form of a cone. Concept first used by McKenzie (1955). A portfolio that includes a variety of assets whose prices are not likely all to change together. In international economics, this D Economics Diversified portfolio usually means holding assets denominated in different currencies. To produce more than one thing. In the Heckscher-Ohlin Model with two goods, it means to produce both of them. With more D Economics Diversify than two goods, it may mean to produce two, or it may mean to produce all of the goods that are possible. D Economics Diversion See trade diversion. D Economics Dividend The amount paid each quarter by a corporation to its stockholders for each share of stock. Division of labour means the specialization of the functions and roles involved in making the separate parts of a product. It is closely tied to the standardization of production, the introduction and perfection of machinery, and the development of large- D Economics Division of Labour scale industry. As a result of mass-production techniques, total production is many times what it would be had each worker made the complete product. Problems created by the division of labour include job monotony, technological unemployment, and eventually chronic unemployment if the economy does not expand quickly enough to reabsorb the displaced labour. Divorce between The owners of a company normally elect a board of directors to control the business‘s resources for them. However, when the  D Economics ownership and owner of a company sells shares, or takes out a loan to raise finance, they sacrifice some of their control. control Page 94 of 379
  • 95. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Really just a symmetric CES function, the innovation of Dixit and Stiglitz (1977) was to allow the number of arguments to be D Economics Dixit-Stiglitz function variable. Used originally as a utility function, with elasticity of substitution greater than one the function displays a preference for variety. Used as a component of a production function, the same property implies that costs fall with variety. D Economics Dixit-Stiglitz utility The Dixit-Stiglitz function used as a utility function. The document agreed upon by the trade ministers of the member countries of the WTO at the Doha Ministerial meeting. It D Economics Doha Declaration initiates negotiations on a range of some 21 subjects. A distinctive feature is the emphasis placed on the interests of developing countries. The WTO ministerial meeting held in Doha, Qatar, in November 2001, at which it was agreed to begin a new round of D Economics Doha Ministerial multilateral trade negotiations, the Doha Round. The round of multilateral trade negotiations begun January 2002 as a result of agreement at the Doha Ministerial. Also called D Economics Doha Round the Doha Development Round or the Doha Development Agenda. An international financial system in which the U.S. dollar is used by most countries as the primary reserve asset, in contrast to D Economics Dollar standard the gold standard in which gold played this role. D Economics Dollarization The official adoption by a country other than the United States of the U.S. dollar as its local currency. Page 95 of 379
  • 96. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. From or in ones own country. A domestic producer is one that produces inside the home country. A domestic price is the price D Economics Domestic inside the home country. Opposite of "foreign" or "world." Domestic content Use of trade policies such as domestic content requirements to increase the portion of a products value that is provided by D Economics protection domestic factors of production, either in direct production or through produced inputs. Domestic content D Economics requirement A requirement that goods sold in a country contain a certain minimum of domestic value added. Credit extended by a countrys central bank to domestic borrowers, including the government and commercial banks. In the D Economics Domestic credit United States, the largest component by far is the Feds holdings of U.S. government bonds, but it also makes some short- term loans to banks to use as their reserves. Domestic distortions D Economics argument for See second best argument. protection Domestic A type of U.S. corporation, authorized in 1971, with income primarily from exports. Usually wholly owned U.S. subsidiaries, D Economics International Sales DISCs had special treatment in borrowing or taxation. A 1976 GATT case found against the U.S., which reached a Corporation compromise settlement with the EC in 1981. DISC was replaced in 1984 by foreign sales corporations. The laws and legal system of a country, which may be constrained by international obligations such as WTO membership. D Economics Domestic law Sometimes a domestic law is inconsistent with such obligations and must be changed. This may be seen as a threat to the countrys sovereignty. Page 96 of 379
  • 97. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The market within a countrys own borders. Dumping, for example, may be defined by comparing the price charged for export D Economics Domestic market with the price charged on the domestic market, i.e., to buyers within the exporting country. A measure, in terms of real resources, of the opportunity cost of producing or saving foreign exchange. It is an ex ante Domestic resource D Economics cost measure of comparative advantage, used to evaluate projects and policies. The term was introduced to the economics literature by Bruno (1963, 1972). A policy that assists domestic industry, including a subsidy to production, payment not to produce, price support, and other D Economics Domestic support means of increasing the income of producers. D Economics Domestic trade Commerce within a country; wholesale and retail trade. Dominant market A firm holds a dominant position if it can operate within the market without taking account of the reaction of its competitors or D Economics position of intermediate or final consumers. The export of a good whose cost is reduced by access to a domestically produced intermediate input that is sold below cost. D Economics Downstream dumping This is not (yet) eligible under any anti-dumping statute for an anti-dumping duty. D Economics Drawback Rebate of import duties when the imported good is re-exported or used as input to the production of an exported good. Page 97 of 379
  • 98. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. D Economics DRC Domestic resource cost D Economics DSM Dispute settlement mechanism D Economics DUKS See baffling pigs. In a regression analysis, a dummy (or dummy variable) is used to capture an explanatory variable that is either on (with a value D Economics Dummy of one) or off (zero). For example, in a gravity equation, the coefficient on a common-language dummy would measure the effect on trade flow between two countries of their sharing a common language. Export price that is "unfairly low," defined as either below the home market price (normal value) (hence price discrimination) or D Economics Dumping below cost. With the rare exception of successful predatory dumping, dumping is economically beneficial to the importing country as a whole (though harmful to competing producers) and often represents normal business practice. In a case of dumping, the difference between the "fair price" and the price charged for export. Used as the basis for setting anti- D Economics Dumping margin dumping duties. D Economics Duopoly Any market that is dominated by two organisations. Page 98 of 379
  • 99. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. D Economics Duopsony Two major buyers of a good or service in a market. D Economics DUP Activities Directly Unproductive Profit-Seeking Activities D Economics Durable good A good that can continue to be used over an extended period of time. The adverse effect on a countrys other industries that occurs when one industry substantially expands its exports, causing a D Economics Dutch disease real appreciation of the countrys currency. Named after the effects of natural gas discoveries in the Netherlands, and most commonly applied to effects of exports in natural resource extractive industries on manufacturing. Imports on which a positive duty, or tariff, is levied. (The term seems like it ought to include imports on which the duty is zero D Economics Dutiable imports but which a government is somehow free, or able, to levy a positive duty. That does not seem to be the way the term is used, however.) D Economics Duty Tax. That is, an import duty is a tariff. D Economics Duty drawback See drawback. Page 99 of 379
  • 100. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Without tariff, usually applied to imports on which normally a tariff would be charged, but that for some reason are exempt. D Economics Duty-free Travelers, for example, may be permitted to import a certain amount duty-free. Dynamic comparative D Economics advantage A changing pattern of comparative advantage over time due to changes in factor endowments or technology. A form of increasing returns to scale in which average cost declines over time as producers accumulate experience, so that Dynamic economies D Economics of scale average product rises with total output of the firm or industry accumulated over time. See learning by doing, infant industry protection. Refers to certain poorly understood effects of trade and trade liberalization, including both multilateral and preferential trade D Economics Dynamic effects agreements, that extend beyond the static gains from trade. Such dynamic effects are thought to make the gains from trade substantially larger than in the static model. Dynamic efficiency occurs over time. It focuses on changes in the consumer choice available in a market together with the D Economics Dynamic efficiency quality/performance of goods and services that we buy. The hoped-for benefits from trade that accrue over time, in addition to the conventional static gains from trade of trade theory. Dynamic gains from D Economics trade Sources of these gains are not well understood or documented, although there exists a variety of possible theoretical reasons for them and some empirical evidence that countries have benefited more than the static gains alone would suggest. Any model with an explicit time dimension. To be meaningfully dynamic, however, it should include variables and behavior that, D Economics Dynamic model at one time, depend on variables or behavior at another time. Models may be formulated in discrete time or in continuous time. Contrasts with a static model. Page 100 of 379
  • 101. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A term, in trade negotiations, for agreeing to accept the results of a portion of the negotiations before the rest of the E Economics Early harvest negotiations are completed. E Economics Earnings The total amount earned, usually by a worker as wages, or by a firm as profits. E Economics Earth Summit Rio Summit. Earnings before interest, taxes, depreciation, and amortization of a firm. Sometimes used as an optimistic indicator of potential E Economics EBITDA profitability. E Economics EC European Communities E Economics ECB European Central Bank E Economics ECLAC Economic Commission for Latin America and the Caribbean Page 101 of 379
  • 102. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. E Economics Eco-dumping Environmental dumping The application of statistical methods to the empirical estimation of economic relationships. Econometric analysis is used E Economics Econometrics extensively in international economics to estimate the causes and effects of international trade, exchange rates, and international capital movements. Economic and The currency area formed in 1999 as a result of the Maastricht Treaty. Members of the EMU share the common currency, the E Economics Monetary Union euro. A boom occurs when real national output is rising at a rate faster than the estimated trend rate of growth. In boom conditions, E Economics Economic boom national output and employment are expanding and aggregate demand is high. Typically, businesses use a boom to raise their output and widen their profit margins by increasing prices for consumers. Economic Commission for Latin One of five regional commissions of the United Nations, contributing to the economic and social development of Latin America E Economics America and the and the Caribbean. Headquartered in Santiago, Chile. Established in 1948. Caribbean E Economics Economic contraction The downward phase of the business cycle, in which GDP is falling and unemployment is rising over time. Economic Sustained increase in the economic standard of living of a countrys population, normally accomplished by increasing its stocks E Economics development of physical and human capital and improving its technology. Page 102 of 379
  • 103. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Economic efficiency is achieved when an output of goods and services is produced making the most efficient use of our scarce E Economics Economic efficiency resources and when that output best meets the needs and wants and consumers and is priced at a price that fairly reflects the value of resources used up in production. E Economics Economic expansion The upward phase of the business cycle, in which GDP is rising and unemployment may be falling over time. E Economics Economic exposure Same as exchange rate exposure. Freedom to engage in economic transactions, without government interference but with government support of the institutions E Economics Economic freedom necessary for that freedom, including rule of law, sound money, and open markets. E Economics Economic geography See New Economic Geography. Economic growth is best defined as a long-term expansion of the productive potential of the economy. Sustained growth E Economics Economic growth should lead higher real living standards and rising employment. Short term growth is measured by the annual % change in real national output (real GDP). A variable that is measured and publicly reported and that is considered meaningful not only for itself but as a sign of how E Economics Economic indicator rapidly the larger economy is expanding or contracting. Page 103 of 379
  • 104. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. E Economics Economic integration See integration. Economic The extent to which economic performance (GDP, inflation, unemployment, etc.) in one country depends positively or E Economics interdependence negatively on performance in other countries. Fairness and equity in economic affairs, presumably by having laws, governments, and institutions that treat people equally E Economics Economic justice and avoid favoring particular individuals or groups. E Economics Economic profit Revenue from an activity minus the opportunity cost of the resources used in that activity. Economic rate of The net benefits to all members of society, as a percentage of cost, taking into account externalities and other market E Economics return imperfections. A recession means a fall in the level of real national output (i.e. a period when the rate of growth is negative) leading to a contraction in employment, incomes and profits. The last recession in Britain lasted from the summer of 1990 through to the E Economics Economic recession autumn of 1992. When real GDP reaches a low point, the economy has reached the trough – and with hope (and perhaps  some luck!) a recovery is imminent. A recovery occurs when real national output picks up from the trough reached at the low point of the recession. The pace of recovery depends in part on how quickly AD starts to rise after the economic downturn. And, the extent to which producers E Economics Economic recovery raise output and rebuild their stock levels in anticipation of a rise in demand. The state of business confidence plays a key role here. Any recovery in production might be subdued if businesses anticipate that a recovery will be only temporary or weak in scale. Page 104 of 379
  • 105. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. E Economics Economic rent See rent. E Economics Economic sanction The use of an economic policy as a sanction. A slowdown occurs when the rate of growth decelerates – but national output is still rising. If the economy continues to grow  E Economics Economic slowdown without falling into outright recession, this is known as a soft-landing. A common market with the added feature that additional policies -- monetary, fiscal, welfare -- are also harmonized across the E Economics Economic union member countries. E Economics Economic welfare See welfare. Economies of scale are of huge importance to many businesses - not least those that have to compete in international markets where cost competitiveness is vital. Both producers and consumers stand to gain from economies of scale. Businesses can bring down their average costs by producing on a larger scale. This opens up the possibility of them making bigger profit E Economics Economies of scale margins and also building a competitive advantage in their chosen markets. For consumers, lower costs per unit can be translated into a reduction in market prices which leads to a rise in their real purchasing power and a potential improvement in economic welfare (e.g. measured by the level of consumer surplus). E Economics Economies of scope Economies of scope occur where it is cheaper to produce a range of products. Page 105 of 379
  • 106. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. E Economics ECSC European Coal and Steel Community E Economics ECU European Currency Unit E Economics Edgeworth Box See Edgeworth-Bowley Box and Edgeworth production box. A variation of the consumption Edgeworth Box that instead represents the allocations of 2 factors to 2 industries for use in Edgeworth E Economics Production Box production functions. Efficient allocations now appear as tangencies between isoquants, while the contract curve becomes the efficiency locus. A geometric device showing allocations of 2 goods to 2 consumers in a rectangle with dimensions equal to the quantities of the Edgeworth-Bowley goods. Preferences enter as indifference curves relative to opposite corners of the box, tangencies defining efficient allocations E Economics Box and the contract curve. First drawn by Pareto (1906), based originally, though only partially, on a diagram of Edgeworth (1881). This and the Edgeworth production box are often called just the Edgeworth Box, even though Edgeworth never drew either. E Economics EEA European Economic Area E Economics EEC European Economic Community Page 106 of 379
  • 107. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. This term normally refers, often only implicitly, to the effect of a change in some policy or other exogenous variable that will E Economics Effect of trade increase the quantity of trade. Since in trade models, trade itself is endogenous, the effects associated with a change in trade depend on what caused it. Demand in economics must be effective. Only when a consumers desire to buy a product is backed up by an ability to pay for E Economics Effective demand it do we speak of demand. For example, many people would be willing to buy a luxury sports car, but their demand would not be effective if they did not have the financial means to do so. They must have sufficient real purchasing power. An index of a currencys value relative to a group (or basket) of other currencies, where the currencies in the basket are given Effective exchange E Economics rate weights based on the amount of trade between the countries that use the currencies. Also called a trade-weighted exchange rate. The concept that the protection provided to an industry depends on the tariffs and other trade barriers on both its inputs and its E Economics Effective protection outputs, since a tariff on inputs raises cost. Measured by the effective rate of protection. Effective protective E Economics rate Same as effective rate of protection. A measure of the protection provided to an industry by the entire structure of tariffs, taking into account the effects of tariffs on Effective rate of inputs as well as on outputs. Letting b ij be the share of input i in the value of output j , and t i be the tariff on good i , the ERP of E Economics protection industry j is ERP j = (t j -Si b ij t i )/(1-Si b ij ). Due to Corden (1966). E Economics Effective tariff Effective rate of protection. Page 107 of 379
  • 108. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. E Economics Efficiency See economic efficiency. The set of efficient allocations in an Edgeworth production box. It is usually a curve, similar to a contract curve, and in fact is E Economics Efficiency locus sometimes called that. An allocation that it is impossible unambiguously to improve upon, in the sense of producing more of one good without E Economics Efficient allocation producing less of another. A market in which, at a minimum, current price changes are independent of past price changes, or, more strongly, price E Economics Efficient market reflects all (publicly) available information. Some believe foreign exchange markets to be efficient, which in turn implies that future exchange rates cannot profitably be predicted. E Economics EFTA European Free Trade Association Having an elasticity greater than one. For a price elasticity of demand, this means that expenditure rises as price falls. For an E Economics Elastic income elasticity it means that expenditure share rises with income, a superior good. Contrasts with inelastic and unit elastic. Elastic demand for either exports or imports is sufficient to satisfy the Marshall-Lerner condition. An offer curve along which import demand is always elastic. It is therefore not backward bending. Contrasts with inelastic offer E Economics Elastic offer curve curve. Page 108 of 379
  • 109. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The method of analyzing the determination of the balance of trade, especially due to a devaluation, that focuses on the price E Economics Elasticities approach elasticities of exports and imports. According to this approach, the effect depends critically on the Marshall-Lerner Condition. A measure of responsiveness of one economic variable to another -- usually the responsiveness of quantity to price along a E Economics Elasticity supply or demand curve -- comparing percentage changes (%D) or changes in logarithms (d ln). The arc elasticity of x with respect to y is e = %Dx/%Dy. The point elasticity is e = d lnx/d lny = (y/x)(dx/dy). Elasticity of demand This is normally the price elasticity of demand for exports of a country, either for a single industry or for the aggregate of all E Economics for exports imports. Equals the rest of worlds elasticity of demand for imports, which therefore also enters the Marshall-Lerner condition. This is normally the price elasticity of demand for imports of a country, either for a single industry or for the aggregate of all Elasticity of demand E Economics for imports imports. The latter plays a critical role in determining how the countrys balance of trade responds to the exchange rate. See Marshall-Lerner condition. Elasticity of labour Elasticity of labour demand measures the responsiveness of demand for labour when there is a change in the ruling market E Economics demand wage rate. Elasticity of labour The elasticity of labour supply to an occupation measures the extent to which labour supply responds to a change in the wage E Economics supply rate in a given time period. The elasticity of the ratio of two inputs to a production (or utility) function with respect to the ratio of their marginal products (or Elasticity of E Economics substitution utilities). With competitive demands, this is also the elasticity with respect to their price ratio. For example, with factors L,K and factor prices w,r, the elasticity of substitution of a production function F(K,L) is s = (wL/rK)d(K/L)/d(w/r). Page 109 of 379
  • 110. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Elasticity of The elasticity of an economys output of one good with respect to its output of another (holding other outputs, if there are any, E Economics transformation constant). E Economics EMA European Monetary Agreement The prohibition of some category of trade. May apply to exports and/or imports, of particular products or of all trade, vis a vis E Economics Embargo the world or a particular country or countries. Originally this term was applied to countries that had recently ceased to be part of the Soviet Union and its satellites, and thus E Economics Emerging economy emerging from centrally planned communist economies. The term drew attention to their transition to becoming market economies. E Economics Emerging market Same as emerging economy. E Economics Emigration The migration of people out of a country. Emission trading is another form of pollution control that uses the market mechanism to change relative prices and the E Economics Emissions trading incentives of producers and consumers. Page 110 of 379
  • 111. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. E Economics Empirical finding Something that is observed from real-world observation or data, in contrast to something that is deduced from theory. Employment The use of a tariff or other trade restriction to promote employment, either in the economy at large or in a particular industry. E Economics argument for This is a second best argument, since other policies -- such as a fiscal stimulus or a production subsidy -- could achieve the protection same effect at lower economic cost. E Economics EMS European Monetary System E Economics EMU Economic and Monetary Union E Economics Enabling Clause The decision of the GATT in 1979 to give developing countries special and differential treatment. E Economics Endogenous growth Economic growth whose long-run rate depends on behavior and/or policy. Endogenous E Economics protection Protection that is explained as the outcome of economic and/or political forces. See political economy of protection. Page 111 of 379
  • 112. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. An economic variable that is determined within a model. It is therefore not subject to direct manipulation by the modeler, since E Economics Endogenous variable that would override the model. In trade models, the quantity of trade itself is almost always endogenous. Contrasts with exogenous variable. The amount of something that a person or country simply has, rather than their having somehow to acquire it. In the H-O E Economics Endowment Model of trade theory, endowments refer to primary factors of production, ignoring the fact that some of them -- especially capital and skill -- are deliberately accumulated. Term sometimes used to describe the role that exports may have played in economic development, both of some of the E Economics Engine of growth regions of recent settlement in the nineteenth century and of todays NICs. Engineering E Economics efficiency See economic efficiency. The import and then export of a good without further processing, usually passing through an entrepôt which is a storage facility E Economics Entrepôt trade from which goods are distributed. See reexports. An entrepreneur is an individual who seeks to supply products to a market for a rate of return (i.e. a profit). Entrepreneurs will usually invest their own financial capital in a business and take on the risks associated with a business investment. The reward E Economics Entrepreneur to this risk-taking is the profit made from running the business. Many economists agree that entrepreneurs should be classed as specialised part of the factor input labour. For a high level of profits to be maintained in the long run, a monopolist must successfully prevent the entry of new suppliers E Economics Entry barriers into a market. Barriers to entry are the mechanisms by which potential competitors are blocked. Monopolies can then enjoy higher profits in the long run as rivals have not diluted market share. Page 112 of 379
  • 113. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. E Economics Envelope The outermost points traced out by a moving curve. Export of a good from a country with weak or poorly enforced environmental regulations, reflecting the idea that the exporters Environmental E Economics dumping cost of production is below the true cost to society, providing an unfair advantage in international trade. Also called eco- dumping. Environmental An inverse U-shaped relationship hypothesized between per capita income and environmental degradation. Named after the E Economics Kuznets Curve Kuznets Curve dealing with inequality. Idea due to Grossman and Krueger (1993). Environmental The view that trade should be restricted in order to help the environment. Examples include embargos on imports made from protection argument E Economics for a trade endangered species, limits on imports produced by methods harmful to the atmosphere, and restrictions on investment into locations with lax environmental standards. This is usually a second-best argument. intervention Environmental A subsidy intended for environmental purposes. A subsidy for adapting existing facilities to new environmental laws or E Economics subsidy regulations is non-actionable under WTO rules. E Economics EPU European Payments Union. E Economics EPZ Export processing zone. Page 113 of 379
  • 114. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The Equal Pay Act introduced in 1970 sought to provide legal protection for female workers and encouraged employers to E Economics Equal Pay Act bring the pay for males and females into line. M ´V = P ´Q , where M is the quantity of money in an economy, V is the velocity of money, P is the price level, and Q is the Equation of E Economics Exchange real output of the economy. The equation is true by definition because it implicitly defines velocity of money. It is central to the quantity theory of money. E Economics Equilibrium Equilibrium means ‗at rest‘ or ‗a state of balance‘ - i.e. a situation where there is no tendency for change. E Economics Equilibrium level The value taken on by an economic variable in equilibrium, as opposed either to some other value, or to its rate of change. E Economics Equilibrium position Same as equilibrium level, though perhaps of several variables at once, perhaps as displayed in a graph. The equilibrium price of labour (market wage rate) in a given market is determined by the interaction of the supply and demand E Economics Equilibrium wage for labour. E Economics Equity Share in the ownership of a corporation; more commonly called a stock, as in the stock market. Page 114 of 379
  • 115. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. E Economics Equivalent quota The quota that sets the same level of imports that is entering a country under a tariff, or perhaps under some other NTB. E Economics Equivalent tariff Tariff equivalent. The amount of money that, paid to a person, group, or whole economy, would make them as well off as a specified change in E Economics Equivalent variation the economy. Provides a monetary measure of the welfare effect of that change that is similar to, but not in general the same as, compensating variation. E Economics ERM Exchange Rate Mechanism E Economics ERP Effective rate of protection E Economics ERR Economic rate of return E Economics Escalation Regarding the structure of tariffs, see tariff escalation. Page 115 of 379
  • 116. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. E Economics Escape clause The portion of a legal text that permits departure from its provisions in the event of specified adverse circumstances. As used by the Ethical Trading Initiative, this term refers primarily to trade that conforms with high levels of labor standards, E Economics Ethical trade including the avoidance of child labor, forced labor, sweatshops, adverse health and safety conditions, and violations of labor rights. Ethical Trading An alliance of multinational companies, nongovernmental organizations, and labor unions seeking to promote and identify E Economics Initiative ethical trade. E Economics ETI Ethical Trading Initiative E Economics EU European Union E Economics EU enlargement The process of taking more member countries into the EU. E Economics EU15 The 15 members of the European Union from 1995 through 2003, prior to its 2004 enlargement. Page 116 of 379
  • 117. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. E Economics Eulers Theorem The property of a function X=F(V) that is homogeneous of degree N that SiVi¶F/¶Vi=NX. E Economics Euratom The European Atomic Energy Community, created in 1956 along with the EEC. Stands for the Euro Interbank Offered Rate, a euro-denominated interest rate charged by large banks among themselves on E Economics Euribor euro-denominated loans. Analogous to LIBOR for the euro. The common currency of a subset of the countries of the EU, adopted January 1, 1999, with paper notes and coins put into E Economics Euro circulation January 1, 2002. A term for the participating members of the European Single Currency. Twelve nations joined the new currency zone when it E Economics Euro Zone was established in January 1999. E Economics Eurobond A bond that is issued outside of the jurisdiction of any single country, denominated in a eurocurrency. E Economics Eurocurrency See Eurodollar. Page 117 of 379
  • 118. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A European network of NGOs working to reduce poverty and empower the poor in developing countries through improved E Economics Eurodad economic and financial policies. Originally referred to U.S. dollar-denominated deposits in commercial banks located in Europe. Over time, the term came to E Economics Eurodollar include deposits in a commercial bank in any country denominated in any currency other than that of the country. Now sometimes called eurocurrencies. An declaration at a 1995 conference in Barcelona between the 15 members of the European Union and its 12 Mediterranean Euro-Mediterranean E Economics Partnership partners to enter a new phase in their relationship, promoting peace and stability, free trade, and cultural understanding. Also called the Barcelona Process. An initiative, begun with the Single European Act in 1987 by the European Union, to fully integrate the markets of the member E Economics Europe 1992 countries by the end of 1992. The process involved extensive harmonization of laws and regulations that would otherwise interfere with the cross-border movement of goods and services. An agreement between the EU and each of ten Eastern European countries (starting with Hungary and Poland in 1994) E Economics Europe Agreement creating free trade areas and establishing additional forms of political and economic cooperation in preparation for these countries eventual membership in the EU. The European Central Bank (ECB) sets a common official rate of interest for the participating members of the single European European Central E Economics Bank currency. The ECB has an inflation target of 0-2%. It seeks to maintain the internal purchasing power of the Euro through the use of a Euro Area monetary policy. European Coal and An economic agreement in 1951 among six countries of Western Europe -- Belgium, France, Germany, Italy, Luxembourg, E Economics Steel Community and Netherlands -- that preceded formation of the EEC and ultimately the EU. Page 118 of 379
  • 119. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. European The name adopted in 1967 by the European Economic Community when it merged with the ECSC and Euratom. This name E Economics Communities and the acronym EC was used until 1992 when it was replaced by European Union. European Currency A composite currency that is a basket of most of the currencies of countries in the European Union. Conceived in 1979, it has E Economics Unit been used as a unit of account of the European Monetary System. European Economic The group of countries comprised of the EU together with EFTA. The two groups have agreed to deepen their economic E Economics Area integration. European Economic A customs union formed in 1958 by the Treaty of Rome among six countries of Europe: Belgium, France, Germany, Italy, E Economics Community Luxembourg, and Netherlands; predecessor to the EC in 1967 and the EU in 1992. A free trade area made up of countries in Europe that did not join the European Economic Community. EFTA was established European Free Trade E Economics Association in 1960 among Austria, Denmark, Norway, Portugal, Sweden, Switzerland, and the United Kingdom. As of 2007 it includes Iceland, Liechtenstein, Norway, and Switzerland. European Monetary An intergovernmental organization administered by the OECD that facilitated settlement of balance of payments accounts E Economics Agreement among its member states from 1958 to 1972. It replaced the EPU, and its functions were taken over by the IMF in 1972. European Monetary A currency union formed by some of the members of the EEC in 1979 that continued, with changing membership, until E Economics System replaced by the EMU and the euro in 1999. Page 119 of 379
  • 120. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. European Payments An international arrangement for settling payments among member countries in Europe during a period in which many of the E Economics Union countries currencies were not convertible. The EPU functioned from 1950 to 1958, after which it was replaced by the EMA. European Recovery E Economics Program See Marshall Plan. A group of European countries that have chosen to integrate many of their economic activities, including forming a customs E Economics European Union union and harmonizing many of their rules and regulations. Preceded by EEC and EC. As of January 1, 2007, the EU had 27 member countries. In international trade models with multiple goods and factors, this is the special case of an equal number of goods and factors. E Economics Even case It is convenient for analysis, because the matrix of factor input requirements is square and therefore potentially invertible. The name given by the EU to its decision in 2001 to eliminate quotas and tariffs on all products except arms from the worlds E Economics Everything But Arms 48 poorest countries. Analysis of the effects of a policy, such as trade liberalization or formation of a PTA, based only on information available before E Economics Ex ante analysis the policy is undertaken. Also prospective analysis. Analysis of the effects of a policy, such as trade liberalization or formation of a PTA, based on information available after the E Economics Ex post analysis policy has been implemented and its performance observed. Also retrospective analysis. Page 120 of 379
  • 121. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. E Economics Ex post tariff Implicit tariff. The difference between the current output of a business and the total amount it could produce in the current time period. Often E Economics Excess capacity in a recession or slowdown, there is a rise in excess capacity (= to a fall in capacity utilisation) due to a fall in demand. The effect can be to increase the average fixed costs of production. When demand for a good or service exceeds the production capacity of a business in a given time period. When a firm cannot E Economics Excess demand raise output in the short term the elasticity of supply will be zero (i.e. perfectly inelastic). E Economics Excess profit Profit of a firm over and above what provides its owners with a normal (market equilibrium) return to capital. E Economics Excess supply Supply minus demand. Thus a countrys supply of exports of a homogeneous good is its excess supply of that good. E Economics Exchange To engage in trade, either within a country or internationally. Rationing of foreign exchange, typically used when the exchange rate is fixed and the central bank is unable or unwilling to E Economics Exchange control enforce the rate by exchange-market intervention. Page 121 of 379
  • 122. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Exchange The unit within a government or central bank that manages a pegged exchange rate. It manages reserves of foreign E Economics equalization fund currencies, which it uses to buy and sell domestic currency as needed to keep the exchange rate within specified bounds. E Economics Exchange market The market on which national currencies are exchanged for one another. Usually done by a countrys central bank, this is the purchase and sale of the countrys currency on the exchange market in Exchange market E Economics intervention order to influence or fully determine its price. These transactions, unless they are sterilized, change the monetary base of the country and thus its money supply. The exchange rate measures the external value of sterling in terms of how much of another currency it can buy. For example - E Economics Exchange rate how many dollars or Euros you can buy with £5000. The daily value of the currency is determined in the foreign exchange markets (FOREX) where billions of $s of currencies are traded every hour. Exchange rate The process by which a countrys exchange rate comes to be what it is. With a floating exchange rate, this may be modeled in E Economics determination various ways, including the elasticities approach, the monetary approach, the portfolio approach, and the asset approach. Exchange rate E Economics exposure The extent to which the stock-market value of a firm varies with changes in exchange rates. Also called economic exposure. The Exchange Rate Index is a weighted index of sterlings value against a basket of international currencies. The weights used E Economics Exchange rate index are determined by the proportion of trade between the UK and each country. Page 122 of 379
  • 123. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Exchange Rate A system that was operated by some central banks within the European Union, which intervened in exchange markets to limit E Economics Mechanism the fluctuations of their currencies relative to one another, while letting all of them collectively float. Exchange rate The response of an exchange rate to a shock by first moving beyond where it will ultimately settle. Thought to help explain E Economics overshooting exchange rate volatility, this was first modeled by Dornbusch (1976). The manipulation of the exchange rate so as to increase the domestic prices of, and demand for, domestically produced Exchange rate E Economics protection goods. Since an undervalued currency stimulates demand for all domestically produced tradable goods, this form of protection, unlike tariff protection, can only be provided to the tradable sector as a whole, not to individual industries. The rules under which a countrys exchange rate is determined, especially the way the monetary or other government Exchange rate E Economics regime authorities do or do not intervene in the exchange market. Regimes include floating exchange rate, pegged exchange rate, managed float, crawling peg, currency board, and exchange controls. E Economics Exchange rate risk Exchange risk Exchange rate E Economics stability Lack of movement over time in the exchange rate of a country. E Economics Exchange rationing See exchange control or ration foreign exchange. Page 123 of 379
  • 124. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Uncertainty about the value of an asset, liability, or commitment due to uncertainty about the future value of an exchange rate. E Economics Exchange risk Unless they cover themselves in the forward market, traders with commitments to pay or receive foreign currency in the future bear exchange risk. So do holders of assets and liabilities denominated in foreign currency. Exchange A government institution sometimes used to handle exchange market intervention, charged with the explicit function of E Economics stabilization fund smoothing exchange rate fluctuations. E Economics Excise tax A tax on consumption of a particular good. E Economics Exercise To execute the terms of a contract. See option. In intellectual property regimes, the transaction at which rights terminate. Under national exhaustion, rights end with first sale in E Economics Exhaustion a country, preventing parallel imports. Under international exhaustion, rights end with first sale anywhere, permitting parallel imports. Coming from outside, usually in the context of an economic model, in which it means only that it is not explained within the E Economics Exogenous model. Economic growth that occurs without being the result of deliberate policy or behavior. The term arises because neoclassical E Economics Exogenous growth growth models converge to a steady state in which per capita income is constant over time. Growth, then, requires exogenous technical progress. Page 124 of 379
  • 125. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A variable that is taken as given by an economic model. It therefore is subject to direct manipulation by the modeler. In most E Economics Exogenous variable models, policy variables such as tariffs and par values of pegged exchange rates are exogenous. Contrasts with endogenous variable. E Economics Expansion Economic expansion Tending to cause aggregate output (GDP) and/or the price level to rise. Term is typically applied to monetary policy (an E Economics Expansionary increase in the money supply or a decrease in interest rates) and to fiscal policy (an increase in government spending or a tax cut), but may also apply to other macroeconomic shocks. Contrasts contractionary. Expectations of consumers and businesses can have a powerful effect on planned expenditure in the economy e.g. expected increases in consumer incomes, wealth or company profits encourage households and firms to spend more – boosting AD.  E Economics Expectations Similarly, higher expected inflation encourages spending now before price increases come into effect - a short term boost to AD. The mathematical expected value of a random variable. Equals the sum (or integral) of the values that are possible for it, each E Economics Expected value multiplied by its probability. A product whose value can be better known after having consumed it. Producers of experience goods may temporarily charge E Economics Experience good a price lower than marginal cost to induce buyers to try the product. Done with an export, this would be legally considered dumping. E Economics Explicit collusion The aim collusion between firms is to maximise joint profits and act as if the market was a pure monopoly. Page 125 of 379
  • 126. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. E Economics Export A good that moves outward across a countrys border for commercial purposes. Any bias in favor of exporting. Most often applied to growth that is based disproportionately on accumulation of the factor used E Economics Export bias intensively in the export industry and/or technological progress favoring that industry. E Economics Export cartel A cartel of exporting countries or firms. A loan to the buyer of an export, extended by the exporting firm when shipping the good prior to payment, or by a facility of the E Economics Export credit exporting countrys government. In the latter case, by setting a low interest rate on such loans, a country can indirectly subsidize exports. Export credit E Economics insurance A program to guarantee payment to exporting firms who extend export credits. E Economics Export facilitation Anything intended to make it easier to export, but usually refers to government services or programs with this objective. Growth of an economy over time that is thought to be caused by expansion of the countrys exports. See export promotion, E Economics Export led growth engine of growth. Page 126 of 379
  • 127. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. E Economics Export licensing See licensing. E Economics Export limitation Any policy that restricts exports. E Economics Export multiplier The multiplier for a change in exports; that is, the increase in GDP caused by a one-unit increase in exports. Export performance E Economics requirement Export requirement. The view that efforts to expand exports by developing countries will lead to a decline in their terms of trade because of an E Economics Export pessimism inability (due to weak demand) or unwillingness (expressed via protection) of developed countries to absorb these exports. The use of a country or region as a place to produce for export to another country. Used especially when a preferential trade E Economics Export platform arrangement provides easier access to the destination country. E Economics Export platform FDI Foreign direct investment from a source country into a host country for the purpose of exporting to a third country. Page 127 of 379
  • 128. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. E Economics Export price index Price index of the goods that a country exports. Export processing A designated area in a country in which firms can import duty-free so long as the imports are used as inputs to production of E Economics zone exports. A strategy for economic development that stresses expanding exports, often through policies to assist them such as export E Economics Export promotion subsidies. The rationale is to exploit a countrys comparative advantage, especially in the common circumstance where an over- valued currency would otherwise create bias against exports. Contrasts with import substitution. E Economics Export quota A quantitative restriction on exports, often the means of implementing a VER. A requirement by the government of the host country of FDI that the investor export a certain amount or percentage of its E Economics Export requirement output. E Economics Export subsidy A subsidy to exports; that is, a payment to exporters of a good per unit of the good exported. E Economics Export tariff A tax on exports, more commonly called an export tax. Page 128 of 379
  • 129. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. E Economics Export tax A tax on exports. Export-import A firm whose business consists mainly of international trade: buying goods in one country and selling them in another, thus E Economics company both exporting and importing. Same as import-export company. Exports sold overseas are an inflow of demand (an injection) into the circular flow of income and therefore add to the demand E Economics Exports for UK produced output. E Economics External balance Balance of payments equilibrium. E Economics External benefits Positive externalities lead to social benefits exceeding private benefits. External costs are those costs faced by a third party for which no appropriate compensation is forthcoming. Identifying and E Economics External costs then estimating a monetary value for air pollution is a difficult exercise - but one that is increasingly important for economists concerned with the impact of economic activity on our environment. E Economics External debt The amount that a country owes to foreigners, including the debts of both the countrys government and its private sector. Page 129 of 379
  • 130. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. E Economics External diseconomy Negative externality. External economies arise from the growing size of an industry. As the industry grows in size and there are more firms in the External economies E Economics of scale industry, these companies may enjoy lower average total costs for several reasons: Firms will be able to draw on a pool of skilled labour, trained by firms and government, thus reducing their own training and living costs. E Economics External economy Positive externality. External increasing E Economics returns to scale External economies of scale. Externalities are third party effects arising from production and consumption of goods and services for which no appropriate compensation is paid. Externalities occur in nearly every market and industry and can cause market failure if the price E Economics Externalities mechanism does not take into account the full social costs and benefits of production and consumption. Externalities occur outside of the market i.e. they affect economic agents not directly involved in the production and/or consumption of a particular good or service. Externalities The (second best) argument that an industry should be protected because it generates positive externalities for other industries E Economics argument for or consumers. protection An effect of one economic agents actions on another, such that one agents decisions make another better or worse off by E Economics Externality changing their utility or cost. Beneficial effects are positive externalities; harmful ones are negative externalities. Page 130 of 379
  • 131. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. As permitted under the U.S. Foreign Currupt Practices Act, a facilitating payment is a payment for "routine governmental F Economics Facilitating payment action," such as obtaining permits, processing papers, providing normal government services, etc. It is, in fact, a bribe, but a small one that does not induce any illegal or exceptional behavior. F Economics Factor Primary factor. The abundance or scarcity of a primary factor of production. Because, in the short run at least, the supplies of primary factors F Economics Factor abundance are more or less fixed, this can be taken as given for determining much about a countrys trade and other economic variables. Fundamental to the H-O Model. F Economics Factor accumulation An increase in the quantity of a factor, usually capital or sometimes human capital. Said of a technological change or technological difference if production functions differ by scaling of a factor input only: F Economics Factor augmenting F 2(V 1,V 2)=F 1(lV 1,V 2), where F 1(·) and F 2(·) are the production functions being compared, V 1 is the factor being augmented, V 2 is a vector of all other factor inputs, and l is a constant. F Economics Factor bias See bias. The amounts of primary factors used in the production of a good or service, or a vector of quantities of goods and services, F Economics Factor content such as the factor content of trade of the factor content of consumption. Can be either direct or direct-plus-indirect. Page 131 of 379
  • 132. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Factor content The trade pattern of a country or the world, focusing on factor content of the goods and services that are traded, as opposed to F Economics pattern of trade the commodity pattern of trade. The cost of the factors used in production. The term is used especially when the value of economic activity in a sector or an F Economics Factor cost economy can be measured or valued either at "factor cost," adding up payments to factors, or at "market value," adding up revenues from goods sold. F Economics Factor endowment The quantity of a primary factor present in a country. See endowment. F Economics Factor immobility Factor immobility occurs when a factor is unable to switch easily between different sectors of the economy. The relative importance of one factor versus others in production in an industry, usually compared across industries. Most F Economics Factor intensity commonly defined by ratios of factor quantities employed at common factor prices, but sometimes by factor shares or by marginal rates of substitution between factors. A property of the technologies for two industries such that their ordering of relative factor intensities is different at different Factor intensity F Economics reversal factor prices. For example, one industry may be relatively capital intensive compared to the other at high relative wages and labor intensive at low relative wages. Some propositions of the Heckscher-Ohlin Model require the absence of FIRs. Factor intensity F Economics uniformity The absence of factor intensity reversals. Page 132 of 379
  • 133. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The market for a factor of production, such as labor or capital, in which supply and demand interact to determine the F Economics Factor market equilibrium price of the factor. The degree to which a factor of production, such as labor or capital, is able to move, either among industries or among F Economics Factor mobility countries, in response to differences in its factor price, thus tending to eliminate such differences. F Economics Factor movement International factor movement. F Economics Factor of production Factor (definition 1). The price paid for the services of a unit of a primary factor of production per unit time. Includes the wage or salary of labor and F Economics Factor price the rental prices of land and capital. Does not normally refer to the price of acquiring ownership of the factor itself, which might be called the "purchase price." The tendency for trade to cause factor prices in different countries to become identical. Ohlin (1933) argued that trade would Factor price F Economics equalization bring factor prices closer together. Samuelson (1948, 1949) showed formally the circumstances under which they would actually become equal. One of the major theoretical results of the Heckscher-Ohlin Model with at least as many goods as factors, showing that free Factor Price F Economics and frictionless trade will cause FPE between two countries if they have identical, linearly homogeneous technologies and their Equalization Theorem factor endowments are sufficiently similar to be in the same diversification cone. Page 133 of 379
  • 134. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A curve in factor space showing the minimum combinations of factor prices consistent with absence of profit in producing one F Economics Factor price frontier or more goods, given their prices. Since, with perfect competition, profit implies disequilibrium, this shows a lower bound on equilibrium factor prices. F Economics Factor proportions The ratios of factors employed in different industries. See factor intensities. Factor Proportions F Economics Model The Heckscher-Ohlin Model of trade. F Economics Factor scarcity See factor abundance. F Economics Factor share The fraction of payments to value added in an industry that goes to a particular primary factor. F Economics Factor space A graph in which the axes measure quantities of factors. F Economics Factor-price space A graph with factor prices on the axes. Page 134 of 379
  • 135. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. F Economics Factor-saving Biased in favor of using less of a particular factor. F Economics Factor-using Biased in favor of using more of a particular factor. In anti-dumping cases, the price to which the export price is compared, which is either the price charged in the exporters own F Economics Fair price domestic market or some measure of their cost, both adjusted to include any transportation cost and tariff needed to enter the importing countrys market. See dumping. The view that it is unfair to force domestic firms to compete with foreign firms that have an advantage, either in terms of low Fairness argument F Economics for protection wages or due to foreign government policies. This misinterprets economic activity as a game, the purpose of which is to win, rather than as a means of using limited resources to satisfy human needs. See level playing field. F Economics FAO Food and Agriculture Organization of the United Nations F Economics FAS Same as FOB but without the cost of loading onto a ship. Stands for "free alongside ship." A procedure adopted by the U.S. Congress, at the request of the President, committing it to consider trade agreements without F Economics Fast track amendment. In return, the President must adhere to a specified timetable and other procedures. Introduced in the Trade Act of 1974. See trade promotion authority. Page 135 of 379
  • 136. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Favorable exchange An exchange rate different from the market or official rate, provided by the government on a transaction as an indirect way of F Economics rate providing a subsidy. F Economics FDI Foreign Direct Investment F Economics Fed The Federal Reserve System of the United States. The interest rate on very short-term loans from one commercial bank to another in the United States. This rate is used as a F Economics Federal funds rate target for monetary policy by the Fed. Federal Reserve F Economics System The central bank of the United States. Feldstein-Horioka The finding by Feldstein and Horioka (1980) that levels of savings and investment are highly correlated across countries, F Economics puzzle suggesting that international capital mobility is less that many had previously thought. A money whose usefulness results, not from any intrinsic value or guarantee that it can be converted into gold or another F Economics Fiat money currency, but only from a governments order (fiat) that it must be accepted as a means of payment. Page 136 of 379
  • 137. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. F Economics Fifty Years Is Enough 50 Years Is Enough. A good that requires no further processing or transformation to be ready for use by consumers, investors, or government. F Economics Final good Contrasts with intermediate good. This is the term used in the balance of payments statistics, since sometime in the 1990s, for what used to be called the "capital F Economics Financial account account." See capital account, the "common" definition 2. An asset whose value arises not from its physical embodiment (as would a building or a piece of land or capital equipment) but F Economics Financial asset from a contractual relationship: stocks, bonds, bank deposits, currency, etc. F Economics Financial capital The value of financial assets, as opposed to real assets such as buildings and capital equipment. A loss of confidence in a countrys currency or other financial assets causing international investors to withdraw their funds F Economics Financial crisis from the country. Small firms often have to pay higher interest rates on loans since they are perceived by financial organizations to carry a higher F Economics Financial economies level of risk. Firms therefore have to pay a risk premium on their loans. The smaller firm may find it more difficult to raise money through selling new shares than a larger firm. Page 137 of 379
  • 138. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. F Economics Financial instrument A document, real or virtual, having legal force and embodying or conveying monetary value. Financial An institution that provides indirect means for funds from those who wish to save or lend to be channeled to those who wish to F Economics intermediary invest or borrow. Examples include banks and other depository institutions, mutual funds, and some government programs. A market for a financial instrument, in which buyers and sellers find each other and create or exchange financial assets. F Economics Financial market Sometimes these are organized in a particular place and/or institution, but often they exist more broadly through communication among dispersed buyers and sellers, including banks, over long distances. Financial market Freedom of participants in the financial markets of two countries to transact on markets in both countries, thereby causing F Economics integration returns on comparable assets in the two countries to be equalized through arbitrage. F Economics Financial stability The avoidance of financial crisis. There are only a finite number of workers, machines, acres of land and reserves of oil and other natural resources on the earth. Because resources are finite, we cannot produce an infinite number of goods and services. By producing more for an F Economics Finite resources ever-increasing population, we are in danger of destroying the natural resources of the planet. This will have serious consequences for the long-term sustainability of economies throughout the world and potentially enormous implications for our living standards and the quality of life. F Economics FIR Factor intensity reversal. Page 138 of 379
  • 139. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A firm is an organisation that uses factors of production (resources) to create goods and services egg public limited companies F Economics Firm plcs. F Economics First best See second best. First degree F Economics homogeneous Homogeneous of degree 1. The idea that a business that creates a new product and which is first into the market can develop a competitive advantage in First mover F Economics advantage that market perhaps through learning by doing, because it has the advantage of being there first - making it more difficult and costly for new firms to come in. One of the mathematical necessary conditions for maximization, used routinely in solving economic models. Typically, it F Economics First order condition consists of setting equal to zero the derivative of the function being maximized (or its Lagrangian) with respect to a variable that can be controlled. First theorem of The proposition of welfare economics that a competitive general equilibrium is Pareto optimal. A corollary is that free trade is F Economics welfare economics Pareto optimal among countries. F Economics Fiscal deficit A deficit in the government budget of a country. Page 139 of 379
  • 140. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A fiscal expansion will cause an outward shift of AD. For example, the Government may choose to increase its expenditure F Economics Fiscal expansion e.g. financed by a higher budget deficit, - this directly increases AD. Fiscal policy involves the use of government spending, taxation and borrowing to influence both the pattern of economic F Economics Fiscal policy activity and also the level and growth of aggregate demand, output and employment. It is important to realise that changes in fiscal policy affect both aggregate demand (AD) and aggregate supply (AS). The theory that a change in the expected rate of inflation will lead to an equal change in the nominal interest rate, thus keeping F Economics Fisher Effect the real interest rate unchanged. Due to Fisher (1930). These costs relate to the fixed factors of production and do not vary directly with the level of output. Examples of fixed costs F Economics Fixed costs include: rent and business rates, the depreciation in the value of capital equipment (plant and machinery) due to age and marketing and advertising costs. In a fixed exchange rate system, the central bank acting on the government‘s behalf intervenes in the currency market so that  the exchange rate stays close to an exchange rate target. When Britain joined the European Exchange Rate Mechanism in October 1990, we fixed sterling against other European currencies. The pound, for example, was permitted to vary against the F Economics Fixed exchange rate German Mark by only 6% either side of a central target of DM2.95. Britain left the ERM in September 1992 when sterling came under sustained selling pressure, and the authorities could no longer justify very high interest rates to maintain the pound‘s  value when the domestic economy was already suffering from a deep recession. Usually synonymous with a pegged exchange rate. Although "fixed" seems to imply less likelihood of change, in practice F Economics Fixed exchange rate countries seldom if ever achieve a truly fixed rate. Page 140 of 379
  • 141. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Flexible exchange F Economics rate Same as floating exchange rate. Floating exchange The UK is currently operating with a floating exchange rate – where the currency‘s value is purely market determined and the  F Economics rate Bank of England does not seek to intervene through buying and selling currencies in order to influence the pound‘s value. F Economics Floor See price floor. F Economics FMI Fondo Monetario Internacional (Spanish for International Monetary Fund The price of a traded good excluding transport cost. It stands for "free on board," but is used only as these initials (usually F Economics FOB lower case: f.o.b.). It means the price after loading onto a ship but before shipping, thus not including transportation, insurance, and other costs needed to get a good from one country to another. Contrasts with CIF and FAS. F Economics FOC First order condition. In the Uruguay Round, this portion of the negotiations dealt with the Functioning of the GATT System and resulted ultimately in F Economics FOGS Negotiations the formation of the WTO and its dispute settlement mechanism. Page 141 of 379
  • 142. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Food and Agriculture F Economics Organization of the A UN body whose purpose is to "defeat hunger" throughout the world mostly by sharing information and expertise. United Nations F Economics Food security The reliable availability of a sufficient quantity and quality of nutritious food for a population. A factor that can move easily across national borders, in contrast to one that, due to inclination or constraints, cannot. F Economics Footloose factor Footloose factors are sometimes thought to have an advantage in a globalized economy. An industry that is not tied to any particular location or country, and can relocate across national borders in response to F Economics Footloose industry changing economic conditions. Many manufacturing industries seem to have this characteristic. F Economics Forced labor The use of labor that is compelled to work, subject to physical punishment if it does not. Foreign asset F Economics position The amount of assets that residents of a country own abroad. Also used to mean the net foreign asset position. Foreign Corrupt U.S. law, enacted 1977, that prohibits U.S. firms from bribing foreign officials to obtain or retain business. The law permits, F Economics Practices Act however, facilitating payments. Page 142 of 379
  • 143. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. F Economics Foreign debt The amount a country owes to foreigners. More precisely, the negative of the net foreign asset position. Foreign direct F Economics investment Acquisition or construction of physical capital by a firm from one (source) country in another (host) country. F Economics Foreign exchange Foreign currency; any currency other than a countrys own. Foreign exchange Currencies are traded around the world in a truly global market with London easily the largest FOREX market in the world. The F Economics market value of most currencies is determined within the foreign exchange markets by the forces of demand and supply. Foreign exchange F Economics rate The exchange rate. Foreign exchange F Economics risk Exchange risk. Foreign investment The use of protection to attract FDI from abroad. It does work, since much FDI has been motivated by firms trying to get F Economics argument for behind a tariff wall to sell their products. In an otherwise nondistorted economy, however, the cost in terms of more expensive protection goods is higher than the benefit from additional capital. Page 143 of 379
  • 144. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Foreign portfolio F Economics investment Portfolio investment across national borders and/or across currencies. The feedback effect on a domestic economy when its macroeconomic changes cause large enough changes abroad for those F Economics Foreign repercussion in turn to cause further changes at home. Most commonly, a rise in income stimulates imports, causing an expansion abroad that in turn raises demand for the home countrys exports. F Economics Foreign reserves International reserves Foreign reserves F Economics crisis The financial crisis that results from (or causes) a central bank coming close to running out of international reserves. Refers to a provision of the U.S. tax code that grants income-tax rebates to American exporters if they form what may be a Foreign Sales F Economics Corporation largely artificial foreign subsidiary called an FSC. This has been the subject of a trade dispute with the EU, which complained to the WTO that this constitutes an illegal export subsidy. F Economics Foreign trade deficit Trade deficit An area within a country where imported goods can be stored or processed without being subject to import duty. Also called a F Economics Foreign trade zone "free zone," "free port," or "bonded warehouse." Page 144 of 379
  • 145. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. F Economics Formula approach A procedure for organizing multilateral trade negotiations using a formula for tariff reductions as a starting point. F Economics Forward On the forward market. F Economics Forward curve In a forward market, the pattern of forward rates, or forward premia, over various time horizons. F Economics Forward discount Opposite of forward premium. F Economics Forward integration Acquisition by a firm of a larger part of its distribution chain, moving it closer to selling directly to its ultimate customers. F Economics Forward linkage The provision by one firm or industry of produced inputs to another firm or industry. A market for exchange of currencies in the future. Participants in a forward market enter into a contract to exchange F Economics Forward market currencies, not today, but at a specified date in the future, typically 30, 60, or 90 days from now, and at a price (forward exchange rate) that is agreed upon today. Page 145 of 379
  • 146. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The difference between a forward exchange rate and the spot exchange rate, expressed as an annualized percentage return F Economics Forward premium on buying foreign currency spot and selling it forward. F Economics Forward price In any forward market, the price of the item being traded for delivery at a future date; in exchange markets, the forward rate. F Economics Forward rate Also called the forward exchange rate, this is the exchange rate on a forward market transaction. The four Asian economies that were the first to show rapid economic development after the success of Japan: Hong Kong, F Economics Four Tigers South Korea, Singapore, and Taiwan. Four-firm F Economics concentration ratio See concentration ratio. F Economics FPE Factor price equalization. The splitting of production processes into separate parts that can be done in different locations, including in different countries. F Economics Fragmentation One of many terms for the same phenomenon, this particular one (which I seem to favor) originated with Jones and Kierzkowski (1990). Page 146 of 379
  • 147. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Franchises and licences give a firm the right to operate in a market - and are usually open to renewal every few years. F Economics Franchises Examples include: Commercial television and radio licences, local taxi route licences and the franchise holders to run regional rail services. This is not a standard term, but it seems to be used, variously, to describe the absence of government regulation of F Economics Free capital markets international capital flows, the absence of government or central bank intervention in exchange markets, and the absence of interference with national financial and development policies by international financial institutions. A system in which economic agents are free to own property and engage in commercial transactions. See laissez faire, F Economics Free enterprise economic freedom, <>. The assumption that new firms are permitted to enter an industry and can do so costlessly. Together with free exit, it implies F Economics Free entry that profit must be zero in equilibrium. F Economics Free exit The assumption that firms are permitted to leave an industry and can do so costlessly. See free entry. F Economics Free goods Not all goods have an opportunity cost. Free goods are not scarce and no cost is involved when consuming them. F Economics Free list A list of goods that a country has designated as able to be imported without being subject to tariff or import licensing. Page 147 of 379
  • 148. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. In a free market economic system, governments take the view that markets work, assume a laissez faire (let alone) approach, Free Market step back, and allow the forces of supply and demand to set prices and allocate resources. Government intervention is F Economics Economy required mainly to prevent or correct market failure through for example enforcing anti-monopoly legislation (i.e. preventing abuses of market power), enforcing private property rights, and redistributing income through the tax and benefit system etc. F Economics Free on board See FOB. F Economics Free port See foreign trade zone. If a public good is supplied, it will be available to them just as it would be to anyone else because pure public goods are non- F Economics Free rider problem excludable.  This is the essence of the ―free rider problem‖: the incentive which consumers have to avoid contributing to  financing public goods in proportion to their valuation of such good. Free trade exists when there are few barriers to international trade between countries. This allows resources to be allocated without the intervention of import tariffs, quotas, and other forms of import controls. Free trade based on comparative F Economics Free trade advantage can under certain conditions lead to a rise in economic welfare. Countries can specialise in the production of goods and services in which they have a comparative advantage (lower opportunity cost). F Economics Free trade agreement A negotiated treaty among two or more countries to form a free trade area. A group of countries that adopt free trade (zero tariffs and no other policy restrictions) on trade among themselves, while not F Economics Free trade area necessarily changing the barriers that each member country has on trade with the countries outside the group. Page 148 of 379
  • 149. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Free Trade Area of F Economics the Americas A preferential trading arrangement being negotiated among most of the countries (all but Cuba) of the western hemisphere. Free trade F Economics association Free Trade Area. F Economics Free trade zone An export processing zone. F Economics Free zone See foreign trade zone. The speed of the up and down movements of a fluctuating economic variable; that is, the number of times per unit of time that F Economics Frequency the variable completes a cycle of up and down movement. See destabilizing speculation. This type of unemployment reflects job turnover in the labour market. Even when there are vacancies it takes time to search Frictional F Economics unemployment and find new employment and workers will remain frictionally unemployed. Improving the flow of information in the labour market is one way of reducing the scale of frictional unemployment. See also structural and cyclical unemployment. F Economics Frictionless trade The absence of natural barriers to trade, such as transport costs. Page 149 of 379
  • 150. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The rule for the optimal conduct of monetary policy proposed by Friedman (1969), that it should generate a rate of deflation F Economics Friedman rule that makes the nominal interest rate equal to zero. F Economics FSC Foreign Sales Corporation F Economics FTA Free trade area or free trade agreement F Economics FTAA Free Trade Area of the Americas F Economics FTZ Free trade zone Full employment occurs when there is no cyclical unemployment. Some workers will be frictionally or structurally unemployed F Economics Full employment even at the full employment level of GDP Functional distribution F Economics of income How the income of an economy is divided among the owners of different factors of production, into wages, rents, etc. Page 150 of 379
  • 151. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A futures market is a commodity exchange where contracts for the future delivery of grain, livestock, and precious metals are F Economics Futures market bought and sold. Speculation in futures serves to protect both the producers and the users of the commodities from unpredictable price fluctuations. G Economics Gains from trade The net benefits that countries experience as a result of lowering import tariffs and otherwise liberalizing trade. The theoretical proposition that (in the absence of distortions) there will be gains from trade for any economy that moves from Gains from trade G Economics theorem autarky to free trade, as well as for a small open economy and for the world as a whole if tariffs are reduced appropriately. Due to Samuelson (1939, 1962). A theoretical construct in game theory in which players select actions or strategies and the payoffs depend on the actions or G Economics Game strategies of all players. A game happens when there are two or more interacting decision-takers (players) and each decision or combination of G Economics Game theory decisions involves a particular outcome (pay-off.) G Economics Gastarbeiter Guest worker. G Economics GATS General Agreement on Trade in Services Page 151 of 379
  • 152. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. G Economics GATT General Agreement on Tariffs and Trade The individual sections of the GATT agreement, conventionally identified by their Roman numerals. Most were originally G Economics GATT Articles drafted in 1947, but are still included in the WTO. G Economics GATT-Speak Variation on GATT-think. A somewhat derogatory term for the language of GATT negotiations, in which exports are good, imports are bad, and a G Economics GATT-Think reduction in a barrier to imports is a concession. Similar to mercantilism. Due to Krugman (1991b). G Economics GCC Gulf Cooperation Council G Economics GDP Gross domestic product. G Economics GDP deflator The deflator for GDP, thus the ratio of nominal GDP to real GDP (usually multiplied, as with a price index, by 100). Page 152 of 379
  • 153. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A multilateral treaty entered into in 1948 by the intended members of the International Trade Organization, the purpose of General Agreement which was to implement many of the rules and negotiated tariff reductions that would be overseen by the ITO. With the failure G Economics on Tariffs and Trade of the ITO to be approved, the GATT became the principal institution regulating trade policy until it was subsumed within the WTO in 1995. The agreement, negotiated in the Uruguay Round, that brings international trade in services into the WTO. It provides for General Agreement G Economics countries to provide national treatment to foreign service providers and for them to select and negotiate the service sectors to on Trade in Services be covered under GATS. Equality of supply and demand in all markets of an economy simultaneously. The number of markets does not have to be G Economics General equilibrium large. The simplest Ricardian model has markets only for two goods and one factor, labor, but this is a general equilibrium model. Contrasts with partial equilibrium. This is government spending on state-provided goods and services including public and merit goods. Transfer payments in the form of welfare benefits (e.g. pensions, job-seekers allowance) are not included in general government spending because they General Government G Economics Spending are not a payment to a factor of production for output produced. They are simply a transfer from one group within the economy (i.e. people in work paying income taxes) to another group (i.e. pensioners drawing their state pension having retired from the labour force, or families on very low incomes). Generalized System Tariff preferences for developing countries, by which developed countries let certain manufactured and semi-manufactured G Economics of Preferences imports from developing countries enter at lower tariffs than the same products from developed countries. Genetically modified Plants or animals (or products thereof) whose genetic makeup has been determined or altered by genetic engineering. Trade G Economics organism in GMOs has been the source of disagreement and controversy between the US and the EU. Geographical People may also experience geographical immobility – meaning that there are barriers to them moving from one area to  G Economics immobility another to find work. Page 153 of 379
  • 154. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. G Economics Geography See New Economic Geography. A good that is so inferior and so heavily consumed at low incomes that the demand for it rises when its price rises. The reason G Economics Giffen good is that the price increase lowers income sufficiently that the positive income effect (because it is inferior) outweighs the negative substitution effect. The Gini coefficient is a statistical measure of income distribution. A Gini coefficient of 0 means perfect equality; 1 total G Economics Gini coefficient inequality. Global G Economics competitiveness Competitiveness, applied internationally. G Economics Global optimum An allocation that is better, by some criterion, than all others possible; optimum optimorum. An import quota that specifies the permitted quantity of imports from all sources combined. This may be without regard to G Economics Global quota country of origin, and thus available on a first-come-first-served basis, or it may be allocated to specific suppliers. Global Trade G Economics Analysis Project A project based at Purdue University, providing a data base and CGE modeling tools for analysis of global trade. Page 154 of 379
  • 155. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Globalisation is the increased worldwide integration and interdependence of those economies that trade. For example, G Economics Globalisation transnational firms locate the production and assembly of goods in different locations across the world. G Economics GMO Genetically modified organism. Term used by the British Labor government to refer to Swiss bankers and financiers who engaged in currency speculation that G Economics Gnomes of Zurich forced the devaluation of the British pound in 1964. G Economics GNP Gross national product. A monetary system that sought to restore features of the Gold Standard in the 1920s and again in the Bretton Woods System, Gold Exchange G Economics Standard while economizing on gold. Instead of money being backed directly by gold, central banks issued liabilities against foreign currency assets (mostly U.S. dollars under Bretton Woods) that were in turn backed by gold. A monetary system in which both the value of a unit of the currency and the quantity of it in circulation are specified in terms of G Economics Gold Standard gold. If two currencies are both on the gold standard, then the exchange rate between them is approximately determined by their two prices in terms of gold. The golden rule was introduced into fiscal policy by Gordon Brown when he became Chancellor in 1997. The rule states that government borrowing over the course of the economic cycle should be used to finance government investment spending (so G Economics Golden Rule called public sector asset accumulation). Current spending on goods and services together with spending on welfare payments should be financed by current tax revenues. Page 155 of 379
  • 156. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A product that can be produced, bought, and sold, and that has a physical identity. Sometimes said, inaccurately, to be G Economics Good anything that "can be dropped on your foot" or, also inaccurately, to be "visible." Contrasts with service. Trade in goods is much easier to measure than trade in services, and thus much more thoroughly documented and analyzed. The amount that a countrys government has borrowed as a result of budget deficits, usually by issuing government bonds or, G Economics Government debt in developing countries, from international financial institutions. Often called the national debt. Even with good intentions governments seldom get their policy application correct. They can tax, control and regulate but the eventual outcome may be a deepening of the market failure or even worse a new failure may arise. Government failure may G Economics Government failure range from the trivial, when intervention is merely ineffective, but where harm is restricted to the cost of resources used up and wasted by the intervention, to cases where intervention produces new and more serious problems that did not exist before. The consequences of this can take many years to reverse. Some economists argue that the ―nanny state‖ is when the government imposes its own preferences on consumers. For  Government G Economics example, when the government subsidies university tuition fees and taxes cigarettes it is saying ‗we know better than you what  paternalism is good for you‘. Government Purchase of goods and services by government and by state-owned enterprises. Transparency in government procurement is G Economics procurement one of the Singapore Issues. The methods by which units of government and state-owned enterprises determine from whom to purchase goods and Government G Economics services. When these methods include a preference for domestic firms, they constitute an NTB. Subject of a Tokyo Round procurement practice Code, and later a WTO plurilateral agreement. Termination of a countrys eligibility for GSP tariff preferences on the grounds that it has progressed sufficiently, in terms of per G Economics Graduation capita income or another measure, that it is no longer in need to special and differential treatment. Page 156 of 379
  • 157. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A provision in an agreement, including the GATT but not the WTO, that allows signatories to keep certain of their previously G Economics Grandfather clause existing laws that otherwise would violate the agreement. G Economics Gravity equation An estimated equation of the gravity model. A model of the flows of bilateral trade based on analogy with the law of gravity in physics: T ij = AY i Y j /D ij , where T ij is exports from country i to country j , Y i ,Y j are their national incomes, D ij is the distance between them, and A is a constant. G Economics Gravity model Other constants as exponents and other variables are often included. Due independently to Tinbergen (1962) and Pöyhönen (1963). G Economics Gray area measure A policy or practice whose conformity with existing rules in unclear, such as a VER under the GATT prior to the WTO. Refers to goods that are sold for a price lower than, or through a distributor different than, that intended by the manufacturer. G Economics Gray market Most commonly, goods that are intended by their manufacturer for one national market that are bought there, exported, and sold in another national market. Category of subsidies permitted under the WTO Agriculture Agreement; includes those not directed at particular products, G Economics Green box direct income support for farmers unrelated to production or prices, subsidies for environmental protection and regional development. An exchange rate used within the EUs Common Agricultural Policy to convert subsidy and support payments into local G Economics Green exchange rate currencies, avoiding the variability of the rate set in the exchange market. Page 157 of 379
  • 158. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Green field FDI that involves construction of a new plant, rather then the purchase of an existing plant or firm. Contrasts with brown field G Economics investment investment. A group of GATT/WTO member countries or their delegates -- including the larger members and selected smaller and less G Economics Green room group developed ones -- that have met together during negotiations (originally in a green room at WTO Geneva headquarters) to agree among themselves, before taking decisions to the full membership for the required consensus. Gross investment spending includes an estimate for capital depreciation since some investment is needed to replace Gross capital G Economics investment technologically obsolete and worn out plant and machinery. Providing that net investment is positive, businesses are expanding their capital stock giving them a higher productive capacity and therefore meet a higher level of demand in the future. Gross Domestic Product (GDP) measures the value of output produced within the domestic boundaries of the UK over a given Gross domestic G Economics product time period. GDP includes the output of the many foreign owned firms that are located in the UK following the high levels of foreign direct investment in the UK economy over many years. Gross international International reserves, without any deduction for the fact that some of them may have been borrowed. Contrasts with net G Economics reserves international reserves. Gross national G Economics income National income plus capital consumption allowance. Gross national Gross National Product (GNP) measures the final value of output or expenditure by UK owned factors of production whether G Economics product they are located in the UK or overseas. Page 158 of 379
  • 159. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The total output of a firm, industry, or economy without deducting intermediate inputs. For a firm or industry, this is larger than G Economics Gross output its value added which is net of its own intermediate inputs. For an economy, gross output is greater than net output, which deducts the amount of the good itself used as an intermediate input. G Economics Gross substitutes Two goods are gross substitutes if a rise in the price of one causes and increase in demand for the other. Group of Seven (or G Economics Eight) G-7 (or G-8) Group of Seventy G Economics Seven G-77. A group of ten countries, members of the IMF, that together with Switzerland agreed to make resources available outside their G Economics Group of Ten IMF quotas. Since 1963 the governors of the G10 central banks have met on the occasion of the bimonthly BIS meetings. G Economics Growth See economic growth. Decomposition of the sources of economic growth into the contributions from increases in capital, labor, and other factors. G Economics Growth accounting What remains, called the Solow residual, is usually attributed to technology. Page 159 of 379
  • 160. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The measure of the intra-industry trade suggested by Grubel and Lloyd (1975). For an industry i with exports X i and imports G Economics Grubel-Lloyd index M i the index is I = [(X i +M i ) - |X i - M i |]100/(X i +M i ). This is the fraction of total trade in the industry, X i +M i , that is accounted for by IIT (times 100). G Economics GSP Generalized System of Preferences G Economics GTAP Global Trade Analysis Project A foreign worker who is permitted to enter a country temporarily in order to take a job for which there is shortage of domestic G Economics Guest worker labor. Gulf Cooperation An agreement among six countries of the Persian Gulf region -- Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United G Economics Council Arab Emirates -- in 1981 with the aim of coordinating and integrating their economic policies. The triangular area, or areas, in a supply and demand diagram that measures the net welfare loss, or dead-weight loss due to H Economics Harberger triangle a market distortion or policy, such as a tariff. The conjecture or result that a terms of trade deterioration will cause a decrease in savings due to the decrease in real income, Harberger-Laursen- H Economics Metzler Effect and therefore that a real depreciation will cause an increase in real expenditure. Due to Harberger (1950) and Laursen and Metzler (1950). Page 160 of 379
  • 161. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A currency that is widely accepted around the world, usually because it is the currency of a country with a large and stable H Economics Hard currency market. Examples today include the U.S. dollar and the euro. A pegged exchange rate with a credible commitment never to change the par value, thus subordinating monetary policy to the H Economics Hard peg needs of the exchange market and denying access to devaluation as a policy tool. In practice, the effects of a hard peg are achieved only through a currency board or by adopting another countrys currency, e.g. dollarization. H Economics Harmful externality Negative externality. The changing of government regulations and practices, as a result of an international agreement, to make those of different H Economics Harmonization countries the same or more compatible. An international system for classifying goods in international trade and for specifying the tariffs on those goods. It was adopted H Economics Harmonized System at the beginning of 1989, replacing the previously used schedules in over 50 countries, including the Brussels Tariff Nomenclature. H Economics Harrod neutral A particular specification of technological change or technological difference that is labor augmenting. The Jones (1965) technique for comparative static analysis in trade models. By totally differentiating a model in the logarithms H Economics Hat algebra of its variables, a linear system is obtained relating small proportional changes (denoted by carats (^), or "hats") in terms of various elasticities and shares. (The published article used *, not ^, because of typographical constraints.) Page 161 of 379
  • 162. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The charter for the never-implemented International Trade Organization. The draft was completed at a conference in Havana, H Economics Havana Charter Cuba, in 1948. Headquarters The activities of a firm that typically occur at its main location and that contribute in a broad sense to its productivity at all of its H Economics services locations and plants. These may include management, accounting, marketing, and R&D. Health rationing occurs when the demand for health care services outstrips the available resources leading to waiting lists and delays for health treatment. Rationing may take place in various ways - for example health service practitioners may ration the H Economics Health rationing resources to patients on the basis of clinical need. In private sector markets, health care will be available on the basis of willingness and ability to pay. Heavily indebted poor The name given to those poor countries with large debts, the target of initiatives to forgive that debt as a means of assisting H Economics countries development. Heckscher-Ohlin H Economics Core Propositions See core propositions. A model of international trade in which comparative advantage derives from differences in relative factor endowments across Heckscher-Ohlin countries and differences in relative factor intensities across industries. Sometimes refers only to the textbook or 2x2x2 model, H Economics Model but more generally includes models with any numbers of factors, goods, and countries. Model was originally formulated by Heckscher (1919), fleshed out by Ohlin (1933), and refined by Samuelson (1948, 1949, 1953). Heckscher-Ohlin The proposition of the Heckscher-Ohlin Model that countries will have comparative advantage in, and therefore export, the H Economics Theorem goods that use relatively intensively their relatively abundant factors. Page 162 of 379
  • 163. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Usually synonymous with the Heckscher-Ohlin Model, although sometimes the term is used to distinguish the more formalized, Heckscher-Ohlin- H Economics Samuelson Model mathematical version that Samuelson used from the more general but less well-defined conceptual treatment of Heckscher and Ohlin. Heckscher-Ohlin- The Heckscher-Ohlin Model for the case of identical techniques of production (due either to FPE or Leontief technologies), H Economics Vanek Model used to derive the strong prediction about the factor content of trade known as the Heckscher-Ohlin-Vanek Theorem. The prediction of the H-O-V Model that a countrys net factor content of trade equals its own factor endowment minus its world- Heckscher-Ohlin- expenditure share of the world factor endowment. That is, for country i , F i = V i - s i V W , where F i is the factor content of its H Economics Vanek Theorem trade, V i ,V W its and the worlds factor endowments, and s i its share of world expenditure. Due to Vanek (1968). To offset risk. In the foreign exchange market, hedgers use the forward market to cover a transaction or open position and H Economics Hedge thereby reduce exchange risk. The term applies most commonly to trade. The use of statistical techniques such as regression analysis to determine, from the prices of goods with different measurable H Economics Hedonic pricing characteristics, the prices that are associated with those characteristics. The latter can then be used to construct what the comparable price of a good would be from its characteristics. A United States law enacted in 1996 that penalized companies for doing business in Cuba. Since the law applied to non-U.S. H Economics Helms-Burton Act companies as well as U.S. companies, other governments objected. A standard measure of industry concentration, defined as the sum of the squares of the market shares (in percentages) of the H Economics Herfindahl index firms in the industry. Page 163 of 379
  • 164. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Said of a technological change or technological difference if production functions differ by scaling of output only: F 2(V )=lF 1(V ), H Economics Hicks-neutral where F 1(·) and F 2(·) are the production functions being compared, V is a vector of factor inputs, and l>0 is a constant. In trade theory, this refers to having more than two goods, factors, and/or countries, or to having arbitrary numbers of these. H Economics High dimension Contrasts with the two-ness of the 2x2x2 Model. H Economics High powered money Same as monetary base, in the sense of currency plus commercial bank reserves. H Economics HIPC Heavily indebted poor countries. H Economics H-O Model Heckscher-Ohlin Model. A preference, by consumers or other demanders, for products produced in their own country compared to otherwise identical H Economics Home bias imports. This was proposed by Trefler (1995) as a possible explanation for the mystery of the missing trade. H Economics Homogeneous Having the property that all constituent elements are the same, as a homogeneous good. Page 164 of 379
  • 165. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A function with the property that multiplying all arguments by a constant changes the value of the function by a monotonic Homogeneous function of that constant: F (lV )=g (l)F (V ), where F (·) is the homogeneous function, V is a vector of arguments, l>0 is any H Economics function constant, and g (·) is some strictly increasing positive function. Special cases include homogeneous of degree N and linearly homogeneous. H Economics Homogeneous good A good all units of which are the same; a homogeneous product. Homogeneous of H Economics degree 1 The same as linearly homogeneous and, for a production function, constant returns to scale. See homogeneous of degree N. Homogeneous of A homogeneous function where the monotonic function is the constant raised to the exponent N : F (lV )=lN F (V ). For N >1, see H Economics degree N increasing returns to scale; for N <1, see decreasing returns to scale. The property of a function that, if you scale all arguments by the same proportion, the value of the function does not change. Homogeneous of H Economics degree zero See homogeneous of degree N . In the H-O Model, CRTS production functions imply that marginal products have this property, which is critical for FPE. Homogeneous H Economics product The product of an industry in which the outputs of different firms are indistinguishable. Contrasts with differentiated product. Having a constant elasticity of substitution. One of the inventors of the CES function tried to christen it this in Minhas (1962), H Economics Homohypallagic where he also explored its theoretical and empirical implications for the Heckscher-Ohlin Theorem, but the name did not catch on. Page 165 of 379
  • 166. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A function of two or more arguments is homothetic if all ratios of its first partial derivatives depend only on the ratios of the H Economics Homothetic arguments, not their levels. For competitive consumers or producers optimizing subject to homothetic utility or production functions, this means that ratios of goods demanded depend only on relative prices, not on income or scale. H Economics Homothetic demand Demand functions derived from homothetic preferences. The demand functions are not themselves literally homothetic. Homothetic Together with identical preferences, this assumption is used for many propositions in trade theory, in order to assure that H Economics preferences consumers with different incomes but facing the same prices will demand goods in the same proportions. H Economics Homothetic tastes Homothetic preferences. The use of a rule, as in the regulations of trade policies under the GATT or GATS, that applies across the board to all sectors H Economics Horizontal discipline of the economy. H Economics Horizontal equity Horizontal equity requires equals to be treated equally e.g. people in the same income group should be taxed at the same rate. Where two firms join at the same stage of production in one industry. For example two car manufacturers may decide to H Economics Horizontal integration merge, or a leading bank successfully takes-over another bank. The worlds biggest contested takeover took place in 2000 when British business Vodafone mounted a successful bid for German telecoms firm Mannesmann. Page 166 of 379
  • 167. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Horizontal Intraindustry trade in which the exports and imports are at the same stage of processing. Likely due to product differentiation. H Economics intraindustry trade Contrasts with vertical IIT. H Economics Hormone dispute See beef hormone case. H Economics HOS Model Heckscher-Ohlin-Samuelson Model. H Economics Host country The country into which a foreign direct investment is made. H Economics HOT Heckscher-Ohlin Theorem. Holdings of very liquid assets, which may be sold or cashed on short notice and then removed from a country, often in H Economics Hot money response to expectations of devaluation or other financial crisis. The annual percentage change in house prices. There are two commonly quoted measures of house price inflation - from the H Economics House price inflation Halifax (Britains largest mortgage lender) and the Nationwide Building Society. Page 167 of 379
  • 168. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The household savings ratio is measured as the level of savings as a percentage of disposable income. In recent years there Household Savings H Economics Ratio has been a fall in the savings ratio in part because consumer borrowing has reached record levels, fuelled in part by the rapid acceleration in house prices. H Economics HOV Model Heckscher-Ohlin-Vanek Model. H Economics HS Harmonized System Hub and spoke A pattern of economic integration in which one country (the "hub") forms preferential trading arrangements with two or more H Economics integration other countries (the "spokes") that do not form such arrangements with each other. Human capital is the stock of skills, experience and qualifications held by the labour force that can be brought into the H Economics Human capital production function. New Growth theorists believe there is a strong link between investment in human capital and long-term growth. A composite measure of human development published by the United Nations. The HDI is comprised of components which Human development measure how far each indicator has moved from the minimum value towards a desirable level or maximum deemed attainable. H Economics index The components of the HDI are usually income, life expectancy and education. Wealth and political rights can also be added into the overall calculations. HRM describes improvements to procedures involving recruitment, training, promotion, retention and support of faculty and Human resource staff. This becomes critical to a business when the skilled workers it needs are in short supply. Recruitment and retention of H Economics management the most productive and effective employees makes a sizeable difference to corporate performance in the long run (as does the flexibility to fire those at the opposite extreme!) Page 168 of 379
  • 169. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Hyperinflation is extremely rare. Recent examples include Argentina, Brazil, Georgia and Turkey (where inflation reached 70% in 1999). The classic example of hyperinflation was of course the rampant inflation in Weimar Germany between 1921 and H Economics Hyperinflation 1923. When hyperinflation occurs, the value of money becomes worthless and people lose all confidence in money both as a store of value and also as a medium of exchange. The failure of an economic variable to return to its initial equilibrium after a temporary shock. For example, an industry or trade H Economics Hysteresis flow might disappear due to an exchange rate change, then not reappear after the change is reversed. I Economics Immigration The migration of people into a country. Economic growth that makes the country worse off. Bhagwati (1958) coined this term for growth that expands exports and I Economics Immiserizing growth worsens the terms of trade sufficiently that real income falls. Johnson (1955) had shown that a market distorted by a tariff could lose from growth and had also, independently, worked out conditions for Bhagwatis result. I Economics Impairment See nonviolation Imperfect capital I Economics mobility Any departure from perfect capital mobility, permitting interest rates or returns to capital to differ between countries. Covers market structures between perfect competition and pure monopoly, i.e. an industry with barriers to entry and I Economics Imperfect competition differentiated products - examples include oligopoly and duopoly. Page 169 of 379
  • 170. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Consumers and producers require complete information if they are to make efficient choices. In perfectly competitive markets we assume that all agents in the market have perfect information about the availability of goods and services and also the prices charged by suppliers. Consumers can make purchasing decisions on the basis of full and free information on the products that they are buying. In reality, all of us experience information deficits which can lead to a misallocation of resources. I Economics Imperfect information Information failure occurs when people have inaccurate, incomplete, uncertain or misunderstood data and so make potentially ‗wrong‘ choices. Consumers can never be expected to have a full-informed view about the products they are faced with in each  and every market. Searching for information is time consuming and carries an obvious opportunity cost. Likewise, producers do not have full information about the products and prices being charged by their competitors. Imperfectly Refers to an economic agent (firm or consumer), group of agents (industry), model, or analysis that is characterized by I Economics competitive imperfect competition. Contrasts with perfectly competitive. A broad measure of prices derived from separate estimates of real and nominal expenditures for GDP or a subcategory of I Economics Implicit price deflator GDP. Without qualification the term refers to the GDP deflator and is thus an index of prices for everything that a country produces, unlike the CPI, which is restricted to consumption and includes prices of imports. Tariff revenue on a good or group of goods, divided by the corresponding value of imports. Often lower than the official or I Economics Implicit tariff statutory tariff, due both to PTAs and to failures in customs collection. I Economics Import A good that crosses into a country, across its border, for commercial purposes. I Economics Import authorization The requirement that imports be authorized by a special agency before entering a country, similar to import licensing. Page 170 of 379
  • 171. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. I Economics Import bias Any bias in favor of importing. Import demand I Economics elasticity The elasticity of demand for imports with respect to price. I Economics Import duty A tariff on imports. I Economics Import elasticity Usually means the import demand elasticity. I Economics Import license The license to import under an import quota or under exchange controls. I Economics Import licensing See licensing. A price charged for a domestically produced good that is set equal to the domestic price of an equivalent imported good -- thus I Economics Import parity price the world price plus transport cost plus tariff. Page 171 of 379
  • 172. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Import penetration is a measure of the proportion (or percentage) of domestic demand in a particular market or industry that is I Economics Import penetration taken up by overseas output. For example a rising share of coal used in energy generation comes from overseas suppliers. Import penetration is also very high in electronic goods industries, textiles and clothing. I Economics Import price index Price index of the goods that a country imports. Any policy that encourages imports. A policy of export promotion generally has the side effect of stimulating imports as well. I Economics Import promotion Today the term is more commonly used for policies used by developed countries intended to assist developing countries in exporting to them. I Economics Import propensity The marginal propensity to import (or sometimes the average propensity, if they are different). I Economics Import protection See protection. I Economics Import quota A quota is a physical limit imposed upon the amount of a good that can be imported. Usually refers to some form of restraint of imports in a particular sector in order to assist domestic producers, and with the I Economics Import relief connotation that these producers have been suffering from competition with imports. If done formally under existing statutes, it is administered protection, but it may also be done informally using a VER. Page 172 of 379
  • 173. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A good produced on the domestic market that competes with imports, either as a perfect substitute or as a differentiated I Economics Import substitute product. Import substituting I Economics industrialization A strategy for economic development based on replacing imports with domestic production. (ISI) A strategy for economic development that replaces imports with domestic production. It may be motivated by the infant industry I Economics Import substitution argument, or simply by the desire to mimic the industrial structure of advanced countries. Contrasts with export promotion. I Economics Import surcharge A tax levied uniformly on most or all imports, in addition to already-existing tariffs. I Economics Import surveillance The monitoring of imports, usually by means of automatic licensing. Refers to an industry that competes with imports. That is, in a two-good model with trade, one good is the export good and the I Economics Import-competing other is the import-competing good. Import-export A firm whose business consists mainly of international trade: buying goods in one country and selling them in another, thus I Economics company both exporting and importing. Same as export-import company. Page 173 of 379
  • 174. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Imports are a withdrawal of demand (a leakage) from the circular flow of income and spending. Goods and services come into I Economics Imports the economy for us to consume and enjoy - but there is a flow of money out of the economic system to pay for them. Import-weighted I Economics average tariff See trade weighted average tariff. The impossibility of combining all three of the following: monetary independence, exchange rate stability, and full financial I Economics Impossible trinity market integration. I Economics Impost A tax or tariff. (This is not a commonly used word.) To increase the terms of trade; that is, to increase the relative price of exports compared to imports. Because it represents an Improve the terms of I Economics trade increase in what the country gets in return for what it gives up, this is associated with an improvement in the countrys welfare, although whether that actually occurs depends on the reason prices change. This conventionally refers to an increase in exports relative to imports, which thus causes the balance of trade to become Improve the trade I Economics balance larger if positive or smaller if negative. The terminology ignores that exports drain resources while imports satisfy domestic needs, and reflects instead the association of exports with either accumulation of wealth or jobs. I Economics In kind Referring to a payment made with goods instead of money. Page 174 of 379
  • 175. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Incentives matter enormously in our study of microeconomics, markets and market failure. For competitive markets to work efficiently economic agents (i.e. consumers and producers) must respond to appropriate price signals in the market. I Economics Incentives Government intervention in markets can often change the incentives that both producers and consumers face - for example a change in relative prices brought about by the introduction of government subsidies and taxation. I Economics Income Income represents a flow of earnings from using factors of production to generate an output of goods and services. I Economics Income disparity Inequality of income, usually referring to differences in average per capita incomes across countries. A description of the fractions of a population that are at various levels of income. The larger are the differences in income, the I Economics Income distribution "worse" the income distribution is usually said to be, the smaller the "better." International trade and factor movements can alter countries income distributions by changing prices of low- and high-paid factors. Income effects refer to changes in the real purchasing power of consumers. For example when the average price level falls, a I Economics Income effect given amount of money income can now buy more goods and services. Consumer demand for normal goods will increase, but decrease for inferior goods. Changes in real price levels affect the real incomes of households and firms. I Economics Income elastic Having an income elasticity greater than one. I Economics Income elasticity Normally the income elasticity of demand; that is, the elasticity of demand with respect to income. Page 175 of 379
  • 176. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Income elasticity of Income elasticity of demand measures the relationship between a change in quantity demanded and a change in real income. I Economics demand The formula for income elasticity is: percentage change in quantity demanded divided by the percentage change in income. I Economics Income inelastic Having an income elasticity less than one. The argument that tariffs should be used in order to redistribute income towards the poor. In a rich country, where unskilled Income redistribution I Economics labor is the scarce factor, this can make sense as explained in the Stolper-Samuelson Theorem, but it is a second-best argument for a tariff argument. Incomplete I Economics information See complete information. Incomplete I Economics specialization Production of goods that compete with imports. I Economics INCOTERMS International commercial terms; that is, the language of international commerce. The characteristic of an economy that the opportunity cost of a good rises as it produces more of it, resulting in a Increasing I Economics opportunity cost transformation curve that is concave to the origin. In the HO Model, this happens in spite of CRTS if sectors have different factor intensities. Page 176 of 379
  • 177. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A property of a production function such that changing all inputs by the same proportion changes output more than in Increasing returns to proportion. Common forms include homogeneous of degree greater than one and production with constant marginal cost but I Economics scale positive fixed cost. Also called economies of scale, scale economies, and simply increasing returns. Contrasts with decreasing returns and constant returns. Incremental capital The amount of additional capital that a developing country requires to increase its output by one unit; thus the reciprocal of the I Economics output ratio marginal product of capital. Used as an (inverse) indicator of how efficiently a country is using the scarce capital it acquires. I Economics Indebtedness The amount that is owed; thus amount of an entitys (individual, firm, or governments) financial obligations to creditors. A quantitative measure, usually of something the measurement of which is not straightforward, such as an average of many I Economics Index diverse prices, or a concept such as economic development or human rights. A numerical index, usually indicating, by comparison with a base value of 100, the size of the index relative to a base year or I Economics Index number other benchmark for comparison. Thus, for example, a CPI of 115 in 2004 with a base year of 1999 means that prices have risen 15% from 1999 to 2004. A question the answer to which depends on a choice of weights. E.g., the effect of trade on the real wage of labor in the Index number I Economics problem specific factors model is an index number problem, depending on how much workers consume of (lower-priced) imported and (higher-priced) exported goods. I Economics Index of openness Openness index Page 177 of 379
  • 178. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A means of representing the preferences and well being of consumers. Formally, it is a curve representing the combinations of I Economics Indifference curve arguments in a utility function that yield a given level of utility. Indirect exchange The foreign-currency price of a unit of domestic currency. (This definition appears in several places, but it is a mystery to me I Economics rate why this is any less direct than its reciprocal.) An indirect tax is imposed on producers (suppliers) by the government. Examples include excise duties on cigarettes, alcohol and fuel and also value added tax. Taxes are levied by the government for a number of reasons - among them as part of a strategy to curb pollution and improve the environment. A tax increases the costs of a business causing an inward shift in the I Economics Indirect tax supply curve. The vertical distance between the pre-tax and the post-tax supply curve shows the tax per unit. With an indirect tax, the supplier may be able to pass on some or all of this tax onto the consumer through a higher price. This is known as shifting the burden of the tax and the ability of businesses to do this depends on the price elasticity of demand and supply. Indirect taxes are taxes on spending – such as excise duties on fuel, cigarettes and alcohol and Value Added Tax (VAT) on  I Economics Indirect taxation many different goods and services. The extent to which a small number of firms dominates an industry, often measured by a concentration ratio or by a Herfindahl Industrial I Economics concentration index. Concentration is, in effect, the opposite of competition, although in an open economy imports complicate the relationship. Government policy to influence which industries expand and, perhaps implicitly, which contract, via subsidies, tax breaks, and I Economics Industrial policy other aids for favored industries. The purpose, aside from political favor, may be to foster competitive advantage where there are beneficial externalities and/or scale economies. Page 178 of 379
  • 179. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. I Economics Industrialization The establishment and subsequent growth of industrial production in a country, usually meaning heavy manufacturing. Having an elasticity less than one. For a price elasticity of demand, this means that expenditure falls as price falls. For an I Economics Inelastic income elasticity it means that expenditure share falls with rising income. Contrasts with elastic and unit elastic. An offer curve with inelastic demand for imports. That inelasticity implies that exports decline as imports increase, and it I Economics Inelastic offer curve therefore means that the offer curve is backward bending. Strictly speaking, the natural definition of an offer curves elasticity would be negative in this case, not just less than one, but that definition is seldom used. I Economics Inequality The extent to which income and wealth between the inhabitants of a country is dispersed. Infant industry I Economics argument The theoretical rationale for infant industry protection. Protection of a newly established domestic industry that is less productive than foreign producers. If productivity will rise with Infant industry I Economics protection experience enough to pass Mills and Bastables tests, there is a second-best argument for protection. The term is very old, but a classic treatment may be found in Baldwin (1969). For normal products, more is demanded as income rises, and less as income falls. Most products are like this but there are exceptions called inferior products. They are often cheaper poorer quality substitutes for some other good. Examples include I Economics Inferior goods black-and-white television sets, cigarettes, white bread and several other basic foods. With a higher income a consumer can switch from the cheaper substitute to the more expensive, but preferred alternative. As a result, less of the inferior product is demanded at higher levels of income. Inferior goods have a negative income elasticity of demand. Page 179 of 379
  • 180. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Human beings want better food; housing; transport, education and health services. They demand the latest digital technology, more meals out at restaurants, more frequent overseas travel, better cars, cheaper food and a wider range of cosmetic health I Economics Infinite wants care treatments. Whilst our economic resources are limited, human needs and wants are infinite. Indeed the development of society can be described as the uncovering of new wants and needs - which producers attempt to supply by using the available factors of production. Inflation is a sustained rise in the general price level over time. The rate of inflation is the percentage change in a given price I Economics Inflation index over the last twelve months. I Economics Inflation adjusted Adjusted for inflation. The rate of inflation is measured by the annual percentage change in the level of consumer prices. The British Government has set an inflation target of 2% using the consumer price index (CPI). It is the job of the Bank of England to set interest rates I Economics Inflation rate so that AD is controlled and the inflation target is reached. Since the Bank of England was made independent, inflation has stayed comfortably within target range. Indeed Britain has one of the lowest rates of inflation inside the EU. The Government‘s target for inflation is 2% for inflation measured by the consumer price index (CPI). It is the job of the Bank  of England to set interest rates so that AD is controlled and the inflation target is reached. Since the Bank of England was I Economics Inflation target made independent inflation has stayed within target range - indeed the economy has enjoyed a sustained period of low inflation. I Economics Informal economy The informal economy refers to undeclared economic activity. The facilities that must be in place in order for a country or area to function as an economy and as a state, including the capital I Economics Infrastructure needed for transportation, communication, and provision of water and power, and the institutions needed for security, health, and education. Page 180 of 379
  • 181. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Harm to an industrys owners and/or workers. Import protection under the safeguards, AD, and CVD provisions of the GATT I Economics Injury require a finding of serious (for safeguards) or material (for AD/CVD) injury (as determined by, in the U.S., the ITC). Known as the injury test. The Oxford English Dictionary defines innovation as "making changes to something established". Invention, by contrast, is the I Economics Innovation act of "coming upon or finding: discovery". Refers to the structure of intermediate transactions among industries, in which one industrys output is an input to another, or I Economics Input-output even to itself. A table of all inputs and outputs of an economys industries, including intermediate transactions, primary inputs, and sales to final users. As developed by Wassily Leontief, the table can be used to calculate gross outputs and primary factor inputs I Economics Input-output table needed to produce specified net outputs. Leontief (1954) used this to find the factor content of U.S. trade, generating the Leontief Paradox I Economics Instability The property of not being stable; thus, moving around over time, and/or uncertain in its movement over time. An economic variable that is controlled by policy makers and can be used to influence other variables, called targets. I Economics Instrument Examples are monetary and fiscal policies used to achieve external and internal balance. A hypothetical, theoretical benchmark in which both goods and factors move costlessly between countries. The IWE is Integrated World I Economics Economy associated with a rectangular diagram depicting allocation of factors to countries, showing conditions for FPE. The name was coined by Dixit and Norman (1980), but the concept and technique was introduced by Travis (1964). Page 181 of 379
  • 182. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Economic integration refers to reducing barriers among countries to transactions and to movements of goods, capital, and I Economics Integration labor, including harmonization of laws, regulations, and standards. Common forms include FTAs, customs unions, and common markets. Sometimes classified as shallow integration vs. deep integration. I Economics Intellectual property Products of the mind, such as inventions, works of art, music, writing, film, etc. Intellectual property Laws that establish and maintain ownership rights to intellectual property. The principal forms of IP protection are patents, I Economics protection trademarks, and copyrights. Intellectual property I Economics right The right to control and derive the benefits from something one has invented, discovered, or created. I Economics Intensive Of production, using a relatively large amount of an input. See factor intensity. Inter-American I Economics Development Bank A development bank for the countries of Latin America and the Caribbean. I Economics Interbank rate The rate of interest charged by a bank on a loan to another bank. See LIBOR. Page 182 of 379
  • 183. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Interdependence exists when the actions of one firm has an effect on its competitors in the market. Interdependence is a I Economics Interdependence common feature of an oligopoly. I Economics Interest The amount paid by a borrower to a lender above the amount (the principal) that has been borrowed. A form of arbitrage intended to profit from a difference in interest rates in different markets. It consists of simultaneously I Economics Interest arbitrage borrowing at the low interest rate and lending at the higher interest rate in order to profit from the difference. If done in two different currencies, it may be covered or uncovered. Interest bearing I Economics account An account in a bank or other financial institution that pays interest to the depositor. The change in demand for a good or service brought about by a change in interest rates. The demand for many products is Interest elasticity of I Economics demand sensitive to interest rate changes - notably sectors of consumer demand linked to the strength of the housing market. Goods and services bought on credit might also be expected to have a relatively high interest elasticity of demand. Interest equalization A tax levied between 1963 and 1974 by the United States of 15% on interest received from foreign borrowers, intended to I Economics tax discourage capital outflows. Equality of returns on otherwise identical financial assets denominated in different currencies. May be uncovered, with returns I Economics Interest parity including expected changes in exchange rates, or covered, with returns including the forward premium or discount. Also called interest rate parity. Page 183 of 379
  • 184. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The rate of return on bonds, loans, or deposits. When one speaks of "the" interest rate, it is usually in a model where there is I Economics Interest rate only one. I Economics Interest rate parity Interest parity Interest rate The transmission mechanism between the Bank changing rates and it having an effect on AgD, national output employment I Economics transmission and inflation is complex and involves time lags. Interest changes affect household consumption and savings decisions and mechanism corporate output and capital investment decisions. There is no unique rate of interest in the economy. For example we distinguish between savings rates and borrowing rates. I Economics Interest rates However interest rates tend to move in the same direction. For example if the Bank of England cuts the base rate of interest then we expect to see lower mortgage rates and lower rates on savings accounts with Banks and Building Societies. Trade in which a countrys exports and imports are in different industries. Typical of models of comparative advantage, such as I Economics Interindustry trade the Ricardian Model and Heckscher-Ohlin Model. Contrasts with intraindustry trade. I Economics Intermediate good Same as intermediate input. An input to production that has itself been produced and that, unlike capital, is used up in production. As an input it is in I Economics Intermediate input contrast to a primary input and as an output it is in contrast to a final good. A very large portion of international trade is in intermediate inputs. Page 184 of 379
  • 185. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Intermediate I Economics transaction The sale of a product by one firm to another, presumably to be used as an intermediate input. Dumping that occurs for short periods of time, presumably to dispose of temporary surpluses of goods and not intended to I Economics Intermittent dumping eliminate competition. Same as sporadic dumping. I Economics Intermodalism The use of more than one form (mode) of transportation, as when a shipment travels by both sea and rail. A target level for domestic aggregate economic activity, such as a level of GDP that minimizes unemployment without being I Economics Internal balance inflationary. See the assignment problem. Contrasts with external balance. The amount owed by a country to, in effect, itself. It includes, for example, the portion of the government debt that is I Economics Internal debt denominated in the countrys own currency and held by domestic residents. Internal economies of Economies of scale that are internal to a firm; that is, the firms average costs fall as its own output rises. Likely to be I Economics scale inconsistent with perfect competition. Contrasts with external economies of scale. Firms can generate higher sales and increased market share by expanding their operations and exploiting possible economies I Economics Internal expansion of scale. The alternative is to grow externally through mergers and takeovers. See also integration of firms. Page 185 of 379
  • 186. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Internal growth occurs when a business gets larger by increasing the scale of its own operations rather than relying on I Economics Internal growth integration with other businesses. Term used for a target of European integration, which would remove all barriers between national markets so that they would I Economics Internal market become, in effect, a single European market. One of the three pillars of the OLI paradigm for understanding FDI and the formation of multinational enterprises, this refers to I Economics Internalization the advantage that a firm derives from keeping multiple activities within the same organization. To cause, usually by a tax or subsidy, an external cost or benefit of someones actions to be experienced by them directly, so I Economics Internalize that they will take it into account in their decisions. I Economics International Involving transactions or relations between nations. The term, according to Suganami (1978), was coined by Bentham (1789). International I Economics adjustment process Any mechanism for change in international markets. International Bank for The largest of the five institutions that comprise the World Bank Group, IBRD provides loans and development assistance to I Economics Reconstruction & middle-income countries and creditworthy poorer countries. Development Page 186 of 379
  • 187. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. International Centre One of the five institutions that comprise the World Bank Group, ICSID provides facilities for the settlement - by conciliation or I Economics for Settlement of arbitration - of investment disputes between foreign investors and their host countries. Investment Disputes International Cocoa An intergovernmental organization set up in 1973 to administer the International Cocoa Agreement, the most recent version of I Economics Organization which was negotiated in 2001. See international commodity agreement. International Coffee An intergovernmental organization set up in 1963 that administers the International Coffee Agreement. See international I Economics Organization commodity agreement. International An agreement among producing and consuming countries to improve the functioning of the global market for a commodity. I Economics commodity May be administrative, providing information, or economic, influencing world price, usually using a buffer stock to stabilize it. agreement ICAs are overseen by UNCTAD. International A program currently coordinated by the World Bank to gather extensive information about prices in many countries so as to I Economics Comparison Program ascertain the purchasing power of their currencies and thus permit international comparisons of real incomes. International I Economics competitiveness See competitiveness. International Cotton An association of governments dealing with cotton. It grew out of an International Cotton Meeting in 1939. See international I Economics Advisory Committee commodity agreement. Page 187 of 379
  • 188. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. International One of the five institutions that comprise the World Bank Group, IDA provides interest free loans and other services to the I Economics Development poorest countries. Association International The study of economic interactions among countries -- including trade, investment, financial transactions, and movement of I Economics economics people -- and the policies and institutions that influence them. International I Economics exhaustion See exhaustion. International factor The international movement of any factor of production, including primarily labor and capital. Thus includes migration and I Economics movement foreign direct investment. Also may include the movement of financial capital in the form of international borrowing and lending. The monetary side of international economics, in contrast to the real side, or real trade. Often called also international I Economics International finance monetary economics or international macroeconomics, each term has a slightly different meaning, and none seems entirely right for the entire field. "International finance" is best for the study of international financial markets including exchange rates. International Finance One of the five institutions that comprise the World Bank Group, IFC promotes growth in the developing world by financing I Economics Corporation private sector investments and providing technical assistance and advice to governments and businesses. International financial I Economics institution Usually refers to intergovernmental organizations dealing with financial issues, most often the IMF and/or the World Bank. Page 188 of 379
  • 189. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. International Fisher The theory that exchange-rate changes will match, or be expected to match, international differences in nominal interest rates. I Economics Effect It follows from the (domestic) Fisher Effect together with purchasing power parity. International Grains An intergovernmental organization, concerned with grains trade, that administers the Grains Trade Convention of 1995. See I Economics Council international commodity agreement. International An organization established by multiple national governments, usually to administer a program or pursue a purpose that the I Economics institution governments have agreed upon. International I Economics investment International capital movement International Jute The organization set up in 1984 to implement the International Agreement on Jute and Jute Products, 1982, now called the I Economics Organization International Jute Study Group. See international commodity agreement. International Labor A United Nations specialized agency that establishes and monitors compliance with international standards for human and I Economics Organization labor rights. International Lead The international organization formed in 1959 to share information about lead and zinc. See international commodity I Economics and Zinc Study Group agreement. Page 189 of 379
  • 190. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. I Economics International liquidity Refers to the adequacy of a countrys international reserves. International Same as international finance, but with more emphasis on the international determination of macroeconomic variables such as I Economics macroeconomics national income and the price level. International I Economics monetary economics Same as international finance, but with more emphasis on the role of money and less on other financial assets. International An organization formed originally to help countries to stabilize exchange rates, but today pursuing a broader agenda of I Economics Monetary Fund financial stability and assistance. As of June 2007, it had 185 member countries. International Olive Oil The intergovernmental organization in charge of administering the International Olive Oil Agreement, which originated in 1956. I Economics Council See international commodity agreement. International I Economics Organization for International organization assisting migrants and the management of migration. Migration International parity I Economics conditions Refers collectively to purchasing power parity and interest parity. Page 190 of 379
  • 191. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. International political A field of study within social science, especially political science, that addresses the interrelationships between international I Economics economy economics and political forces and institutions. The assets denominated in foreign currency, plus gold, held by a central bank, sometimes for the purpose of intervening in the I Economics International reserves exchange market to influence or peg the exchange rate. Usually includes foreign currencies themselves (especially US dollars), other assets denominated in foreign currencies, gold, and a small amount of SDRs. International Rubber An intergovernmental organization, founded in 1944, that provides a forum for the discussion of matters affecting the supply I Economics Study Group and demand for both synthetic and natural rubber. See international commodity agreement. International I Economics specialization See specialization. International Sugar An intergovernmental body that administers the International Sugar Agreement of 1992. See international commodity I Economics Organization agreement. I Economics International trade See trade. International Trade A part of the United States Department of Commerce, the ITA acts on behalf of U.S. businesses in global competition. In trade I Economics Administration policy, its Import Administration has the duty of determining whether imports are dumped or subsidized. Page 191 of 379
  • 192. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. An independent, quasi-judicial federal agency of the U.S. government that provides information and expertise to the legislative International Trade I Economics Commission and executive branches of government and directs actions against unfair trade practices. In trade policy, its commissioners assess injury in cases filed under the escape clause, anti-dumping, and countervailing duty statutes. Conceived as a complement to the Bretton Woods institutions -- the IMF and World Bank -- the ITO was to provide International Trade I Economics Organization international discipline in the uses of trade policies. The Havana Charter for the ITO was not approved by the United States Congress, however, and the initiative died, replaced by the continuing and growing importance of the GATT. International Tropical An organization created in 1983 for consultation among producers and consumers of tropical timber. An objective was that all I Economics Timber Organization timber traded by members should originate from sustainably managed forests. I Economics Internationalization Another term for fragmentation. Used by Grossman and Helpman (1999). I Economics Intertemporal Occurring across time, or across different periods of time. Trade across time, as when a country imports in one time period paying for the imports with exports in a different time period, I Economics Intertemporal trade earlier or later. An imbalance in the balance of trade is presumed to reflect intertemporal trade. I Economics Intervention See exchange market intervention. Page 192 of 379
  • 193. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. I Economics Intervention currency A currency that is commonly used by central banks for exchange market intervention. See reserve currency. Trade in which a country exports and imports in the same industry, in contrast to interindustry trade. Ubiquitous in the data, I Economics Intraindustry trade much IIT is due to aggregation. Can be horizontal or vertical. Grubel and Lloyd (1975) wrote the book on IIT. I Economics Intra-mediate trade Another term for fragmentation. Used by Antweiler and Trefler (2002). Intra-product I Economics specialization Another term for fragmentation. Used by Arndt (1997). I Economics Inventories Goods being kept on hand for future use in production or future sale. Said of a matrix if its inverse exists. That is, a matrix A is invertible if there exists another matrix B such that BA =I , where I is I Economics Invertible the identity matrix. I Economics Investment Addition to the stock of capital of a firm or country. Page 193 of 379
  • 194. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. I Economics Invisible In referring to international trade, used as a synonym for "service." "Invisibles trade" is trade in services. Contrasts with visible. The 18th Century economist Adam Smith - one of the founding fathers of modern economics, described how the invisible or hidden hand of the market operated in a competitive market through the pursuit of self-interest to allocate resources in I Economics Invisible hand societys best interest. This remains the central view of all free-market economists, i.e. those who believe in the virtues of a free-market economy with minimal government intervention. The itemized bill for a transaction, stating the nature of the transaction and its cost. In international trade, the invoice price is I Economics Invoice often the preferred basis for levying an ad valorem tariff. I Economics IOM International Organization for Migration I Economics IP Intellectual property I Economics IPE International political economy I Economics IPRs Intellectual property rights Page 194 of 379
  • 195. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. I Economics IRS Increasing returns to scale = IRTS. I Economics IRTS Increasing returns to scale. In the IS-LM model, the curve representing the combinations of national income and interest rate at which aggregate demand I Economics IS-Curve equals supply for goods. It is normally downward sloping because a rise in income increases output by more than aggregate demand (through consumption), while a rise in the interest rate reduces aggregate demand through investment. I Economics ISI Import substituting industrialization A Keynesian macroeconomic model, popular especially in the 1960s, in which national income and the interest rate were I Economics IS-LM Model determined by the intersection of two curves, the IS-curve and the LM-curve. A particular version of the Mundell-Fleming Model that extends the IS-LM model by including in the diagram a third curve, the I Economics IS-LM-BP Model BP-curve, representing the balance of payments and/or the exchange market. A line along which the cost of something -- usually a combination of two factors of production -- is constant. Since these are I Economics Isocost line usually drawn for given prices, which are therefore constant along the line, an isocost line is usually a straight line, with slope equal to the ratio of the (factor) prices. Page 195 of 379
  • 196. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A curve along which price is (or prices are) constant, most commonly in factor-price space where it shows the combinations of I Economics Iso-price curve prices of factors consistent with zero profit in producing a good at a specified price of the good. I Economics Isoquant A curve representing the combinations of factor inputs that yield a given level of output in a production function. Israel-US Free Trade I Economics Area A free trade area between the United States and Israel that was initiated in 1985. I Economics ITA International Trade Administration I Economics ITC International Trade Commission I Economics ITO International Trade Organization I Economics IWE Integrated World Economy Page 196 of 379
  • 197. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The dynamic path followed by the balance of trade in response to a devaluation, which typically causes the trade balance to J Economics J-curve worsen before it improves, tracing a path that looks like a letter "J". Joint supply describes a situation where an increase or decrease in the supply of one good leads to an increase or decrease in J Economics Joint Supply supply of another. For example an expansion in the volume of beef production will lead to a rising market supply of beef hides. A contraction in supply of lamb will reduce the supply of wool. An undertaking by two parties for a specific purpose and duration, taking any of several legal forms. Two corporations, for J Economics Joint venture example, perhaps from two different countries, may undertake to provide a product or service that is distinct, in kind or location, from what the companies do on their own. A U.S. law that prohibits foreign ships from transporting goods or people between one U.S. location and another. Such a J Economics Jones Act restriction on cabotage is an example of a barrier to trade in a service. J Economics Jones hat algebra See hat algebra. J Economics Jubilee 2000 A movement advocating the cancellation of debts that burden developing countries, intended to occur in the year 2000. J Economics JV Joint venture Page 197 of 379
  • 198. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The criterion that, for a change in policy or policy regime to be viewed as beneficial, the gainers should be able to compensate K Economics Kaldor-Hicks Criterion the losers and still be better off. The criterion does not require that the compensation actually be paid, which, if it did, would make this the same as the Pareto criterion. Due to Kaldor (1939), Hicks (1940). Kaleidoscope K Economics comparative A variant of fragmentation due to Bhagwati and Dehejia (1994). advantage A group, or network, of manufacturing and other companies in Japan, usually centered around a bank and including a trading K Economics Keiretsu company. Keiretsus are characterized by cross-ownership of shares, strategic coordination, and preference for transactions within the network. The proposition, due to Kemp and Wan (1976), that any group of countries can form a customs union that is Pareto-improving K Economics Kemp-Wan Theorem for the world, so long as nondistorting lump-sum transfers within the union are possible. This is accomplished by setting the vector of common external tariffs so as to leave world prices unchanged. The sixth round of multilateral trade negotiations that was held under GATT auspices, commencing 1964 and completed 1967. K Economics Kennedy Round It was the first to move beyond negotiating only tariff reductions into such trade rules as anti-dumping. A British economist who is most noted for his work The General Theory of Employment, Interest, and Money, published 1936. K Economics Keynes The General Theory formed the foundation of Keynesian economics and created the modern study of macroeconomics. John Maynard Keynes developed a theory of consumption that focused primarily on the importance of people‘s disposable  Keynesian K Economics consumption theory income in determining their spending. A rise in real income gives people greater financial resources to spend or save. The rate at which consumers increase demand as income rises is called the marginal propensity to consume. Page 198 of 379
  • 199. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The kinked demand curve model assumes that a business might face a dual demand curve for its product based on the likely K Economics Kinked demand curve reactions of other firms in the market to a change in its price or another variable. Knowledge based industries are essentially service industries. Examples include communication, finance, and personal Knowledge-based K Economics industries services. However hi-tech manufacturing also comes under this umbrella term. This would include pharmaceuticals, computer hardware and software industries and TV and other communication equipment. An inverse U-shaped relationship between per capita income and inequality, suggesting that inequality is low in very poor K Economics Kuznets Curve countries, rises as they develop, and then ultimately falls as income rises still further. Hypothesized by Kuznets (1955). A requirement to label imported goods with information about how they were produced. This is often suggested as an L Economics Labeling alternative to trade restrictions as a means to pursue particular trade-related objectives involving, for example, environment or labor standards. A country is labor abundant if its endowment of labor is large compared to other countries. Relative labor abundance can be L Economics Labor abundant defined by either the quantity definition or the price definition. Said of a technological change or technological difference if one production function produces the same as if it were the other, L Economics Labor augmenting but with a larger quantity of labor. Same as factor augmenting with labor the augmented factor. Also called Harrod neutral. There is normally an inverse relationship between the demand for labour and the wage rate that a business needs to pay for L Economics Labor demand each additional worker employed. Page 199 of 379
  • 200. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The labour force is defined as the number of people either in work or actively seeking paid employment and available to start L Economics Labor force work. Describing an industry or sector of the economy that relies relatively heavily on inputs of labor, usually relative to capital but L Economics Labor intensive sometimes to human capital or skilled labor, compared to other industries or sectors. See factor intensity. This is made up of firms willing to employ workers and labour seeking employment. The demand for labour by firms is L Economics Labor market downward sloping with respect to wage (price of labour), while the supply of labour by households is upward sloping with respect to wage. The labour market is in equilibrium where the demand for labour equals the supply of labour. Labor market Discrimination is a cause of labour market failure and a source of inequity in the distribution of income and wealth and it is L Economics discrimination usually subject to government intervention e.g. through regulation and legislation. Cuts in income tax might be used to improve incentives for people to seek work and also as a strategy to boost labour Labor market productivity. Some economists argue that welfare benefit reforms are more important than tax cuts in improving incentives – in  L Economics incentives particular to create a ―wedge‖ or gap between the incomes of those people in work and those who are in voluntary  unemployment. L Economics Labor productivity The value of output per unit of labor input. The reciprocal of the unit labor requirement. L Economics Labor right See labor standard. Page 200 of 379
  • 201. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A country is labor scarce if its endowment of labor is small compared to other countries. Relative labor scarcity can be defined L Economics Labor scarce by either the quantity definition or the price definition. Any of many conditions of workers in the workplace that are viewed as important for their well being, and minimum levels of L Economics Labor standard which are advocated by labor rights activists and have been agreed to by many of the countries that are members of the ILO. Labor standards The view that trade restrictions (trade sanctions) should be used as a tool to improve labor standards, limiting imports, for L Economics argument for example, from countries that do not enforce such labor rights as freedom of association and collective bargaining. protection The theory that the value of any produced good or service is equal to the amount of labor used, directly and indirectly, to L Economics Labor theory of value produce it. Sometimes said to underlie the Ricardian Model of international trade. A technological change or technological difference that is biased in favor of using less labor, compared to some definition of L Economics Labor-saving neutrality. A technological change or technological difference that is biased in favor of using more labor, compared to some definition of L Economics Labor-using neutrality. An inverse-U-shaped curve representing tax revenue as a function of the tax rate, attributed to Arthur Laffer. Although the idea L Economics Laffer Curve that a rise in tax rate can reduce tax revenue is mostly based on induced reduction of work effort, for some types of taxes -- especially corporate -- movement of activity to another tax jurisdiction or country can have the same effect. Page 201 of 379
  • 202. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. L Economics LAFTA Latin American Free Trade Association A measurable economic variable that varies over the business cycle, reaching peaks and troughs somewhat later than other L Economics Lagging indicator macroeconomic variables such as GDP and unemployment. Contrasts with leading indicator. A function constructed in solving economic models that include maximization of a function (the "objective function") subject to L Economics Lagrangian constraints. It equals the objective function minus, for each constraint, a variable "Lagrange multiplier" times the amount by which the constraint is violated. L Economics LAIA Latin American Integration Association Free enterprise. The doctrine or system of government non-interference in the economy except as necessary to maintain L Economics Laissez faire economic freedom. Includes free trade. Land is the natural resources available for production. Some nations are endowed with natural resources and specialise in the L Economics Land extraction and production of these resources – for example – the development of the North Sea Oil and Gas in Britain and  Norway. The process of changing the pattern of ownership of land in a country, usually by breaking up large holdings and distributing L Economics Land reform smaller parcels of land to a larger portion of the population. This can be done in various ways, including with or without compensation of the previous owners. Page 202 of 379
  • 203. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A country that is large enough for its international transactions to affect economic variables abroad, usually for its trade to L Economics Large country matter for world prices. Contrasts with a small open economy. Latent demand exists when there is willingness to purchase a good or service, but where the consumer lacks the real L Economics Latent demand purchasing power to be able to afford the product. Latent demand is affected by persuasive advertising - where the producer is seeking to influence consumer tastes and preferences. Latin American Free A group of Latin American countries formed in 1960 with the aim of establishing a free trade area. This aim was never L Economics Trade Association achieved, and LAFTA was replaced in 1980 with the Latin American Integration Association. Latin American An organization of Latin American countries that replaced the failed LAFTA. LAIA has the more limited goal of encouraging L Economics Integration free trade but with no timetable for achieving it. Association Laurel-Langley A trade agreement between the Philippines and the United States, signed in 1955 and expired in 1974, whereby Americans L Economics Agreement were given some of the same rights as Filipinos within the Philippines. Laursen-Metzler L Economics Effect See Harberger-Laursen-Metzler Effect. The principle that, given the freedom to respond to market forces, countries will tend to export goods for which they have Law of Comparative L Economics Advantage comparative advantage and import goods for which they have comparative disadvantage, and that they will experience gains from trade by doing so. Idea due to Ricardo (1815). Page 203 of 379
  • 204. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The law of demand is that there is an inverse relationship between the price of a good and demand. As prices fall we see an L Economics Law of demand expansion of demand. If price rises there should be a contraction of demand. Law of Diminishing The principle that, in any production function, as the input of one factor rises holding other factors fixed, the marginal product of L Economics Returns that factor must eventually decline. L Economics Law of One Price The principle that identical goods should sell for the same price throughout the world if trade were free and frictionless. The law of unintended consequences is that actions of consumer and producers — and especially of government—always  Law of unintended L Economics consequences have effects that are unanticipated or "unintended." Particularly when economic agents do not always act in the way that the economics textbooks would predict. For many years, the acronym LDC has stood for less developed country, which was more or less the same as developing L Economics LDC country. However, in recent years LDC has also been used for Least Developed Country, which has a narrower and more formal definition. A measurable economic variable that varies over the business cycle, reaching peaks and troughs somewhat earlier than other L Economics Leading indicator macroeconomic variables such as GDP and unemployment, and therefore useful for forecasting them. Contrasts with lagging indicator. Refers to the improvement in technology that takes place in some industries, early in their history, as they learn by experience, L Economics Learning by doing so that average cost falls as accumulated output rises. See infant industry protection, dynamic economies of scale. Page 204 of 379
  • 205. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A relationship representing either average cost or average product as a function of the accumulated output produced. Usually L Economics Learning curve reflecting learning by doing, the learning curve shows cost falling, or average product rising. A country designated by the UN as least developed based on criteria of low per capita GDP, weak human resources (life Least Developed L Economics Country expectancy, calorie intake, etc.), and a low level of economic diversification (share of manufacturing and other measures). As of 2007, 49 countries are designated as LDCs. An institution that has the capacity and willingness to make loans when no one else can. Within a country, the central bank L Economics Lender of Last Resort may play that role, since it can create money. Some have argued that the IMF or other institution should play that role internationally, to avert financial crises. L Economics Leontief composite A composite of two or more goods or factors that includes them in fixed proportions, analogous to the Leontief technology. The finding of Leontief (1954) that U.S. imports embodied a higher ratio of capital to labor than U.S. exports. This was L Economics Leontief Paradox surprising because it was thought that the U.S. was capital abundant, and the Heckscher-Ohlin Theorem would then predict that U.S. exports would be relatively capital intensive. Leontief production L Economics function See Leontief technology. A production function in which no substitution between inputs is possible: F(V) = mini(Vi/ai), where V is a vector of inputs Vi, L Economics Leontief technology and ai are the constant per unit input requirements. Isoquants are L-shaped. Page 205 of 379
  • 206. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The possibility, identified by Lerner (1936), that a tariff might worsen a countrys terms of trade. This can happen only if the L Economics Lerner paradox country spends a disproportionately large fraction of the tariff revenue on the imported good, and it will not happen (from a stable equilibrium) if the tariff revenue is redistributed. See offer curve diagram. The proposition that a tax on all imports has the same effect as an equal tax on all exports, if the revenue is spent in the same Lerner Symmetry L Economics Theorem way. The result depends critically on balanced trade, as in a real model, so that a change in imports leads to an equal change in the value of exports. Due to Lerner (1936). Lerner-Pearce This name is sometimes given (for years, by me at least) to the Lerner Diagram. In fact, Pearces (1952) diagram uses unit L Economics Diagram isoquants rather than unit value isoquants and is much more cumbersome. Less developed L Economics country Refers to any country whose per capita income is low by world standards. Same as developing country. A common means of payment in international trade, this is a written commitment by a bank to make payment to an exporter on L Economics Letter of credit behalf of an importer, under specified conditions. The objective of those who advocate protection on the grounds the foreign firms have an unfair advantage. A level playing field L Economics Level playing field would remove such advantages, although it is not usually clear what sorts of advantage (including comparative advantage) would be permitted to remain. See fairness argument for protection. L Economics Levy To impose and collect a tax or tariff. Page 206 of 379
  • 207. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. An amount that is owed, in contrast to an asset. A liability may result from borrowing, from obligation to pay for a product or L Economics Liability service received, etc. Associated with freedom and/or generosity. Thus in England to be liberal (or to be a liberal) is to favor free markets, including L Economics Liberal free trade. But in the U.S. it tends to mean favoring a generous, active government pursuing social and redistributive policies, with no implication for views on free trade. Free trade, or something approximating that. Thus a trade regime in which tariffs are low or zero and in which nontariff barriers L Economics Liberal trade are largely absent. L Economics Liberalism The set of views associated with being liberal, in the sense of freedom. L Economics Liberalization The process of making policies less constraining of economic activity. L Economics LIBOR London interbank offered rate. The requirement that importers and/or exporters get government approval prior to importing or exporting. Licensing may be L Economics Licensing automatic, or it may be discretionary, based on a quota, a performance requirement, or some other criterion. Page 207 of 379
  • 208. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. L Economics Life cycle See product cycle. The expected value of the number of years a person has yet to live at a given age or, if age is unspecified, at birth, based on L Economics Life expectancy the distribution of actual deaths in the population to which the person belongs. Life expectancy in a country is an important indicator of its level of development and well-being. Sectors of the economy that produce manufactured goods without large amounts of physical capital, thus likely to be labor L Economics Light manufacturing intensive. L Economics Limit pricing When a firm sets price just low enough to discourage possible new entrants. The theory that a countrys ability to export depends on domestic demand, so that countries that demand similar goods will L Economics Linder Hypothesis trade more with each other than will countries with dissimilar demands. From Linder (1961). Linear regression A linear relationship between a dependent variable and one or more independent variables plus a stochastic disturbance: L Economics model Yi=b0+b1X1i+...+bnXni+ui. Linearly L Economics homogeneous Homogeneous of degree 1. Sometimes called linear homogeneous. Page 208 of 379
  • 209. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A requirement that, in order to get an import license, the importer must buy a certain amount of the same product from local L Economics Linking scheme producers. L Economics Liquid Possessing liquidity. L Economics Liquid assets The assets in a portfolio that possess liquidity, or the total value of those assets. The capacity to turn assets into cash, or the amount of assets in a portfolio that have that capacity. Cash itself (i.e., money) is L Economics Liquidity the most liquid asset. A financial crisis that occurs due to lack of liquidity. In international finance, it usually means that a government or central bank L Economics Liquidity crisis runs short of international reserves needed to peg its exchange rate and/or to service its foreign loans. A situation in which expansionary monetary policy fails to stimulate the economy. As used by Keynes (1936), this meant L Economics Liquidity trap interest rates so low that expectations of their increase made people unwilling to hold bonds. Today it usually means a nominal interest rate so near zero that lowering it further is impossible or ineffective. A real wage that is high enough for the worker and family to survive and remain healthy and comfortable, sometimes called L Economics Living wage meeting basic needs. Term is used in calling for higher wages in both developed and developing countries, where concepts of basic needs may be very different. Page 209 of 379
  • 210. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. In the IS-LM model, the curve representing combinations of income and interest rate at which demand for money equals the L Economics LM-Curve money supply in the domestic money market. It is normally upward sloping because an increase in income increases demand for money while an increase in the interest rate reduces demand for money. An amount, usually of money, conveyed by one to another in the expectation that it will be returned, perhaps with specified L Economics Loan interest, at a later date. When the lender and borrower are in different countries with separate monetary and legal systems, loans bear extra risk. Local content L Economics requirement See domestic content requirement. L Economics Local optimum An allocation that by some criterion is better than all those in its neighborhood. Any reason for a firm to locate production, or a stage of production, in a particular place, such as availability of a natural L Economics Locational advantage resource, transport cost, or barriers to trade. May explain why a countrys firms succeed in trade, or why a multinational firm locates there. (See OLI.) The effect that economic expansion in one large country can have on other parts of the world economy, causing them to L Economics Locomotive effect expand as well, as the large country demands more of their exports. A particular mathematical transformation often used to express economic variables. Advantages: 1) If a variable grows at a L Economics Logarithm constant percentage rate over time, the graph of its logarithm is a straight line. 2) A small change in the logarithm of a variable is approximately its percentage change. Page 210 of 379
  • 211. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The exchange of political favors, especially among legislators who agree to support each others initiatives. Logrolling L Economics Logrolling contributed importantly to the Smoot-Hawley Tariff. An agreement originally signed in 1975 committing the EU to programs of assistance and preferential treatment for the ACP L Economics Lomé Convention Countries. The Lomé Convention was replaced by the Cotonou Agreement in June 2000. The interest rate that the largest international banks charge each other for loans, usually of Eurodollars. In fact, LIBOR London interbank L Economics offered rate includes rates quoted each day for many currencies, excluding the euro, but it is the rate for dollar loans that is used as a benchmark for other transactions. The long run in economics is defined as a period of time in which all factor inputs can be changed. The firm can therefore alter the scale of production. If as a result of such an expansion, the firm experiences a fall in long run average total cost, it is L Economics Long run experiencing economies of scale. Conversely, if average total cost rises as the firm expands, diseconomies of scale are happening. Long run aggregate Long run aggregate supply (LRAS) shows total planned output when both prices and average wage rates can change – it is a  L Economics supply measure of a country‘s potential output and the concept is linked strongly to that of the production possibility frontier. In the capital account of the balance of payments, long-term capital movements include FDI and movements of financial capital L Economics Long-term capital with maturity of more than one year (including equities). The graph of the percent of income owned by the poorest x percent of the population, for all x. Provides a picture of the income L Economics Lorenz Curve distribution within the population, and is used to construct the Gini Coefficient. Page 211 of 379
  • 212. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. There is, sadly, no single meaning for this term, as it has been applied to many episodes of economies that stagnated for most L Economics Lost Decade of a decade. Examples: Argentina and other Latin America in the 1980s; Japan in the 1990s; and the least developed countries in the 1990s. An agreement reached in 1987 among the central banks of France, Germany, Japan, US, and UK to stop the decline in the L Economics Louvre Accord value of the US dollar that they had initiated at the Plaza Accord. L Economics Love of variety Preference for variety. The abbreviation used in the United Kingdom to represent a limited liability company, thus analogous to "Inc", for incorporated, L Economics Ltd in the United States. Describes a tax or subsidy that does not distort behavior. By using a tax (or subsidy) in an amount (the lump sum) independent L Economics Lump sum of any aspect of the payers or recipients behavior, it does not alter behavior. Nondistorting lump sum taxes and subsidies do not exist, but they are a convenient fiction for theoretical analysis, especially of gains from trade. M0 (Narrow money) - comprises notes and coins in circulation banks operational balances at the Bank of England. Over 99% of M0 is made up of notes and coins as cash is used mainly as a medium of exchange. Most economists believe that changes M Economics M0 (narrow money) in M0 have little effect on total national output and inflation. At best M0 is seen as a co-incident indicator of consumer spending and retail sales. M0 reflects changes in the economic cycle, but does not cause them. The smallest of several measures of the stock of money in an economy, this consisting primarily of currency held by the public M Economics M1 and demand deposits. Also includes several other very liquid items: travelers checks and other accounts on which checks can be written. Page 212 of 379
  • 213. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A measure of the stock of money in an economy that includes, in addition to all that is in M1, savings deposits and other M Economics M2 relatively liquid assets such as small certificates of deposit and money market mutual funds. M4 (Broad money) includes deposits saved with banks and building societies and money created by lending in the form of M Economics M4 (broad money) loans and overdrafts. M4 = M0 plus sight (current accounts) and time deposits (savings accounts). When a bank or another lender grants a loan to a customer, bank liabilities and assets raise by the same amount and so does the money supply. The 1991 treaty among members of the EU to work toward a monetary union, or common currency. This ultimately resulted in M Economics Maastricht Treaty adoption of the euro in 1999. Referring to the variables or performance of an economy as a whole, or its major components, as opposed to that of individual M Economics Macroeconomic industries, firms, or households. Macro-economic equilibrium is established when AD intersects with SRAS. The output and the general price level in the economy will tend to adjust towards this equilibrium position. If the general price level is too high for example, there will be an Macroeconomic M Economics equilibrium excess supply of output and producers will experience an increase in unsold stocks. This is a signal to cut back on production to avoid an excessive level of inventories. If the price level is below equilibrium, there will be excess demand in the short run leading to a run down of stocks – a signal for producers to expand output. Macroeconomic Government macroeconomic objectives are low and stable inflation & unemployment, high & sustainable economic growth, a M Economics objectives satisfactory balance of payments and an acceptable distribution of income. Any policy intended to influence the behavior of important macroeconomic variables, especially unemployment and inflation. Macroeconomic M Economics policy Macroeconomic policies include monetary and fiscal policies, but also such things as price controls and incentives for economic growth. Page 213 of 379
  • 214. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Macroeconomics is more concerned with the economy as a whole. For example, how the levels of output, inflation, M Economics Macroeconomics employment, growth, imports and exports are determined. Made-to-measure A tariff set so as to raise the price of an imported good to the level of the domestic price, so as to leave domestic producers M Economics tariff unaffected. Also called a scientific tariff. The property of the Heckscher-Ohlin Model that changes in certain exogenous variables lead to larger changes in the M Economics Magnification effect corresponding endogenous variables: goods prices as they affect factor prices in the Stolper-Samuelson Theorem; factor endowments as they affect outputs in the Rybczynski Theorem. Due to Jones (1965). M Economics MAI Multilateral Agreement on Investment An exchange rate regime in which the rate is allowed to be determined in the exchange market without an announced par M Economics Managed float value as the goal of intervention, but the authorities do nonetheless intervene at their discretion to influence the rate. A large manufacturer can employ specialist staff to supervise production, thus cutting managerial costs per unit. Greater Managerial control of the workforce should raise labour productivity. Specialist administrative equipment, like networked systems of M Economics economies computers, can be used profitably in large firms. The cost of transmitting business information is reduced and employees can communicate more effectively. Mandated M Economics countertrade A requirement by government that importing firms engage in countertrade, as a means of increasing exports. Page 214 of 379
  • 215. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. M Economics Manufactured good A good that is produced by manufacturing. Production of goods primarily by the application of labor and capital to raw materials and other intermediate inputs, in contrast M Economics Manufacturing to agriculture, mining, forestry, fishing, and services. A program for the temporary importation of goods into Mexico without duty, under the condition that they contribute -- through M Economics Maquiladora further processing, transformation, or repair -- to exports. The program was established in 1965, and expanded in 1989. The determination of optimal behavior by comparing benefits and costs at the margin, that is, benefits and costs that result M Economics Marginal analysis from small (i.e., marginal) changes. Optimality requires that marginal benefit equal marginal cost, since otherwise a rise or fall could increase benefit more than cost. Marginal cost is defined as the change in total costs resulting from increasing output by one unit. Marginal costs relate to M Economics Marginal cost variable costs only. Changes in fixed costs in the short run affect total costs, but not marginal costs. M Economics Marginal product Marginal product (MP) = the change in total output from adding one extra unit of labour. The amount by which a firms profit rises or falls when output increases by one unit; thus marginal revenue minus marginal M Economics Marginal profit cost. Page 215 of 379
  • 216. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. M Economics Marginal propensity The fraction of a change in income devoted to an activity, such as consumption, importing, or saving. See propensity. Marginal propensity The marginal propensity to consume is the proportion of each extra pound spent by consumers. If the MPC = 0.8 consumers M Economics to consume spend 80p of every extra pound received – they save or use for tax or import payments the remaining 20p. Consumers in Britain have a high marginal propensity to import goods and services so that when their real incomes are rising Marginal propensity M Economics to import and their spending increases, so too does the demand for imports. Unless there is a corresponding increase in UK exports overseas, then the balance of trade in goods and services will move towards heavier deficit. Marginal propensity to save (mps) = the change in saving divided by the change in income. The MPS is a component of the Marginal propensity M Economics to save function used to calculate the national income multiplier. If the marginal propensity to save rises, then (ceteris paribus) we expect to see a rise in the value of the multiplier. Marginal rate of In a production function or a utility function, the ratio at which one argument (input) substitutes for another along an isoquant or M Economics substitution indifference curve. Marginal rate of More complete name for the marginal rate of substitution between factors in a production function, sometimes used to M Economics technical substitution distinguish it from the analogous concept in a utility function. Marginal rate of The increase in output of one good made possible by a one-unit decrease in the output of another, given the technology and M Economics transformation factor endowments of a country; thus the absolute value of the slope of the transformation curve. Page 216 of 379
  • 217. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. M Economics Marginal returns Loosely, the extra that you get in return for doing more of something. M Economics Marginal revenue Marginal Revenue (MR) = The change in revenue from selling one extra unit of output. Marginal revenue Marginal Revenue Product (MRPL) measures the change in total revenue for a firm from selling the output produced by M Economics product additional workers employed. Marginal Utility is the change in total utility or satisfaction resulting from the consumption of one more unit of a good. The M Economics Marginal utility hypothesis of diminishing marginal utility states that as the quantity of a good consumed increases, the marginal utility falls. Marginal value The value of the marginal product of a factor in an industry; that is, the price of the good produced times the marginal product. M Economics product Determines factor prices when all markets are competitive. M Economics Marginalism The belief that marginal analysis provides a useful theory of economic behavior. The 1972 U.S. law prohibiting the "taking" (harassing, hunting, capturing, or killing) of marine mammals, and also prohibiting Marine Mammal M Economics Protection Act the import of any marine mammal product or any fish that has been associated with the taking of marine mammals. See tuna- dolphin case. Page 217 of 379
  • 218. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. M Economics Market The interaction between supply and demand to determine the market price and corresponding quantity bought and sold. M Economics Market access The ability of firms from one country to sell in another. M Economics Market adjustment The process by which the economy moves to a new market equilibrium when conditions change. M Economics Market balance Equality of supply and demand. Equality of supply and demand. A market-clearing condition is an equation (or other representation) stating that supply equals M Economics Market clearing demand. A market-clearing price is a price that causes supply and demand to be equal. Market demand is the sum of the individual demand for a product from each consumer in the market. If more people enter the market, then demand at each price level will rise. For example, market demand for mobile phones has expanded rapidly over M Economics Market demand the last few years as call costs have fallen. Eventually though the market demand for mobile phones will reach saturation point - every product has a life-cycle. M Economics Market dominance Market dominance occurs when a firm acquires monopoly power. Page 218 of 379
  • 219. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. M Economics Market dynamics The process by which market adjustment takes place. Common examples include Walrasian and Marshallian. A country in which most economic decisions are left up to individual consumers and firms interacting through markets. M Economics Market economy Contrasts with central planning and non-market economy. Equilibrium means a state of equality between demand and supply. Without a shift in demand and/or supply there will be no change in market price. Prices where demand and supply are out of balance are termed points of disequilibrium. Changes in M Economics Market equilibrium the conditions of demand or supply will shift the demand or supply curves. This will cause changes in the equilibrium price and quantity in the market. Market failure occurs when freely-functioning markets, fail to deliver an efficient allocation of resources. The result is a loss of M Economics Market failure economic and social welfare. Market failure under The standard case against monopoly is that the monopoly price is higher than both marginal and average costs leading to a M Economics monopoly loss of allocative efficiency and a failure of the market mechanism. M Economics Market imperfection Any departure from the ideal benchmark of perfect competition, due to externalities, taxes, market power, etc. The process by which a market solves a problem allocating resources, especially that of deciding how much of a good or M Economics Market mechanism service should be produced, but other such problems as well. The market mechanism is an alternative, for example, to having such decisions made by government. Page 219 of 379
  • 220. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Market power refers to the ability of a firm to influence or control the terms and condition on which goods are bought and sold. M Economics Market power Monopolies can influence price by varying their output because consumers have limited choice of rival products. M Economics Market power Ability of a firm or other market participant to influence price by varying the amount that it chooses to buy or sell. M Economics Market price The price at which a market clears. M Economics Market rate The interest rate or exchange rate at which a market clears. Markets can be characterised according to how many suppliers are seeking the demand of consumers. The spectrum of competition ranges from competitive markets where there are many sellers, each of whom has little or no control over the M Economics Market structure market price - to a pure monopoly where a market or an industry is dominated by one single supplier. In many sectors of the economy we see an oligopoly - where a just a few producers dominate the majority of the market. In a duopoly two firms dominate the market. Market supply is the total amount of an item producers are willing and able to sell at different prices, over a given period of time M Economics Market supply egg one month. Industry, a market supply curve is the horizontal summation of all each individual firm‘s supply curves. M Economics Market value See factor cost. Page 220 of 379
  • 221. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A marketable pollution permit gives a firm the right to emit a given quantity of waste / pollution in a given time period. The Marketable pollution M Economics permits quantity of pollution permits issued is determined by the regulators / government as they aim curb pollution to a socially optimum level. These permits can be bought and sold. A form of state trading enterprise, a marketing board typically buys up the domestic supply of a good and sells it on the M Economics Marketing board international market. A large-scale manufacturer can buy raw materials and other inputs (components) in bulk and thereby negotiate lower prices than the small manufacturer. When a major buyer in a market has substantial buying power, this is termed a monopsony. For example, the major hotel chains can buy the consumables used in hotel rooms at much lower cost than individual consumers. M Economics Marketing economies The motor industry can use its monopsony power when negotiating the supply of tyres, in-car entertainment systems and other component parts. The average cost of selling each unit produced can also be lower, because advertising and marketing costs can be spread over a large output sold and specialist salesmen/buyers are employed to maximise sales. The amount (percentage) by which price exceeds marginal cost. A profit-maximizing seller facing a price elasticity of demand h M Economics Markup will set a markup equal to (p-c)/p=1/h. One effect of international trade that increases competition is to reduce markups. A U.S. program to assist the economic recovery of certain European countries after World War II. Also called the European M Economics Marshall Plan Recovery Program, it was initiated in 1947 and it dispersed over $12 billion before it was completed in 1952. Marshallian A market adjustment mechanism in which quantity rises when demand price exceeds supply price and falls when supply price M Economics adjustment exceeds demand price. Page 221 of 379
  • 222. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The condition that the sum of the elasticities of demand for exports and imports exceed one (in absolute value); that is, Marshall-Lerner hX + hM > 1, where hX , hM are the demand elasticities for a countrys exports and imports respectively, both defined to be M Economics condition positive for downward sloping demands. Under certain assumptions, this is the condition for a depreciation to improve the trade balance, for the exchange market to be stable, and for international barter exchange to be stable. M Economics Marxist Referring to the writings of Karl Marx and to a body of economic thought based, more or less loosely, on those writings. The injury requirement of the AD and CVD statutes, understood to be less stringent than serious injury but otherwise M Economics Material injury apparently not precisely defined. The Government can set a legally imposed maximum price in a market that suppliers cannot exceed - in an attempt to prevent the market price from rising above a certain level. To be effective a maximum price has to be set below the free market price. M Economics Maximum price One example of a maximum price might be for foodstuffs when a shortage of essential foodstuffs threatens a very large rise in the free market price. Other examples include rent controls on properties - for example the complex system of rent controls still in place in Manhattan in the United States. Maximum price Similar to a minimum price system, except that the price specified is the highest, rather than the lowest, permitted for an M Economics system imported good. Maximum revenue M Economics tariff A tariff set to collect the largest possible revenue for the government. The geometric technique introduced by Meade (1952) of deriving a countrys offer curve from its transformation curve and M Economics Meade Geometry community indifference curves by first constructing a set of trade indifference curves. Page 222 of 379
  • 223. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The arithmetic average of the values of an economic or statistical variable. For a variable x with values x i , i= 1,…,n , the mean M Economics Mean is mean(x ) = Si =1…n (x i /n ). Means tested The process of means-testing looks at the levels of income and wealth of an individual or household to assess if they are M Economics benefits entitled to something. Measure of economic An aggregate figure that adjusts GDP in an attempt to measure a countrys economic well-being rather than its production, with M Economics welfare adjustments for leisure, environmental degradation, etc. An economic philosophy of the 16th and 17th centuries that international commerce should primarily serve to increase a M Economics Mercantilism countrys financial wealth, especially of gold and foreign currency. To that end, exports are viewed as desirable and imports as undesirable unless they lead to even greater exports. M Economics Merchandise trade Exports and imports of goods. Contrasts with trade in services. A common market among Argentina, Brazil, Paraguay and Uruguay, known as the "Common Market of the South" ("Mercado M Economics MERCOSUR Común del Sur"). It was created by the Treaty of Asunción on March 26, 1991, and added Chile and Bolivia as associate members in 1996 and 1997. Mergers take place when two businesses agree to merge their operations and become one single company. There are M Economics Mergers different types of integration between firms - see also horizontal and vertical integration. Page 223 of 379
  • 224. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A merit good is a product that the government believes consumers undervalue and under-consume because of imperfect M Economics Merit good information. M Economics METI Ministry of Economy, Trade and Industry. B Economics Metzler Condition The possibility, identified by Metzler (1949), that a tariff may lower the domestic relative price of the imported good. This will M Economics Metzler paradox happen if it drives the world price down by even more than the size of the tariff, as it may do if the foreign demand for the importing countrys export good is inelastic. M Economics MEW Measure of economic welfare. M Economics MFA Multifiber Arrangement. M Economics MFN Most Favored Nation. Page 224 of 379
  • 225. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. M Economics MFN rate MFN tariff. The status given by the U.S. to some non-members of the GATT/WTO whereby they are charged MFN tariffs even though M Economics MFN status they are eligible for higher tariffs. See PNTR. M Economics MFN tariff The tariff level that a member of the GATT/WTO charges on a good to other members. Microeconomics concerns itself with the study of economics and decisions taken at the level of the individual firm, industry or consumer / household. Microeconomics is also concerned with how prices are determined in markets; how much people get M Economics Microeconomics paid in different occupations; how we decide what to buy; the effects of government intervention on the prices and quantities of individual goods and services and the efficiency with which our scarce resources are used. A good that has undergone some processing and that requires further processing before going to final consumers; an M Economics Middle product intermediate good. Sanyal and Jones (1982) introduced the term, observing that almost all international trade is of middle products, and they provided a model based on that assumption. M Economics MIGA Multilateral Investment Guarantee Agency M Economics Migration The permanent relocation of people from one country to another. See emigration, immigration. Page 225 of 379
  • 226. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The name suggested by the European Union for the trade round that they and others hoped would be initiated at the Seattle M Economics Millennium Round Ministerial in 1999. That ministerial ended without agreement to start a new round. One of two conditions needed for infant industry protection to be welfare-improving, this requires that the protected industry M Economics Mills test become, over time, able to compete internationally without protection. See also Bastables test. Minimum efficient The minimum efficient scale (MES) is the scale of production where the internal economies of scale have been fully exploited. M Economics scale It corresponds to the lowest point on the long run average cost curve M Economics Minimum import price See minimum price system. A minimum price is a legally imposed price floor below which the normal market price cannot fall. To be effective the minimum price has to be set above the normal equilibrium price. A good example of this is minimum wage legislation currently in force in M Economics Minimum price the UK. The National Minimum Wage was introduced by the Labour Government in April 1999. The main adult rate for the minimum wage in the UK is £4.80 per hour. Specification of the lowest price permitted for an import. Prices below the minimum may trigger a tariff, hence a variable levy, Minimum price M Economics system or quota. See maximum price system. These have several names: basic import price, minimum import price, reference price, and trigger price. The National Minimum Wage was introduced in the UK with effect from 1st April 1999. It is a legally guaranteed wage rate for M Economics Minimum wage workers aged 18 years or older. Page 226 of 379
  • 227. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Minister of M Economics International Trade Title, in many but not all countries, of the trade minister. A meeting of ministers. In the context of the GATT and WTO, it is a meeting of the trade ministers from the member countries M Economics Ministerial (including, from the U.S., USTR). Ministry of Economy, The Japanese government ministry that deals with economic issues, including the vitality of the private sector, external M Economics Trade and Industry economic relations, energy policy, and industrial development. Ministry of The Japanese government ministry that deals with trade and industrial policies. Established in 1949 as the Ministry of M Economics International Trade Commerce and Industry, MITI was renamed METI as of January 6, 2000. and Industry M Economics Missing trade See mystery of the missing trade. M Economics MITI Ministry of International Trade and Industry The price mechanism is the only allocative mechanism solving the economic problem in a free market economy. However, M Economics Mixed economy most modern economies are mixed economies, comprising not only a market sector, but also a non-market sector, where the government uses the planning mechanism to provide goods and services such as police, roads and health. Page 227 of 379
  • 228. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. M Economics Mixing regulation Specification of the proportion of domestically produced content in products sold on the domestic market. M Economics MNC Multinational Corporation M Economics MNE Multinational Enterprise M Economics Modality Method or procedure. WTO documents speak of modalities of negotiations, i.e., how the negotiations are to be conducted. The method by which suppliers of internationally traded services deliver their service to buyers. The four modes usually M Economics Mode of supply identified are: cross-border supply, consumer movement, producer presence, and movement of natural persons. A stylized simplification of reality in which behavior is represented by variables and by assumptions about how they are M Economics Model determined and interact. Models enable one to think consistently and logically about complex issues, to work out how changes in an economic system matter, and (sometimes) to make predictions about economic performance. A framework for analyzing exchange rates and the balance of payments that focuses on supply and demand for money in different countries. A floating exchange rate is assumed to equate supply and demand and thus to reflect relative growth rates M Economics Monetary approach of money supplies and determinants of demand. Under a pegged exchange rate, the balance of payments surplus or deficit equals the excess demand or supply, respectively, for a countrys money. Page 228 of 379
  • 229. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Usually, the currency and central bank deposits that together provide the base for the money supply under fractional reserve banking. Also defined as the central bank assets the acquisition of which creates this monetary base by injecting domestic M Economics Monetary base money into the economy. The latter definition usually includes international reserves and domestic credit. By either definition, the monetary base changes as a result of open market operations and exchange market intervention. Monetary The ability of a country to determine its own monetary policy, as opposed to allowing the money supply to be determined by the M Economics independence exchange market intervention required to maintain a fixed exchange rate. M Economics Monetary integration The adoption of a common currency by two or more countries. Monetary policy now involves changes in interest rates to influence the rate of growth of AD. A tightening of monetary policy M Economics Monetary policy involves higher interest rates to reduce consumer and investment spending. Monetary Policy is now in the hand of the Bank of England –it decides on interest rates each month. Fluctuations in interest rates do not have a uniform impact on the economy. Some industries are more affected by base rate Monetary policy M Economics asymmetry changes than others (for example exporters and industries connected to the housing market). And, some regions of the British economy are also more exposed (sensitive) to a change in the direction of interest rates. M Economics Monetary union Two or more countries sharing a common currency. M Economics Monetize To turn anything into money. Page 229 of 379
  • 230. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. M Economics Money Money is defined as any asset that is acceptable as a medium of exchange in payment for goods and services. M Economics Money income Nominal income; contrasts with real income. The money market, in macroeconomics and international finance, refers to the equilibration of demand for a countrys domestic money to its money supply. Both refer to the quantity of money that people in the country hold (a stock), not to the M Economics Money market quantity that people both in and out of the country choose to acquire during a period in the exchange market, mostly for the purpose of then using it to buy something else. A money supply that is larger than people want to hold at prevailing prices. This was said to be a major cause of inflation in M Economics Money overhang Russia after the fall of the Soviet Union, which left an excess of money in circulation. There are several formal definitions, but all include the quantity of currency in circulation plus the amount of demand deposits. M Economics Money supply The money supply, together with the amount of real economic activity in a country, is an important determinant of its price level and its exchange rate. M Economics Monopolistic Having some power to set price. Monopolistic A market structure in which there are many sellers each producing a differentiated product. Each can set its own price and M Economics competition quantity, but is too small for that to matter for prices and quantities of other producers in the industry. Page 230 of 379
  • 231. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A pure monopolist is a single seller of a product in a given market or industry. In simple terms this means the firm has a market M Economics Monopoly share of 100%. The working definition of a monopolistic market relates to any firm with greater than 25% of the industries total sales. Monopolies can develop in a variety of ways: The monopoly argument for a tariff is the same as the optimal tariff argument. It gets its name from the fact that a country M Economics Monopoly argument using a tariff to <>improve the terms of trade is acting much like a monopoly firm, restricting its sales to get a better price. As a firm grows in size it can purchase its factor inputs in bulk at negotiated discounted prices. This is particularly the case M Economics Monopsony when a firm has monopsony (buying) power in the market. A monopsony producer has significant buying power in the labour market when seeking to employ extra workers. A M Economics Monopsony employer monopsony employer may use their buying-power to drive down wage rates. M Economics Monotonic Changing in one direction only; thus either strictly rising or strictly falling, but not reversing direction. The tendency of individuals, firms, and governments, once insured against some contingency, to behave so as to make that M Economics Moral hazard contingency more likely. A pervasive problem in the insurance industry, it also arises internationally when international financial institutions assist countries in financial trouble. Mortgage equity withdrawal (also known as housing equity loans) is new borrowing secured on the value of housing that is not invested in the housing stock. In other words, home-owners can take out housing equity loans to finance major items of Mortgage equity M Economics withdrawal spending and add that loan to their existing mortgage. Some people use housing equity loans to pay-off unsecured loans for example on their credit cards. The acceleration in UK house prices in the last few years has seen a re-emergence of housing equity withdrawal. Page 231 of 379
  • 232. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The principle, fundamental to the GATT, of treating imports from a country on the same basis as that given to the most favored M Economics Most Favored Nation other nation. That is, and with some exceptions, every country gets the lowest tariff that any country gets, and reductions in tariffs to one country are provided also to others. The preservation of a production facility without using it to produce, but keeping the machinery in working order and supplies M Economics Mothballing available. This may be preferable -- if the facilitys operating costs are high and the aim is to have it available in time of war -- to having it produce in peacetime under a subsidy or import protection. See national defense argument. One of four modes of supply under the GATS, this involving the temporary movement across national borders of natural Movement of natural M Economics persons persons employed by or associated with a firm in order to participate in the firms business. Also called temporary producer movement. M Economics MPC Marginal propensity to consume. M Economics MRS Marginal rate of substitution. M Economics MRT Marginal rate of transformation. A free-trade equilibrium in the Heckscher-Ohlin Model in which prices are such that all goods cannot be produced within a M Economics Multi-cone equilibrium single country, and instead there are multiple diversification cones. This, or a two cone equilibrium, will arise if countries factor endowments are sufficiently dissimilar compared to factor intensities of industries. Contrasts with one cone equilibrium. Page 232 of 379
  • 233. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A model with more than two factors. In the context of trade theory this is likely to mean a Heckscher-Ohlin Model with more M Economics Multifactor model than two factors. An agreement (OMA) among developed country importers and developing country exporters of textiles and apparel to regulate Multifiber M Economics Arrangement and restrict the quantities traded. It was negotiated in 1973 under GATT auspices as a temporary exception to the rules that would otherwise apply, and was superseded in 1995 by the ATC. Refers to the purposes that an industry may serve in addition to producing its output. Most often applied to agriculture by M Economics Multifunctionality countries that wish to subsidize it, arguing that subsidies are needed to serve these other purposes, such as rural viability, land conservation, cultural heritage, etc. M Economics Multilateral Among a large number of countries. Contrasts with bilateral and plurilateral. Multilateral M Economics agreement An agreement among a large number of countries. Multilateral An agreement to liberalize rules on international direct investment that was negotiated in the OECD but never completed or M Economics Agreement on adopted because of adverse public reaction to it. Preliminary text of the agreement was leaked to the Internet in April 1997, Investment where many groups opposed it. Negotiations were discontinued in November 1998. Aid provided by a group of countries, or an institution representing a group of countries such as the World Bank, to one or M Economics Multilateral aid more recipient countries. Page 233 of 379
  • 234. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Multilateral One of the five institutions that comprise the World Bank Group, MIGA helps encourage foreign investment in developing M Economics Investment countries. Guarantee Agency Multinational A corporation that operates in two or more countries. Since it is headquartered in only one country but has production or M Economics corporation marketing facilities in others, it is the result of previous FDI. Multinational A firm, usually a corporation, that operates in two or more countries. In practice the term is used interchangeably with M Economics enterprise multinational corporation. Refers to a system in which there is more than one equilibrium, most commonly a market in which a backward bending supply M Economics Multiple equilibria curve crosses a demand curve more than once, at prices each of which is a market clearing price. In Keynesian macroeconomic models, the ratio of the change in an endogenous variable to the change in an exogenous M Economics Multiplier variable. Usually means the multiplier for government spending on income. In the simplest Keynesian model of a closed economy, this is 1/s , where s is the marginal propensity to save. See open economy multiplier. An initial change in aggregate demand can have a much greater final impact on the level of equilibrium national income. This is commonly known as the multiplier effect and it comes about because injections of demand into the circular flow of income M Economics Multiplier effect stimulate further rounds of spending – in other words ―one person‘s spending is another‘s income‖ – and this can lead to a  much bigger effect on equilibrium output and employment. M Economics Multistage production Another term for fragmentation. Used by Dixit and Grossman (1982). Page 234 of 379
  • 235. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Mundell-Fleming An open-economy version of the IS-LM model that allows for international trade and international capital flows. Due to Mundell M Economics Model (1962,63) and Fleming (1962). Latin phrase meaning, approximately, "allowing other things to change accordingly." Used as a shorthand for indicating the M Economics Mutatis mutandis effect of one economic variable on another, within a system in which other variables that matter will also change as a result. Contrasts with ceteris paribus. The acceptance by one country of another countrys certification that a satisfactory standard has been met for ability, M Economics Mutual recognition performance, safety, etc. The empirical observation, by Trefler (1995), that the amount of trade is far less than predicted by the HOV version of the Mystery of the M Economics missing trade Heckscher-Ohlin Model. More precisely, the factor content of trade is far less than the differences between countries in their factor endowments. The level of the unemployment rate at which prices rise at the same rate that they are expected to rise, and thus at which N Economics NAIRU (since expectations neednt change) the rate of inflation does not then rise or fall. Stands for Non-Accelerating Inflation Rate of Unemployment. N Economics Narrow money M1 N Economics Nash Used as an adjective applied to a strategy in a game, this means that it is part of a Nash equilibrium. Page 235 of 379
  • 236. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. An idea important to game theory which describes any situation where all of the participants in a game are pursuing their best N Economics Nash equilibrium possible strategy given the strategies of all of the other participants. As used in international economics, a nation is almost invariably a country, or occasionally a similar entity (e.g., Hong Kong) N Economics Nation with a single, usually independent government. N Economics National (adj.) Of, relating to, or belonging to a nation. A nonprofit, nonpartisan organization based in Cambridge, MA, that assembles economic data and sponsors economic National Bureau of N Economics Economic Research research. Its Business Cycle Dating Committee also is traditionally responsible for identifying the beginnings and ends of recessions. The accumulated government debt created through government borrowing when it is running a budget deficit. If the N Economics National debt government manages to achieve a budget surplus, some of the national debt might be repaid. National defense The argument that imports should be restricted in order to sustain a domestic industry so that it will be available in case of N Economics argument for trade disruption due to war. This is a second best argument, since there are a variety of ways of providing for defense at lower protection economic cost, including production subsidies, mothballing, and stockpiling. N Economics National exhaustion See exhaustion. Page 236 of 379
  • 237. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. N Economics National income National income refers to money measurements of economic activity in a country over a period of time. National Income and N Economics Product Accounts The statistics collected by the Bureau of Economic Analysis on aggregate economic activity in the United States. N Economics National sovereignty See sovereignty. N Economics National treatment The principle of providing foreign producers and sellers the same treatment provided to domestic firms. N Economics Natural monopoly For a natural monopoly the long-run average cost curve falls continuously over a large range of output. This term appears in the GATS where it deals with the international movement of employees of firms that are providing N Economics Natural person services in another country. Persons are called "natural" to distinguish them from "juridical persons," such as partnerships or corporations, which are given certain rights of persons under the law. Natural rate of The natural rate of unemployment is the unemployment rate at the full employment level of national income where there is no N Economics unemployment cyclical unemployment but inevitable frictionally and structurally unemployed. Page 237 of 379
  • 238. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Anything that is provided by nature, such as deposits of minerals, quality of land, old-growth forests, fish populations, etc. The N Economics Natural resource availability of particular natural resources is an important determinant of comparative advantage and trade in products that depend on them. Natural resources are primary factors of production. N Economics Natural trade Trade that is either free or restricted, but that is not artificially encouraged by subsidies or other stimulants. N Economics Natural trading bloc A trading bloc consisting of natural trading partners. Natural trading A country with whom another countrys trade is likely to be large, because of low transport or other trade costs between them. N Economics partner Term introduced by Wonnacott and Lutz (1989) and used extensively by Frankel (1997). N Economics NBER National Bureau of Economic Research N Economics NDP Net domestic product N Economics Necessity test A procedure to determine whether a trade restriction intended to serve some purpose is necessary for that purpose. Page 238 of 379
  • 239. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Humans have many different types of wants and needs egg: economic, social and psychological. In economics the focus is on studying how material wants and needs are satisfied: A need is something essential for survival egg food satisfies hungry N Economics Needs and wants people. A want is something desirable but not essential to survival egg cola quenches thirst. Household (consumer) wants and needs are satisfied (met) by consuming (using) products i.e. goods or services. Negative externalities occur when production and/or consumption impose external costs on third parties outside of the market N Economics Negative externalities for which no appropriate compensation is paid. In an international agreement, a list of those items, entities, products, etc. to which the agreement will not apply, the N Economics Negative list commitment being to apply the agreement to everything else. Contrasts with positive list. In mathematical Euclidean space, a small set of points surrounding and including a particular point. Thus, for an economic N Economics Neighborhood variable, such as an allocation, the neighborhood of a particular allocation includes all those allocations that are sufficiently similar to it. A structure of technology for a general equilibrium model due to Jones and Kierzkowski (1986). With an arbitrary but equal Neighborhood N Economics production structure number of goods and factors, each factor produces two (different) goods, each good uses two (different) factors, in a way that yields more unambiguous results than one normally finds in high-dimension trade models without specific factors. A collection of assumptions customarily made by mainstream economists starting in the late 19th century, including profit N Economics Neoclassical maximization by firms, utility maximization by consumers, and market equilibrium, with corresponding implications for determination of factor prices and the distribution of income. Contrasts with classical, Keynesian, and Marxist. Neoclassical In the specific factors model, the fact that the effect of a change in relative prices on the real wage of the mobile factor cannot N Economics ambiguity be known a priori, since the wage rises relative to one price and falls relative to the other. Page 239 of 379
  • 240. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Neoclassical Most of modern, mainstream economics based on neoclassical assumptions. Tends to ascribe inevitability, if not necessarily N Economics economics desirability, to market outcomes. Neoclassical growth A model of economic growth in which income arises from neoclassical production functions in one or more sectors, displaying N Economics model diminishing returns to saving and capital accumulation. Due to Solow (1956) and Swan (1956). Neoclassical N Economics production function A production function with the properties of constant returns to scale and smoothly diminishing returns to individual factors. A view of the world that favors social justice while also emphasizing economic growth, efficiency, and the benefits of free N Economics Neoliberalism markets. Not Elsewhere Specified. This abbreviation, "nes," appears frequently in classifications, of goods and of industries for example, N Economics NES to encompass all other items in a category that have not been included explicitly. Gross domestic product minus depreciation. This is the most complete measure of productive activity within the borders of a N Economics Net domestic product country, though its accuracy suffers from the difficulty of measuring depreciation. N Economics Net economic welfare Same as MEW Page 240 of 379
  • 241. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Net exports (X-M) reflect the net effect of international trade on the level of aggregate demand. When net exports are positive, N Economics Net Exports there is a trade surplus (adding to AD); when net exports are negative, there is a trade deficit (reducing AD). Net foreign asset The value of the assets that a country owns abroad, minus the value of the domestic assets owned by foreigners. Equals N Economics position balance of indebtedness. Net foreign factor N Economics income The income of a countrys factors earned abroad minus the income paid to foreign-owned factors domestically. Net international N Economics reserves International reserves minus reserves that have been borrowed from the IMF and other governments. Economic activity results in capital consumption – machines become worn out and obsolescent. Net investment only occurs  N Economics Net investment after such depreciation of fixed assets is taken into account. Net investment = gross investment – depreciation. Gross national product minus depreciation. This is the most complete measure of productive activity by a countrys nationals, N Economics Net national product though its accuracy suffers from the difficulty of measuring depreciation. The output of a product that is available for final users, after deducting amounts of it used up as an intermediate input in N Economics Net output producing itself and other products. Contrasts with gross output. Page 241 of 379
  • 242. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. N Economics Net present value Same as present value, being sure to include (negative) payments as well as (positive) receipts. A set of connections among a multiplicity of separate entities sharing a common characteristic. Networks of firms or individuals N Economics Network in different countries are thought to facilitate trade. Said of a technological change or technological difference if it is not biased in favor of using more or less of one factor than N Economics Neutral another. This can be defined in several different ways that are not normally equivalent: Hicks-neutral, Harrod-neutral, and Solow-neutral. N Economics NEW Net economic welfare A proposed non-national world currency to be used for payment and reserve purposes, to be issued by the IMF and intended to N Economics New bancor maintain a fixed purchasing power in the dollar and euro countries. A branch of economics that stresses the importance of competitive markets as a way of improving economic welfare. New New classical classical economists believe that markets clear rapidly - i.e. excess demand in a market will cause higher prices; excess N Economics economics supply causes a fall in prices. They believe that government economic policy should allow the free operation of markets and that intervention should be limited to allowing private sector markets to work efficiently. New Economic The study of the location of economic activity across space, particularly a strand of literature begun by Krugman (1991a) using N Economics Geography agglomeration economies to help explain why industries cluster within particular countries and regions. Page 242 of 379
  • 243. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. This term was used in the late 1990s to suggest that globalization and/or innovations in information technology had changed N Economics New Economy the way that the world economy works. Conjectures included changes in productivity, the inflation-unemployment tradeoff, the business cycle, and the valuation of enterprises. New International A set of proposals put forward during the 1970s by developing countries through UNCTAD to promote their interests by N Economics Economic Order improving their terms of trade, increasing development assistance, developed-country tariff reductions, and other means. New paradigm economists believe that improvements to the supply-side performance of the economy are changing the traditional trade-offs between the main macro-economic objectives. They argue that the diffusion of information technology is producing large increases in productivity and that these efficiency gains will allow stronger economic growth and rising N Economics New paradigm employment without risking a sharp acceleration in inflation. The term new paradigm is most widely used in the United States but has also been applied to the strong performance of the UK economy in recent years. Essentially the new paradigm view believes that the supply-side of the economy can grow sufficiently quickly for policy makers to keep aggregate demand at a high level. Models of trade that, especially in the 1980s, incorporated aspects of imperfect competition, increasing returns, and product N Economics New Trade Theory differentiation into both general equilibrium and partial equilibrium models of trade and trade policy. Many contributed to this literature, but the most prominent was Krugman, starting with Krugman (1979). Newly Industrializing N Economics Country Refers to a group of countries previously regarded as developing that then achieved high rates and levels of economic growth. Newly Industrializing N Economics Economy Newly Industrializing Country Page 243 of 379
  • 244. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Unexpected information. In an efficient market, as the exchange market is supposed to be, price reflects all available N Economics News information. It can change, therefore, only in response to news. N Economics NGO Non-governmental organization N Economics NIC Newly Industrializing Country N Economics NIE Newly Industrializing Economy N Economics NIEO New International Economic Order N Economics NIPA National Income and Product Accounts N Economics NNP Net national product Page 244 of 379
  • 245. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. N Economics Nominal In the form most directly observed or named, in contrast to a form that has been adjusted or modified in some fashion. The technique of fixing a nominal variable in an economy as a means of reducing inflation. For example, by firmly pegging the N Economics Nominal anchor nominal exchange rate, a central bank or government reduces its own ability to expand the money supply. Nominal exchange N Economics rate The actual exchange rate at which currencies are exchanged on an exchange market. Contrasts with real exchange rate. N Economics Nominal interest rate The interest rate actually observed in the market, in contrast to the real interest rate. Nominal rate of The protection afforded an industry directly by the tariff and/or NTB on its output, ignoring effects of other trade barriers on the N Economics protection industrys inputs. Contrasts with the ERP. N Economics Nominal return The earnings on an asset or other investment, comparable to a nominal interest rate, thus not adjusted for inflation. N Economics Nominal tariff The nominal protection provided by a tariff; that is, the tariff itself. Contrasts with effective tariff. Page 245 of 379
  • 246. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. The wage of labor in units of currency, not adjusted for inflation, and thus not in terms of the goods that it will buy. Contrasts N Economics Nominal wage with real wage. Non-price competition assumes increased importance in oligopolistic markets. Non-price competition involves advertising and N Economics Non price competition marketing strategies to increase demand and develop brand loyalty among consumers. Non-actionable A subsidy that is not subject to countervailing duties under the rules of the WTO. These include non-specific subsidies, N Economics subsidy subsidies for industrial research, regional aids, and some environmental subsidies. Non-automatic N Economics licensing Import licensing that is discretionary, based on an import quota, or performance related. Refers to a restriction that currently has no effect because the behavior that it would prevent would not happen even without N Economics Nonbinding the restriction. For example, if a quota limits imports to no more than 1,000, but actual imports are only 900, then the quota is nonbinding. The property of an economic model or system that the sets representing technology, preferences, or constraints are not N Economics Nonconvexity mathematically convex. Because convexity is needed for proof that competitive equilibrium is efficient and well-behaved, nonconvexities may imply market failures. N Economics Nondistorted Without distortions. Many propositions in trade theory are strictly valid, often only implicitly, only in nondistorted economies. Page 246 of 379
  • 247. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Nondistorting lump N Economics sum Redundant appellation for a lump sum tax or subsidy. Noneconomic The view that a restriction on imports may serve a purpose outside of conventional economic models. Unless that purpose is N Economics objectives argument itself the restriction of trade, then this is a second-best argument, since changes in output, consumption, etc. can be achieved for protection at lower economic cost in other ways. A not-for-profit organization that pursues an issue or issues of interest to its members by lobbying, persuasion, and/or direct Non-governmental N Economics organization action. In the arena of international economics, NGOs play an increasing role defending human rights and the environment, and fighting poverty. Any function that is not homothetic, but usually applied to consumer preferences that include goods whose shares of N Economics Nonhomothetic expenditure rise (and others that fall) with income. A country in which most major economic decisions are imposed by government and by central planning rather than by free use N Economics Non-market economy of markets. Contrasts with a market economy. A situation or economic model in which a market or markets do not clear, perhaps because something prevents prices from N Economics Non-market-clearing adjusting to discrepancies between supply and demand. Nonproduction A worker not directly engaged in production. In empirical studies of skilled and unskilled labor, data on nonproduction workers N Economics worker are often taken to represent skilled labor. Page 247 of 379
  • 248. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. N Economics Nonprohibitive tariff A tariff that is not prohibitive. N Economics Non-specific subsidy A subsidy that is available to more than a single specific industry and is therefore non-actionable under WTO rules. N Economics Nonsterilization Refers to exchange market intervention that is done without sterilizing its effects on the domestic money supply. N Economics Nontariff barrier Any policy that interferes with exports or imports other than a simple tariff, prominently including quotas and VERs. Any policy or official practice that alters the conditions of international trade, including ones that act to increase trade as well as N Economics Nontariff measure those that restrict it. The term is therefore broader than nontariff barrier, although the two are usually used interchangeably. N Economics Nontradable Not capable of being traded among countries. N Economics Nontradable good A good that, by its nature, is nontradable. Page 248 of 379
  • 249. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A good that is not traded, either because it cannot be or because trade barriers are too high. Except when services are being N Economics Nontraded good distinguished from goods, they are often mentioned as examples of nontraded goods, or at least they were until it became common to speak of trade in services. In WTO terminology, this is shorthand for a complaint that a countrys action, though not a violation of WTO rules, has nullified N Economics Nonviolation or impaired a members expected benefits from the agreement. Normal goods have a positive income elasticity of demand so as consumers income rises, so more is demanded at each price N Economics Normal goods level. Normal necessities have an income elasticity of demand of between 0 and +1. Normal luxuries have an income elasticity of demand > +1 i.e. the demand rises more than proportionate to a change in income. N Economics Normal profit Normal profit is the minimum level of profit required to keep the factors of production in their current use in the long run. Price charged for a product on the domestic market of the producer. Used to compare with export price in determining N Economics Normal value dumping. N Economics Normative Refers to value judgments as to "what ought to be," in contrast to positive which is about "what is." Normative statements express an opinion about what ought to be. They are subjective statements rather than objective statements - i.e. they carry value judgments. For example, the level of duty on petrol is too unfair and unfairly penalizes N Economics Normative statements motorists. Or the government should increase the national minimum wage to £6 per hour in order to reduce relative poverty. A third example - the UK government should join the Single European Currency as soon as possible. Page 249 of 379
  • 250. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. North American Free N Economics Trade Agreement The agreement to form a free trade area among the United States, Canada, and Mexico that went into effect January 1, 1994. N Economics North-South model An economic model in which two countries, North and South, represent developed and less developed countries respectively. N Economics NTB Nontariff barrier N Economics NTM Nontariff measure N Economics Nullification See nonviolation The unit in which prices are measured. This may be a currency, but in real models, such as most trade models, the numeraire N Economics Numeraire is usually one of the goods, whose price is then set at one. The numeraire can also be defined implicitly by, for example, the requirement that prices sum to some constant. O Economics OAS Organization of American States Page 250 of 379
  • 251. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Objectives are the aims of government policy whereas instruments are the means by which these aims might be achieved and O Economics Objectives targets are often thought to be intermediate aims – linked closely to the final objective. O Economics OBM Obsolescing Bargain Model A model of interaction between a multinational enterprise and a host country government, which initially reach a bargain that Obsolescing Bargain O Economics Model favors the MNE but where, over time as the MNEs fixed assets in the country increase, the bargaining power shifts to the government. Due to Vernon (1971). Occupational immobility occurs when there are barriers to the mobility of factors of production between different sectors of the economy which leads to these factors remaining unemployed, or being used in ways that are not economically efficient. Some capital inputs are occupationally mobile – a computer can be put to use in many different industries. Commercial buildings can  be altered to provide a base for many businesses. However some units of capital are specific to the industry they have been Occupational designed for. Labour often experiences occupational immobility. For example, workers made redundant in the sheet metal O Economics immobility industry or in heavy engineering may find it difficult to gain re-employment in the near term. They may have job-specific skills that are not necessarily needed in growing industries. This implies that there is a mismatch between the skills on offer from the unemployed and those required by employers looking for extra workers. This is also called structural unemployment and explains why there is a core of workers in the UK who find it difficult to find paid work. Clearly this leads to a waste of scarce resources and represents market failure. O Economics OEA Organización de Estados Americanos (Spanish for Organization of American States) O Economics OECD Organisation for Economic Co-operation and Development Page 251 of 379
  • 252. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. O Economics OEEC Organisation for European Economic Co-operation A curve showing, for a two-good model, the quantity of one good that a country will export (or "offer") for each quantity of the O Economics Offer curve other that it imports. Also called the reciprocal demand curve, it is convenient for representing both exports and imports in the same curve and can be used for analyzing tariffs and other changes. The Office of Fair Trading plays a key role in protecting the economic welfare of consumers, and in helping to enforce UK competition policy. Its main roles are to identify and put right trading practices which are against the consumers interests and O Economics Office of Fair Trading to investigate anti-competitive practices and abuses of market power and bringing about market structures, which encourage competitive behaviour. The Office of Fair Trading reports on allegations of anti-competitive practices including claims of collusive behaviour where firms are thought to be engaging in price-fixing. O Economics Official rate The par value of a pegged exchange rates. Transactions by a central bank that cause changes in its official reserves. These are usually purchases or sales of its own Official reserve O Economics transactions currency in the exchange market in exchange for foreign currencies or other foreign-currency-denominated assets. In the balance of payments a purchase of its own currency is a credit (+) and a sale is a debit (-). The reserves of foreign-currency-denominated assets (and also gold and SDRs) that a central bank holds, sometimes as O Economics Official reserves backing for its own currency, but usually only for the purpose of possible future exchange market intervention. As a condition for importing into a country, a requirement that foreign exporters purchase domestic products and/or invest in O Economics Offset requirement the importing country. Page 252 of 379
  • 253. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Movement to a location in another country of some part of a firms activity, usually a part of its production process or, O Economics Offshoring frequently, various back office functions. The price definition of factor abundance. In contrast to the quantity definition, the price definition incorporates differences in O Economics Ohlin definition demands as well as supplies. Due to Ohlin (1933). O Economics OIM French acronym of International Organization for Migration O Economics OIT Organización Internacional del Trabajo (Spanish for International Labor Organization) A framework for analyzing the decision to engage in FDI, based on three kinds of advantage that FDI may provide in O Economics OLI Paradigm comparison to exports: Ownership, Location, and Internalization. Due to Dunning (1979). An oligopoly is a market dominated by a few large suppliers. The degree of market concentration is high with typically the O Economics Oligopoly leading five firms taking over sixty per cent of total market sales. O Economics Oligopsony A market structure in which there are a small number of buyers. Page 253 of 379
  • 254. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. O Economics OMA Orderly Marketing Arrangement O Economics OMC Organización Mundial de Comercio (Spanish for World Trade Organization) O Economics OMO Open market operation. A free-trade equilibrium in the Heckscher-Ohlin Model in which prices are such that all goods can be produced within a single O Economics One cone equilibrium country, and there is only one diversification cone. This will arise if countries factor endowments are sufficiently similar compared to factor intensities of industries. Contrasts with multi-cone equilibrium. One-dollar-one-vote A characterization of the Kaldor-Hicks welfare criterion normally used in evaluating trade policies and more generally in cost- O Economics yardstick benefit analysis, based on a sum of monetary values including consumer and producer surplus. The use, by a potential supplier or demander in a market, of a different market or markets to accomplish the same purpose, O Economics One-way arbitrage taking advantage of a discrepancy among their prices. With transaction costs, this enforces smaller price discrepancies than would be permitted by conventional arbitrage. Due to Deardorff (1979). Refers to the situation of a speculator on an exchange market with a pegged exchange rate. If there is doubt about the viability O Economics One-way option of the peg, the speculator can sell the currency short knowing that there is only one direction (one way) that the currency is likely to move. Therefore there is little risk associated with such speculation. Page 254 of 379
  • 255. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. O Economics ONU Organización de Naciones Unidas (Spanish for United Nations) O Economics OPEC Organization of Petroleum Exporting Countries Open currency O Economics position An open position. Britain is a highly ‗open economy‘. This means that a large and rising share of our output of goods and services is tied to trade  with other countries around the world. Britain is for example the world‘s second largest exporter of services (behind the United  O Economics Open economy States) and a significant percentage of our total manufacturing output and employment is directly or indirectly dependent on our performance in international markets, many of which are now intensely competitive. The sale or purchase of government bonds by a central bank, in exchange for domestic currency or central-bank deposits. Open market O Economics operation This changes the monetary base and therefore the domestic money supply, contracting it with a bond sale and expanding it with a bond purchase. O Economics Open markets Markets that are free of restrictions on who can buy and sell. An obligation to take or make delivery of an asset or currency in the future without cover, that is, without a matching obligation O Economics Open position in the other direction that protects from effects of change in the price of the asset or currency. Aside from simple ownership and debt, an open position can be acquired or avoided using the forward market. Page 255 of 379
  • 256. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Regional economic integration that is not discriminatory against outside countries; typically, a group of countries that agrees to O Economics Open regionalism reduce trade barriers on an MFN basis. Adopted as a fundamental principle, but not defined, by APEC in 1989. Bergsten (1997) offers five definitions, ranging from open membership to global liberalization and trade facilitation. Open-economy The simple Keynesian multiplier for a small open economy. Equals 1/(s+m ), where s is the marginal propensity to save and m O Economics multiplier is the marginal propensity to import. O Economics Openness The extent to which an economy is open to trade, and sometimes also to inflows and outflows of international investment. The coefficient on any variable measuring openness in a regression, often a regression explaining economic growth. Thus an O Economics Openness coefficient estimate of the importance of openness for growth. O Economics Openness index Any measure of openness. O Economics Operating costs Another term for variable costs. There is a well known saying in economics that "there is no such thing as a free lunch". Even if we are not asked to pay a price for consuming a good or a service, economic resources are used up in the production of it and there must be an opportunity O Economics Opportunity cost cost involved - i.e. the next best alternative that might have been produced using those resources. Opportunity cost measures the cost of any choice in terms of the next best alternative foregone. Page 256 of 379
  • 257. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. Best, by whatever criterion decisions are being made; thus yielding the highest level of utility, profit, economic welfare, or O Economics Optimal whatever objective is being pursued. Optimal currency The optimal grouping of regions or countries within which exchange rates should be held fixed. First defined (as "optimum O Economics area currency areas") by Mundell (1961). O Economics Optimal output For a firm this usually means the output of the good that it produces that, when sold, maximizes profit. The level of a tariff that maximizes a countrys welfare. In a nondistorted small open economy, the optimal tariff is zero. In a O Economics Optimal tariff large country it is positive, due to its effect on the terms of trade. An argument in favor of levying a tariff in order to improve the terms of trade. The argument is valid only in a large country, and Optimal tariff O Economics argument then only if other countries do not retaliate by raising tariffs themselves. Even then, this is a beggar thy neighbor policy, since it lowers welfare abroad. See Johnson (1954). The best. Usually refers to a most preferred choice by consumers subject to a budget constraint, a profit maximizing choice by O Economics Optimum firms or industry subject to a technological constraint, or in general equilibrium, a complete allocation of factors and goods that in some sense maximizes welfare. The best of the best, or the global optimum. This term is used, when there are several allocations each of which is locally O Economics Optimum optimorum optimal, to refer to the best among these. Page 257 of 379
  • 258. Encyclopedia Economics (2658 Terms) Powered by; All rights reserved. A contract that permits one party to buy from (or sell to) the other party something at a prespecified price during a prespecified O Economics Option period of time, leaving the choice of whether to do this or not (whether to "exercise" the option) up to the first party, which buys the option. Options exist for many assets, including foreign exchange. An agreement among a group of exporting and importing countries to restrict the quantities traded of a good or group of goods. Orderly Marketing O Economics Arrangement Since the impetus normally comes from the importers protecting their domestic industry, an OMA is effectively a multi-country VER. Firms can generate higher sales and increased market share by expanding their operations and exploiting possible economies O Economics Organic growth of scale. This is internal rather than extern