Social Science Learning Portal

What is Economics About??

Economics is the science of how people satisfy unlimited wants with limited resources, focusing on the whole range of individual and collective economic behavior. Economists looks at short and long-term trends in the economy, both for analysis of decision making and the influence of specific disruptive events, but also to attempt to forecast where an economy is heading. MAJOR TOPICS: Scarcity, Consumption, Production, Factor Markets, Supply/Demand, Types of Firms, Labor Markets, Global Trade, Entrepreneurship, Types of Economic systems

The Focus of Economists

The study of economic behavior is usually divided up into two lenses.

Microeconomics, which is concerned with the smaller units of an economy— individual consumers, small producers, networks of economic exchange, decision making.

Macroeconomics looks at how the smaller forces in an economy play out at a larger scale— measuring productivity and growth in an economy, circular flow, unemployment, and the role of governments in regulating and economy.

Additionally we'll turn weekly to practical application of economics by looking at local business trends and personal finance.

Franklin

Microeconomics

  • Scarcity, Choice, Opportunity Cost
  • Production Possibilities
  • Specialization and Trade, Absolute & Comparative Advantages
  • Economic Systems, Incentives, and Property
  • Supply & Demand

Macroeconomiscs

  • Measuring and Economy: GDP, Price Indeces, Inflation
  • Labor Force & Unemployment
  • Aggregate Demand / Aggregate Supply
  • Financial Sector: Banking, Federal Reserve, Money Market, Capital Markets
  • International Trade & Finance

Assignments 177

...
Scarcity
8
Economic Mystery #1
9
Using the Guide to Economic Reasoning, students analyze clues to why scientists are experimenting with chickens and contact lenses.
Economic Mystery #3
10
Using the Guide to Economic Reasoning, students analyze clues to why, despite rules requiring safer vehicles, people are less safe than in 1964.
Day 1 Information
11
Students complete information sheet
Minimum Wage- Discussion
13
...
ADM & Lysine
18
Read short description of the ADM price-fixing scandal, and plot Lysine demand, total revenue.
...
Demand #1
19
Basic concepts of demand, Chapter 4- Section 1
...
Demand #2
23
Basic concepts of demand, Chapter 4- Section 2
...
Demand #3: Elasticity
26
Basic concepts of demand, Chapter 4- Section 3
...
Chapter 1-2 Review
27
Warmup 9/29 (4 Questions, Demand)
28
...
Production Possibilities
30
...
Minimum Wage/Robots Article
31
Dude, where's my job? (Article)
32
...
Campus Parking
33
...
Are People Treating Scarce Resources as Scarce?
34
Economic Mystery #14
35
...
Economic Systems Chart
36
Chapter 2, Section 1: Traditional, Command, Market Economies
...
Circular Flow
37
...
Supply #1
42
Basic supply concepts; chapter 5, section 1
...
Silver Market #1- Simulation
45
Buy and Sell Silver
Silver Market #2- Schedule/Curve & Questions
46
Using the supply and demand schedule, plot the curve and answer questions
Silver Market Debrief
49
...
Floored: Documentary on CBOT
50
Watch the documentary and answer 8 questions.
...
More on Supply and Demand #1
55
Problems solving on supply/demand schedules
...
Pricing Problems
58
Government intervention in wage and labor markets can sometimes limit employment.
Reading: Are Raises Bad for America?
59
Read an article by William Holstein and consider the effects of Government intervention in the labor market.
Warmup on Pricing Problems
60
Question #1 for the day's assignment
...
Survival 1&2
65
Test 1
68
...
3.1 Business Organization #1
70
Compare and contrast three different types of business organization
...
3.1 Business Organization #2
72
Answer questions/problems using text
...
Chapter 3 Section 1 Problems
75
...
Chapter 3 Sections 2-3 Questions
76
...
Entrepreneurial Survey
80
Complete a brief survey connecting career goals and business
The Internet Economy will Take Over
81
Read short article (1999) and answer questions
...
Pirates 1
85
Examine the rise of personal computers
...
7.1.1 Competition & Market Structure
88
...
7.1.2 Market Structure Competition (Chapter 7, Section 1)
91
Lab #2: Learning Supply/Demand
93
...
Vocabulary Review
97
Week 1-3 Focus
99
...
Duke's Motel
102
...
Chapter 8- Labor Unions
104
...
November BLS Report
107
Notetaking Employment/Labor
108
...
Best Brands
109
...
GNH #1
114
...
Body Snatchers #1 (Inside Body Trade)
115
...
Body Snatchers #2 (American Vampire)
116
Economic Mystery #14
120
...
The Economics of Poverty
121
GNH Discussion
122
Market Basket (Capstone 15)
124
...
Heroin in Baltimore
130
...
Budget Practice
132
Employment/Labor Types Study Guide
133
...
BLS/Career Prep
136
...
Middle Skills Job Article
137
...
Public v. Private Goods
140
...
Midterm Review #1
142
...
Review #2
145
Review 3 Vocabulary
146
...
9.4 Tax Issues: Tax Reform
152
...
What is Socialism
153
2 Hour Delay Day 02/10
...
In the News: Cosmo (Warmup)
156
Reading/Discussion
...
In the News: Tax Fraud
157
...
IN THE NEWS: Kanye West / Kim Kardashian
160
...
The Economics of Celebrities
161
...
Chapter 10.1-2: Government Spending
162
...
Country Research #1
165
Country Research #2
167
...
Environmental Incentives
169
...
Rhino Economics
170
...
20-1 Global Resources
171
19-1 Problems
175
SUB-PLAN
...
18.1 Spectrum of Economic Systems
178
...
Economics of the US Constitution
196
...
9.1 Taxation
197
...
Create A Poster (Chapter 18)
198
...
In the News: Kush Gods
200
...
In the News: Hogan vetoes Transport Funding Formula Bill
201
...
Community Business Map
204
Participation / Week 1
206
Participation / Week 2
209
...
In the News: Javazen
210
...
16.1 Economic Instability
213
Chapter 15 (SUB Work)
214
...
A New Map of America
217
...
Vegas Baby
221
Read article about the history and economics of Las Vegas. Answer questions and design a recruiting brochure.
...
Big Mac Index
222
...
Best and Worst Cities
227
...
Under Armour #1
228
...
Under Armour #2
229
...
Bitcoin Basics
234
...
Ponzi Scheme
235
...
Investing Investigation / Cartoon
239
Extra Credit
...
Under Armour 3-4
243
High School Degree Not Enough
247
...
Economics of High School Sports
248
...
Economics of the Preakness
250
Read / analyze the economic impact of Baltimore's signature horse-racing event
...
Preakness Still Shines
251
Evaluate the economic impact and importance of the Preakness to Baltimore and Maryland
...
Welcome to the Exponential Age
253
Read article and answer questions
...
Impact of Freddy Gray Riots
255
Read article and answer questions
...
Light City Impact on Baltimore
256
Read article and answer questions
...
Dominoes Cheats Worlers
258
...
Robotic Economy
260
...
Most Valuable NFL Teams
261
...
Against the Grain
264
...
Uber: Surge Pricing
265
...
Scarcity and the Science of Economics
733
...
Basic Economic Concepts
734
...
Economic Choices and Decision Making
735
...
Economic Systems
736
...
Evaluating Economic Performance
737
...
Capitalism and Economic Freedom
738
...
Forms of Business Organization
739
...
Business Growth and Expansion
740
...
Other Organizations
741
...
What Is Demand?
742
...
Factors Affecting Demand
743
...
Elasticity of Demand
744
...
What Is Supply?
745
...
The Theory of Production
746
...
Cost, Revenue, and Profit Maximization
747
...
Prices as Signals
748
...
The Price System at Work
749
...
Social Goals vs. Market Efficiency
750
...
Competition and Market Structures
751
Market Failures
752
The Role of Government
753
...
The Labor Movement
754
Resolving Union and Management Differences
755
Labor and Wages
756
Employment Trends and Issues
757
The Economics of Taxation
758
The Federal Tax System
759
State and Local Tax Systems
760
Current Tax Issues
761
The Economics of Government Spending
762
Federal Government Expenditures
763
State and Local Government Expenditures
764
Deficits, Surpluses, and The National Debt
765
The Evolution of Money
766
Early Banking and Monetary Standards
767
The Development of Modern Banking
768
Savings and the Financial System
769
Investment Strategies and Financial Assets
770
Investing in Equities, Futures, and Options
771
Measuring the Nation’s Output
772
GDP and Changes in the Price Level
773
GDP and Population
774
Economic Growth
775
Business Cycles and Fluctuations
776
Unemployment
777
Inflation
778
Poverty and the Distribution of Income
779
The Federal Reserve System
780
Monetary Policy
781
Monetary Policy, Banking, and the Economy
782
The Cost of Economic Instability
783
Macroeconomic Equilibrium
784
Stabilization Policies
785
Economics and Politics
786
Absolute and Comparative Advantage
787
Barriers to International Trade
788
Financing and Trade Deficits
789
The Spectrum of Economic Systems
790
The Rise and Fall of Communism
791
The Transition to Capitalism
792
The Various Faces of Capitalism
793
Economic Development
794
A Framework for Development
795
Financing Economic Development
796
The Global Demand for Resources
797
Economic Incentives and Resources
798
Applying the Economic Way of Thinking
799

Vocabulary for Economics 510

Population
Developing Nations
Ecology
Animal Husbandry
Traditional Economic Systems
Those more archaic systems that satisfy what to produce/ how to produce type questions with traditional explanations (that's how we do it); often irrational and unproductive.

A good example are barter systems which operate without money.

absolute poverty
The amount of income a person or family needs to purchase an absolute amount of the basic necessities of life. These basic necessities are identified in terms of calories of food, BTUs of energy, square feet of living space, etc.

The problem with the absolute poverty level is that there really are no absolutes when in comes to consuming goods. You can consume a given poverty level of calories eating relatively expensive steak, relatively inexpensive pasta, or garbage from a restaurant dumpster. The income needed to acquire each of these calorie "minimums" vary greatly. That's why some prefer relative poverty.

affluence
Wealth or riches.
aggregate demand
The total (or aggregate) real expenditures on final goods and services produced in the domestic economy that buyers would willing and able to make at different price levels, during a given time period (usually a year). The total demand for goods and services in an economy, incuding demands for consumer goods and investment goods, the demands of local and central government, and of other countries for exports.

Aggregate demand (AD) is one half of the aggregate market analysis; the other half is aggregate supply. Aggregate demand, relates the economy's price level, measured by the GDP price deflator, and aggregate expenditures on domestic production, measured by real gross domestic product.

The aggregate expenditures are consumption, investment, government purchases, and net exports made by the four macroeconomic sectors (household, business, government, and foreign).

Aggregate demand (AD) is one half of the aggregate market analysis; the other half is aggregate supply. Aggregate demand, relates the economy's price level, measured by the GDP price deflator, and aggregate expenditures on domestic production, measured by real gross domestic product. The aggregate expenditures are consumption, investment, government purchases, and net exports made by the four macroeconomic sectors (household, business, government, and foreign).

aggregate market
An economic model relating the price level and real production that is used to analyze business cycles, gross domestic product, unemployment, inflation, stabilization policies, and related macroeconomic phenomena.

The aggregate market, inspired by the standard market model, captures the interaction between aggregate demand (the buyers) and short—run and long—run aggregate supply (the sellers).

aggregate output
The macroeconomy's total production of final goods and services. You might recognized it by it's official term: gross domestic product.

Another related term is aggregate supply. This is the total production in the economy that is purchased by the four basic economic sectors —— household, business, government, and foreign.

aggregate supply
The total supply of goods and services in an economy, including imports and exports, that is available to meet aggregate demand.
aggregate expenditures
The total expenditures on gross domestic product undertaken in a given time period by the four sectors —— household, business, government, and foreign.

Expenditures made by each of these sectors are specifically labeled consumption expenditures, investment expenditures, government purchases, and net exports. Aggregate expenditures (AE) are a cornerstone in the study of macroeconomics, playing critical roles in Keynesian economics, aggregate market analysis, and to a lesser degree, monetarism.

Agricultural Revolution
A breakthrough in technology allowing for a major increase in the productivity of land and crops, closely related to support of increased population.

The development of crop and animal raising as a food source among human communities to supplement hunting and gathering. This is thought to have first occurred among human groups in the neolithic period (approximately 10,000 to 8,000 B.C.).

allocation
The process of distributing resources for the production of goods and services, and of distributing goods and services for consumption by households. This process of allocation is essential to an economy's effort to address the problem of scarcity. An allocation is efficient if the resources, goods, and services are distributed according to the economy's highest valued uses.
appropriation
Money used to pay for government approved expenditures.

In terms of the U.S. federal government (and usually states have the same rule), the Constitution delegates responsibility for appropriation to Congress.

aristocracy
state ruled by noble class (especially land owners)

A government that is controlled by a small ruling class. Also refers to that class itself, sometimes called simply the upper class. The aristocracy may owe its position to wealth, social position, or military power, or another form of influence or training. These attributes are usually inherited.

ASEAN (Association of Southeast Asian Nations)
Formed in 1967, Association of Southeast Asian Nations: promotes economic cooperation amongst member countries which include: Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand. ASEAN also encourages cultural development, promotes peace and stability in southeast Asia, and cooperates with other international organizations. The headquarters is in Jakarta, Indonesia.
asset
Something that you own. For a person, assets can be financial, like money, stocks, bonds, bank accounts, and government securities, or they can be physical things, like cars, boats, houses, clothes, food, and land. The important assets for our economy are the output we have produced and the resources, capital, and natural resources used to produce that output.
austerity
Severity or harshness. Often used to describe economic conditions; as, the Polish people are undergoing a period of austerity as the economy makes a transition from communism to capitalism.
auto pact
Officially known as the Canada—US Automotive Products Agreement. This agreement, signed in January 1965, established a link between the number of vehicles sold in Canada and the amount of automotive manufacturing activity that must be carried out in Canada.

The agreement provided that manufacturers must ensure that value added by automotive manufacturing activity in Canada must not fall below the level established in 1964. The agreement also provided for percentages of Canadian manufacturing content to be increased as total Canadian sales values rose. Initially, the agreement was intended to ensure that the Canadian economy gain an appropriate proportion of the manufacturing activity and employment benefits that flowed from car sales, by foreign, chiefly US corporations, to Canadian consumers. Over the years since 1965, Canada has in fact maintained a higher ratio of value added manufacturing activity to sales than the levels provided in the Autopact. While the pact has helped ensure a strong automotive manufacturing presence in both Ontario and Quebec, it has entrenched complete foreign domination of an important sector of the Canadian economy.

automation
In industry, the performing of routine tasks by machines that were formerly done by humans; any manufacturing system in which many of the processes are performed automatically or controlled by machinery. Methods of production that rely on mechanical or electronic technologies as a replacement for human labor.
baby bonus
Baby Boom
The substantial increase in the birth rate (from 1947 to approximately 1966), following the Second World War creating a population bulge slowly working its way through the age structure of society and affecting everything from classroom space, chances of promotion and pension funds. 30 million war babies were born between 1942 and 1950.
Baby Bust
The rapid decline in birth rate following the baby boom years of 1947 to 1966. The baby bust generation then followed from 1967 to 1979 as the fertility rate of women declined to less than half of the rate during the boom years. After 1979 women born in the boom years began to have children leading to an echo boom or echo generation.
balance of payments
A statistical record of all the economic transactions between one country and all other countries over a given period. The transactions include goods, services (including investments) private and governmental capital, and gold movement.
barter
To exchange goods or commodities without the use of money.
base (or infrastructure)
A concept from Marxism that refers to the mode of production of a society: the social and technical organization of its economy. Karl Marx argued that it is upon this base that the superstructure of the society — its institutions and culture — are built. While the social institutions and culture of society are shaped by this base, at the same time, they help to maintain and reproduce the mode of production and may, in certain conditions contribute to its transformation.
bilateral monopoly
A market containing a single buyer and a single seller. Bilateral monopoly is the combination of a monopoly market on the selling side and a monopsony market on the buying side. Factor markets tend to offer the best examples of bilateral monopolies, and thus is the field of economic analysis where this term generally surfaces. A market dominated by a profit—maximizing monopoly tends to charge a higher price. A market dominated by a profit—maximizing monopsony tends to pay a lower price. When combined into a bilateral monopoly, the buyer and seller are forced to negotiate a price. Then resulting price could end up anywhere between the higher monopoly's price and the lower monopsony's price. Where the price ends ups depends on the relative negotiating power of each side.
black market
Illegal trading in goods, at prices that are higher than the legal or usual prices. In many countries in which consumer goods are scarce, a black market forms a kind of underground economy through which people get what they want if they are prepared to pay the price.
boycott
An organized effort to reduce the sales of a particular good that's intended to punished the producer or seller. To refuse to do business with an organization or nation.

Also refers to a refusal to buy or sell something, as when, say, consumers are urged by an interest group to boycott a particular manufacturer's goods. Boycotts are promoted by labor unions to inflict harm on their companies and (hopefully) encourage their employers to settle labor distributes. Special interest groups also use boycotts to achieve assorted political goals.

branch-plant
A domestic subsidiary of a parent corporation headquartered in another country. Branch plants, usually of United States corporations, are a prominent feature of the Canadian economy. There is great controversy about the role of branch plants, some analysts view them as an important engine of Canadian economic development while others claim that they have helped to obstruct the autonomous development of the Canadian economy and maintain a state of national technological and economic dependency.
break-in-bulk point
Commonly, a transfer point on a transport route where the mode of transport (or type of carrier) changes and where large—volume shipments are reduced in size. For example, goods may be unloaded from a ship and transferred to trucks at an ocean port.
budget
A statement of estimated income and expenditure over a given period for an individual, group, government or organization. If revenues exceed expenditures, there is a budget surplus; if expenditure is greater than revenue, there will be a budget deficit.

A policy document allocating burdens (taxes) and benefits (expenditures).

business
A profit—motivated organization that combines resources for the production and supply of goods and services. The term business is often used synonymously with the term firm. If there is any difference, and a subtle difference at that, the term business usually refers to a productive organization that is privately owned and motivated by the pursuit of profit. A firm, in contrast, could also refer to nonprofit and/or publicly controlled productive organizations. But this distinction is quite subtle and for most economic analyses the terms firm and business are used interchangeably. Profit—motivated businesses are organized as either a proprietorship (1 owner) with unlimited liability, a partnership (2 or more equal owners) with unlimited liability, or a corporation that issues limited liability stock ownership shares.
business cycles
The general pattern of expansion and contraction that businesses go through. In terms of the national economy, the existence of business cycles means that a period of growth is usually followed by a recession, which is followed by a recovery.

The recurring expansions and contractions of the national economy (usually measured by real gross domestic product). A complete cycle typically lasts from three to five years, but could last ten years or more. It is divided into four phases —— expansion, peak, contraction, and trough. Unemployment inevitably rises during contractions and inflation tends to worsen during expansions. To avoid the inflation and unemployment problems of business cycles, the federal government frequently undertakes various fiscal and monetary policies.

business sector
The basic macroeconomic sector containing the private, profit—seeking firms in the economy that combine scarce resources into the production of wants—and—needs satisfying goods and services. The key economic function of the business sector is the production of goods and services. The three basic types of business organizations that comprise the business sector are proprietorship, partnership, and corporation. This is one of the four macroeconomic sectors. The other three are household sector, government sector, and foreign sector. You might want to check out the key role that the business sector plays in the circular flow.
buyer's expectations
One of the five demand determinants assumed constant when a demand curve is constructed, and that shift the demand curve when they change. The other four are income, preferences, other prices, and buyers' expectations. This determinant is based on the simple observation that if more people are willing and able to buy a good, then demand is greater.
capital
One of the four basic categories of resources, or factors of production. It includes the manufactured (or previously produced) resources used to manufacture or produce other things. Common examples of capital are the factories, buildings, trucks, tools, machinery, and equipment used by businesses in their productive pursuits. Capital's primary role in the economy is to improve the productivity of labor as it transforms the natural resources of land into wants—and—needs—satisfying goods. Money used in business, where it refers to the wealth or assets of a firm.

An accumulation of goods or wealth used for the production of other goods and services rather than for immediate or personal use. If one just plays games on their computer, the computer can not be considered capital. However, if it is used to produce reports or graphs which are then sold, the computer can be considered capital. Capital is central to a capitalist economic system.

capital accumulation
The process of accumulating resources for use in the production of goods and services. Private capital accumulation takes place when productive capacity exceeds the immediate needs for consumption. For example, a farmer can accumulate capital (stored grains, improved equipment etc.) during years of good harvests and good farm revenues. Generally, accumulation is directly linked to profitability: the resources used to make commodities can be replaced and augmented when the commodity is sold for a profit. Capital accumulation can also take place in the public sector, where, from a structuralist approach within a conflict perspective, the state is seen as performing the function of aiding in the accumulation of private capital. This function may be performed by the state providing an educated work force (human capital), building rail lines into resource areas, maintaining a legal system to resolve contract disputes and providing tax incentives or tax breaks.
carrying capacity
The number of people that an area can support given the quality of the natural environment and the level of technology of the population. A term from ecology referring to the level of land or resource use — by humans or animals — that can be sustained over the long term by the natural regenerative power of the environment.
cetaris parabis
A Latin term meaning that all other factors are held unchanged. The ceteris paribus assumption is used to isolate the effect one economic factor has on another. Without this assumption, it would be difficult to determine cause and effect in the economy. Relaxing the ceteris paribus assumption is the primary analytical technique used in the study of economics, especially for when analyzing the market. Much like a chemist adds one chemical at a time to a mixture to determine the resulting reaction, an economist relaxes one ceteris paribus assumption at a time to observe the results.
charter
The laws, including the powers and organization, granted to a city by the state legislature; the constitution of an international body, such as the United Nations.
cheap money
Also called easy money, the term refers to economic conditions in which there are low interest rates and high credit availablity. The opposite is tight money.
circular flow
The continuous movement of production, income, and resources between producers and consumers. This flow moves through product markets as the gross domestic product of our economy and is then the revenue received by the business sector in payment for this production. This stream of revenue then flows through resource markets as payments by businesses for the resources employed in production. The payments received by resource owners, however, is nothing more than the income of the household sector. The resource owners of the household sector use this income to purchase goods and services through the product markets, coming full circle to where we began.
class struggle
Conflict between different classes in a society. The idea of class struggle held an important place in Marxism. Karl Marx divided society into two broad groups: the capitalists, or bourgeoisie, and the proletariat, or workers. Their interests were inevitably opposed, according to Marx, because one group (the proletariat) was always being exploited by the other (the bourgeoisie), so that capitalist society was a constant struggle between them. Marx believed that eventually the proletariat would triumph and a new classless society would emerge. The idea of class struggle, as with other main tenets of Marxism, holds much less appeal worldwide now than it has done for most of this century, because of the general failure and collapse of Marxist systems around the globe.
class-for-itself
A class of individuals conscious of sharing a common social situation and who unite to pursue common interests.
class-less society
A society that does not have a hierarchy of different social classes and in which individuals have similar resources of wealth, status and power.

Found in simple hunter-gatherer societies (like the pygmies of Zaire) and also a socialist vision of a future society founded on collective ownership of the means of production.

coefficient of elasticity
A numerical measure of the relative response of one variable (A) to changes in another variable (B). The most common applications for the coefficient of elasticity are price elasticity of demand and price elasticity of supply. Two other notable applications are income elasticity of demand and cross elasticity of demand.
command economy, command economic systems
Centrally planned economic systems, typically in communist countries.

An economy directed by state authorities, rather than market forces. There are a variety of command economies. In the ancient world, command was found in agricultural economies, especially those dependent on large scale systems of irrigation requiring extensive regional planning and coordination. The power to control water resources gave central authorities immense social and economic dominance. Mesopotamia (modern Iraq) and Egypt are examples. Large sectors of the economy were also commanded in other ancient and medieval societies like Rome, China and among the Inca. In modern times, command economies were dominant in the Soviet —style communist societies, where state central planning agencies allocated capital and resources, established production targets and fixed the levels of prices. Command economies, because they rely on centralized bureaucratic administration, appear to be inherently less efficient than market mechanisms in allocating resources and stimulating economic growth. Soviet—style central planning has now been generally abandoned as a method of economic management.

commercialism
The methods of commerce and business. Sometimes in social commentary the term is used in a negative sense, as when a writer bemoans the commercialism of our society, which is said to squeeze out moral or spiritual values, or the conducting of business (i.e. the making of money) where it is not appropriatesuch as the commercialism involved in the O. J. Simpson trial, for example.
commodity
A good or service that is exchanged or sold in the market place.

Commodities may be any good or service, but the most basic is "money." Strictly speaking, money is a commonly agreed upon unit of value and exchange. For example, if I have one cow and need 20 barrels, and my neighbor (a barrel maker) has ten barrels that he can deliver right away, we negotiate an exchange. However, if the cow is valued the same as 30 barrels, we really do not have the basis to trade. There are too many inequalities in value. This is where money comes in: if we can agree that a cow is worth 300 kopeks (or any type of currency), and that 10 barrels are worth 10 kopeks each, then we can exchange. My neighbor gives me 10 barrels and 200 kopeks, and I give him the cow.

Previously before money entered into the exchange, I would have had to cut up the cow into thirds, especially if we were making an even exchange. Money makes it possible to have an even basis of valuation.

Money entered into human use in very early societies, and typically was always in precious metals like gold and silver, although it was also possible to use shells or beads or any other relatively scarce item. As the division of labor progressed, money became more complex. For example, if my neighbor wants the entire cow because he is planning to milk it and raise other cattle, fine. Maybe we can exchange it for a promise of future barrels to be delivered. Any excess barrels I don't need could potentially be exchanged. But what if the neighbor wants the cow for meat or leather? Enter the role of the butcher!

common good
The welfare of all.
common-property near good
A good that's difficult to keep nonpayers from consuming, but use of the good by one person prevents use by others. Examples include oceans, the atmosphere, many lakes and streams, and large tracts of wilderness area or public parks. The term "common property" aptly describes the situation here, it's commonly owned and thus everyone has access to it, but it can be easily used up or destroyed. Many of our pollution problems occur because common property becomes a convenient place to dump waste materials. For efficiency, government needs to take charge of common—property goods, private exchange through markets can't do the job.
Communism
In theory, an economy based on—
  1. a classless society, where everyone does their best to contribute to the common good,
  2. a common, rather than individual, ownership of all resources,
  3. the complete disappearance of government, and
  4. income allocated based entirely on need rather than on resource ownership or contribution to production (that is, a needs standard, compare contributive standard).

A political theory that advocates collective ownership of the means of production (resources, land and capital), abolition of private property and equalization of incomes. Communism differs from socialism because it contemplates revolutionary social change rather than just electoral politics. The first modern communist society was established in Russia after the revolution of 1917 and this political system was imposed by the Soviet Union, after the second world war, on many countries of Eastern Europe. In Asia, a successful communist-led revolution in China in 1949 led to the growth of communist regimes and political movements in other areas, including Korea, Vietnam and Malaysia. These centralized and dictatorial communist systems were far from the model societies envisaged by Karl Marx and Frederick Engels who believed that a communist revolution would create co-operative collective ownership a true community-based democracy and a weakening of the role of the state.

The political system under which the economy, including capital, property, major industries, and public services, is controlled and directed by the state, and in that sense is "communal." Communism also involves a social structure that restricts individual freedom of expression. Modern communism is based on Marxism, as interpreted by the Russian revolutionary leader Vladimir Ilyitch Lenin (1870-1924).

competition
Rivalry. In economics, it refers to a situation in which two or more companies vie for business; if for example, there is competition between sellers for a limited number of buyers, this will tend to bring down the price of the commodity being sold. Buyers can also compete with each other; the result is usually that prices go up. Competition is a cornerstone of the free enterprise system, and extends itself into all areas of U.S. society: people vie for the best university places, the best jobs, etc. According to this idea, competition provide the spur for people to succeed and to excel.

In general, the actions of two or more rivals in pursuit of the same objective. In the context of markets, the specific objective is either selling goods to buyers or alternatively buying goods from sellers. Competition tends to come in two varieties —— competition among the few, which is market with a small number of sellers (or buyers), such that each seller (or buyer) has some degree of market control, and competition among the many, which is a market with so many buyers and sellers that none is able to influence the market price or quantity exchanged.

complement
Two goods that "go together," either in consumption or production. In terms of demand, a complement—in—consumption is one of two goods that are consumed together such that an increase in the price of one good leads to a decrease in demand and a leftward shift in the demand curve for the other good. If the demand of good 1 decreases as the price of good 2 increases, the goods are complements—in—consumption. In terms of supply, a complement—in—production is one of two goods that are produced jointly using the same resources, such that an increase in the price of one good leads to an increase in supply and a rightward shift in the supply curve for the other good. If the supply of good 1 increases as the price of good 2 increases, the goods are complements—in—production.
comprador elite
The members of a national business class of senior corporate managers who derive their position and status from connection to foreign corporations of developed nations. The term is used in critical theories of the sociology of development to imply that a foreign—allied national business class tends to encourage local economic development that benefits other nations rather than their own.
conglomerate
A corporate organization in which divergent enterprises retain separate organizational and legal structures but are joined together by the controlling ownership of a corporate holding company. For example, companies B, C, and D may all be owned by company A. This whole structure is called a conglomerate.
consortium
An association or partnership of states or companies. Often used of an association of bankers.
constant returns to scale
A given proportionate increase in all resources in the long run results in the same proportionate increase in production. Constant returns to scale exists if a firm increases ALL resources —— labor, capital, and everything else —— by 10%, and output also increases by 10%. You might want to compare increasing returns to scale and decreasing returns to scale. Returns to scale are the flip side of economies of scale and diseconomies of scale. Although economies and diseconomies of scale focus on changes in average cost, returns to scale focus on production.
consumer
In economic terms, someone who consumes goods and uses services. Consumer is distinguished from producer, since a consumer uses the goods or services to fulfill his or her needs, not to produce more goods.
consumer activists
People who are active in protecting the interests of consumers by pressing for higher standards of safety, healthfulness, truth in labeling, and customer service among producers of consumer goods.
consumer culture
A culture in which the attainment of ownership and possession of goods and services is presented as the primary aim of individual endeavor and the key source of social status and prestige.
consumerism
Positive: The protection or promotion of the interests of consumers, or the belief that consumers ultimately determine the direction of the economy through market dynamics and demand. Pejorative: Behavior that is selfishly directed at acquisition of ever increasing levels of goods and services. "Materialism."
consumption
The use of resources, goods, or services to satisfy wants and needs. At the microeconomic level, consumption is primarily analyzed in the context of utility, demand and their importance to market exchanges. At the macroeconomic level, consumption is most important as expenditures by the household sector on gross domestic product, one of four aggregate expenditures (the other three being investment, government purchases, and net exports).

In economics, the terms refers to the using up of goods or services, as opposed to production. It also refers to the amount used up.

consumption expenditures
The common term for expenditures by the household sector on gross domestic product. In general consumption expenditures include the wide assortment of goods and services purchased by the household sector that provide satisfaction of wants and needs. Consumption expenditures are divided into three categories —— durable, nondurable, and services.
contraction
A phase of the business cycle characterized by a general period of declining economic activity. A contraction is one of two basic business cycle phases. The other is expansion. The transition from contraction to expansion is termed a trough and the transition from expansion to contraction is termed a peak. The popular term for contraction, one that frequent shows up in the media, is recession. Should you check out the entry recession, you will see information that is essentially identical to that presented here, because they are two terms for the same phenomenon.
conurbation
An extensive urban area formed when two or more cities, originally separate, coalesce to form a continuous metropolitan region. Several adjacent metropolitan areas with form a huge urban area. Megalopolis. EXAMPLE: Baltimore—Washington
corporate elite
The owners, directors and senior executives of the largest and most important of a nation's business corporations. Can be variously defined according to criteria of corporate size and type of enterprise.
corporation
One of the three basic forms of business organization (the other two are proprietorship and partnership).

A corporation is a business established through ownership shares (termed corporate stock). A corporation is considered a distinct legal person, that can be sued, forced to pay taxes, etc., just like a human person. Unlike proprietorships and partnerships businesses, a corporation business exists separately from it's owners. As such, the owners have what lawyer—types term limited liability. Owners can not be held personally responsible for corporate debts. They owners can only lose the value of their ownership shares, but no more.

An organization of people bound together to form a business enterprise or any other stated function. A quarter of U.S. business firms are corporations, but over threequarters of all sales are through corporations. Ownership shares of a corporation are sold to buyers, but shareholders do not get much direct say in how the corporation is run. Another distinguishing characteristic of a corporation is the principle of limited liability, under which owners of corporations are not liable for debts of the firm.

cost
Benefit analysis a comparison between the cost of a specific business activity and the value of it. A cost benefit analysis is not limited to monetary calculations, but attempts to include intangible effects on the quality of life. For example, say there is a proposal to build a new factory in a town. The factory may bring economic benefits, but what if also gives off toxic emissions? In a cost benefit analysis, the increase in jobs and other economic activity that the factory would bring has to measured against the possible damage on the health of the community.
cost of living
The amount of income or money needed to acquire a given quantity of goods and services or to achieve a given living standard. This cost of living notion is closely intertwined with inflation, the economy's price level, and the concept of purchasing power. The cost of living is typically indicated by a price index such as the Consumer Price Index (CPI). The CPI, for example, measures the changing cost of a specific market basket of goods. An increase in the CPI indicates that the cost of this market basket has increased, and presumably so too has the cost of living. In fact, labor union wages, benefits paid to Social Security recipients, and similar income sources are regularly adjusted for changes in the cost of living using the CPI.
cross elasticity of demand
The relative response of a change in demand to a relative change in the price of another good. More specifically the cross elasticity of demand can be defined as the percentage change in demand for one good due to a percentage change in the price of another good. The cross elasticity of demand quantitatively identifies the theoretical relationship between other prices and demand discussed by the other prices. This elasticity should be compared with price elasticity of demand and income elasticity of demand.
currency
Refers to legal tender that is "current," that is, it is in circulation as a medium of trade and exchange.
currency convertibility
The right to exchange the currency of one country, at the going rate of exchange, for that of another. This enables a person to carry out a transaction in a foreign market whilst using the currency of his own country, which the seller can then convert to his own national currency. Currency convertibility is an essential element of world trade.
debt
The total amount owed by governments to lenders who have bought bonds and Treasury bills sold by government to cover past deficits and operating expenses.
decreasing returns to scale
A given proportionate increase in all resources in the long run results in a proportionately smaller increase in production. Decreasing returns to scale exists if a firm increases ALL resources —— labor, capital, and other inputs —— by 10%, and output increases by less than 10%. You might want to compare increasing returns to scale and constant returns to scale.
deficit
An excess of federal expenditures over federal revenues.

The gap between governments' revenues, from taxes and charges, and their expenditures, on programs, infrastructure, and debt financing.

deficit financing
The practice of deliberately operating with a budget deficit, financed by borrowing. The purpose of deficit financing is to stimulate the economy by increasing government spending, which will increase purchasing power and create more jobs. In the U.S., the era of deficit financing may be coming to an end, as both parties are committed to balancing the federal budget within the next decade. There has not been a federal budget surplus since 1969.
definition of the situation
Refers to the process through which humans go when trying to comprehend the social situations in which they find themselves and deciding on what values and norms are relevant in guiding social interaction. If one contrasts macro—structural studies and symbolic interactionism, this concept is associated with the latter. The structural view tends rather to focus on the situation individuals are in, not on their definition of the situation. The term was first used by W.I. Thomas (1863—1947).
deflation
An extended decline in the average level of prices. This is the exact opposite of inflation——in which prices are rising over an extended period, and it should be contrasted with disinflation——which is a decline in the inflation rate. Like inflation, deflation occurs when the AVERAGE price level decreases over time. While some prices might decrease, other prices could increase or remain unchanged, so long as the AVERAGE follows a downward trend. Deflation is a rare bird indeed in our economy and typically happens only when we're in a prolonged period of stagnation. We might see some deflation during a fairly lengthy recession, but more than likely deflation saves itself for the occasional depression that dots our economic landscape.

A reduction in economic activity in an economy, marked by falling prices and wages (or a slowing of the increase), less employment, and less imports. Deflation marks the downturn in a business cycle. It can be produced by raising taxes, increasing interest rates, or cutting government spending. Deflationary policies may be pursued to improve the balance of payments by reducing demand, and so reducing imports.

demand
The willingness and ability to buy a range of quantities of a good at a range of prices, during a given time period. Demand is one half of the market exchange process; the other is supply. This demand side of the market draws inspiration from the unlimited wants and needs dimension of the scarcity problem. People desire the goods and services that satisfy our wants and needs. This is the ultimate source of demand.
demand characteristic
As used in experimental psychology, refers to unintended features of the experiment which affect the results, thus compromising the internal validity of the study. The term is also used in the sociology of deviance to refer to those organizational features of work settings, other than the formal goals of the organizations or principles such as due process or fairness, which shape arrest decisions, plea bargaining, or jury deliberations. Examples of demand characteristics which police officers may attend to in making decisions on the street are the informal expectations of police culture, their work load, their need to accumulate overtime or organizational rules.
demand curve
A graphical representation of the relationship between the demand price and quantity demanded (that is, the law of demand), holding all ceteris paribus demand determinants constant.
demand decrease
A decrease in the willingness and ability of buyers to buy a good at the existing price, illustrated by a leftward shift of the demand curve. A decrease in demand results in a decrease in equilibrium quantity and a decrease in equilibrium price.
demand determinants
Five basic ceteris paribus factors that affect demand, but which are assumed constant when a demand curve is constructed. Changes in any one causes a shift of the demand curve. The five demand determinants are: income, preferences, other prices, buyers' expectations, and number of buyers.
demand increase
An increase in the willingness and ability of buyers to buy a good at the existing price, illustrated by a rightward shift of the demand curve. An increase in demand results in an increase in equilibrium quantity and an increase in equilibrium price.
demand mobility
A form of social mobility which takes place over time but which is not caused by individuals ascending or descending in class or status, but rather by changes in the occupational structure of the economy. It results from there being greater demand for some kinds of labor and a shrinking demand for others and not from the openness of the society. In a situation of high demand mobility, with little openness, one might find that workers occupy the same relative positions in social and economic position as their parents although performing quite different kinds of work.
demand price
The maximum price that buyers would be willing and able to pay for a given quantity of a good. The emphasis here is on maximum. As a general rule buyers have an upper limit to the price that they would be willing to pay for a good. As an upper limit, they would gladly go lower.
demand shock
A disruption of market equilibrium (that is, a market adjustment) caused by a change in a demand determinant and a shift of the demand curve. A demand shock can take one of two forms——an Demand Increase or a Demand Decrease. An increase in demand is seen as a rightward shift of the demand curve and results in an increase in equilibrium quantity and an increase in equilibrium price. A decrease in demand is a leftward shift of the demand curve and results in a decrease in equilibrium quantity and a decrease in equilibrium price.
dependency ratio
The proportion of the population that is outside the labor force and thus dependent on the economic activity of those working. This is typically calculated as the proportion of the population between the ages of 0 to 16 plus those over 65 to those between the ages of 16—65.

As industrial societies have matured, and particularly those with a large baby boom such as Canada, the dependency ratio has increased significantly (for example, from 1 dependent to 20 workers to 1 dependent for 3 workers).

dependent development
A central concept of dependency theory. Rather than seeing the world's nations dividing economic labor and interacting as equal partners, dependent development suggests that some nations are able to impose unequal exchanges on others and thus retard the economic development of these nations or make their development dependent on stronger or more economically advanced nations. Dependent development has typically involved the exporting of primary resources.
depression
In economics, the term refers to a prolonged slump in business activity, leading to low production, little capital investment, mass unemployment and falling wages. An extended period——a decade or so——of restructuring and institutional change in an economy that's often marked by declining or stagnant growth.

During this period, unemployment tends to be higher and inflation lower than a regular, run—of—the—mill recession. Moreover, a depression usually lasts in the range of ten years, often encompassing two or three separate shorter—run business cycles.

The most noted depression in the U. S. economy was the Great Depression of the 1930s.

deskilling
The process by which division of labor and technological development has led to the reduction of the scope of an individual's work to one, or a few, specialized tasks. Work is fragmented, and individuals lose the integrated skills and comprehensive knowledge of the crafts persons.
devaluation
Reduction in the value of a nation's currency in relation to other currencies. Devaluation usually takes place because of an emergency, such as a balance of payments deficit in which the value of a country's imports is far greater than the value of its exports. Devaluation has the effect of boosting exports (because they are cheaper in terms of foreign currencies) and reducing imports (because they are more expensive in terms of foreign currencies).
differentiation of labor
Also, division of labor

Process by which labor has grown increasingly diffused and variegated, specialized in various economic sectors.

diminishing returns
A principle of economics that states that if one factor of production is increased while others remain fixed, the resulting increase in output will level off after a time and then decrease. In other words, if a company decides to employ more workers but does not increase the amount of machinery it will eventually reach the point of diminishing returns, where the addition of each new worker will add progressively less to output than did the previous additions. To avoid diminishing returns the optimum relationship between all the factors of production at any given time must be evaluated.
direct investment
One of two large categories of foreign investment. Direct investment refers to financial investments in a company in order to gain control or ownership, while portfolio investment refers to financial investment for the purpose of interest or dividends.
discriminatory shipping rates
A transportation charge levied in a manner that is inequitable to some shippers, primarily because of those shippers' location.
disposable income
The total income that can be used by the household sector for either consumption or saving during a given period of time, usually one year. This is the income left over after income taxes and social security taxes are removed and government transfer payments, like welfare, social security benefits, or unemployment compensation are added.
double burden
A term used to describe the situation of women who perform paid work outside the domestic sphere as well as homemaking and child—care work inside the home. Since domestic work is private and outside the cash economy, it is not remunerated and this causes it to appear as something less than real work and as part of the natural gender role of women.

For example, Canadian studies have consistently demonstrated that women perform by far the largest share of this domestic work and are thus subjected to demands greater than those typically imposed on male workers. Some feminists have advocated wages for housework as a necessary step to gain recognition for this work that women do in the private world of family and household.

drawback
Money collected as customs duty on imported goods and then refunded when the goods are sent out as exports.
dumping
In economics, a term that means selling a product in large quantities abroad for a lower price than it fetches in the domestic market. Usually this is done to dispose of a surplus, and to gain a competitive advantage with foreign suppliers.
earmarked
To set aside for a special purpose, as when in a budget, funds are earmarked for certain projects.
EC
economic
Relating to economics or the study of the economy.

This word is commonly added to other terms to emphasize its importance to economics. A few examples are economic cost, economic profit, economic goal, economic policies, and economic thinking.

economic determinism
A form of determinism that explains social structure and culture as a product of the social and technical organization of economic life. Karl Marx has been described, many claim incorrectly, as an economic determinist.
economic growth
The long—run expansion of the economy's ability to produce output. The increase in a nation's production of goods and services, often measured annually in the Gross National Product (GNP). In 1994, for example, the economic growth rate of the U.S., in terms of the GNP, was 4 percent, which is considered a fairly high rate of growth.

This is one of five economic goals, specifically one of the three macro goals (stability and full employment are the other two). Economic growth is made possible by increasing the quantity or quality of the economy's resources (labor, capital, land, and entrepreneurship).

economic profit
The difference between business revenue and total opportunity cost. This is the revenue received by a business over and above the minimum needed to produce a good. In this sense, economic profit is a sign of inefficiency. If a business receives an economic profit, then society (the buyers) are spending more on a good than society (the resource owners) are giving up to produce the good.
economic system
The assorted institutions that society uses to answer the three basic questions of allocation and address the fundamental problem of scarcity. Another, more popular term for economic system is economy. An economy, or economic system, is the structural framework in which households, businesses, and governments undertake the production and consumption decisions that allocate limited resources to satisfy unlimited wants and needs.
economic theory, classical
Known also as ‘laissez faire’, the theory claims that leaving individuals to make free choices in a free market results in the best allocation of scarce resources within an economy and the optimal level of satisfaction for individuals — ‘the greatest happiness for the greatest number’.
economic warfare
Conflict between nations over economic issues, that results in each side taking action against the other, to raise tariffs, restrict imports, or boycott the others' goods.
economics, classical
The dominant theory of economics from the eighteenth century until superseded by neoclassical economics in the twentieth century. A body of economic thought originating with the work of Adam Smith based on the idea that the operation of unrestricted markets generates aggregate or national production that fully utilizes the economy's resources and maintains full employment. The three primary assumptions of classical economics are flexible prices, Say's law, and the saving—investment equality.

It is delineated in Smith's Wealth of Nations (1776) John Stuart Mill's Principles of Political Economy (1848), and the work of David Ricardo (1772—1823), who were the first to systematically establish a body of economic principles.

The basic idea was that the economy functioned most efficiently if everyone was allowed to pursue their own self—interest. Classical economics therefore favored laissez faire; the primary economic law was that of competition.

economics, neoclassical
An economic theory that built on the foundation laid by the classical school of Adam Smith and David Ricardo. Neoclassical economics, developed in the twentieth century, retained a belief in the value of a free market economy but also developed a theory of prices and markets that did not depend on the classical theory that the value of a good depended on how much labor it incorporated. Neoclassicists argued that price was dependent solely on the forces of supply and demand.
economies of agglomeration
The economic advantages that accrue to an activity by locating close to other activities; benefits that follow from complementarity or shared public services.
economies of scale
Declining long—run average cost that occurs as a firm increases all inputs and expands its scale of production. This is graphically illustrated by a negatively—sloped long—run average cost curve and typically occurs for relatively small levels of production. Economies of scale are then overwhelmed by diseconomies of scale for relatively large production levels. Together, economies of scale and diseconomies of scale cause the long—run average cost curve to be U—shaped.

Savings achieved in the cost of production by larger enterprises because the cost of initial investment can be defrayed across a greater number of producing units.

ECOSOC
United Nations Economic and Social Council: aims to promote higher standards of living, full employment and economic and social progress in member nations. It issues reports and make recommendations on a wide range of economic, social and cultural matters.
efficiency
Obtaining the most possible satisfaction from a given amount of resources. Efficiency for our economy is achieved when we can not increase our satisfaction of wants and needs by producing more of one good and less of another. This is one of the five economic goals, specifically one of the two micro goals (the other being equity).
elasticity
The relative response of one variable to changes in another variable. The phrase "relative response" is best interpreted as the percentage change. For example, the price elasticity of demand, one of the more important applications of this concept in economics, is the percentage change in quantity demanded measured against the percentage change in price. Other notable economic elasticities are the price elasticity of supply, income elasticity of demand, and cross elasticity of demand.
entrepreneurship
One of the four basic categories of resources, or factors of production (the other three are labor, capital, and land). Entrepreneurship is a special sort of human effort that takes on the risk of bringing labor, capital, and land together and organizing production.
equal pay
The principle that pay should be according to the work done, not according to who the worker is. In other words, women who perform the same tasks, demanding the same skill and level of responsibility, as men should receive the same pay. The Equal Pay Act of 1963 prohibits discrimination in the workplace regarding pay, based on gender.
equilibrium
In economics, the term refers to a stable economic condition in which all significant variables remain constant over a period of time. For example, a market will be in equilibrium if the amount of goods that buyers wish to purchase at the prevailing price is exactly matched by the amount that the sellers wish to sell at that price. There is then no reason for the price to change, which it would do if either of the variables (supply or demand) were to alter.

The state that exists when opposing forces exactly offset each other and there is no inherent tendency for change. Once achieved, an equilibrium persists unless or until it is disrupted by an outside force.

equity
This has two, not totally unrelated, uses in our wonderful world of economics. The first is as one of the two micro goals (the other being efficiency) of a mixed economy. This use relates to the "fairness" of our income or wealth distributions. The second use of the term equity means ownership, especially the ownership of a business or corporation.

The capital, or assets, of a firm, after the deduction of liabilities.

European Community
Often referred to as the Common market. The EC has 12 members including: Belgium, Denmark, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, and the United Kingdom. Member countries have been developing common policies on economics, trade and currency.
excess supply
A disequilibrium condition in a competitive market in which the quantity supplied is greater than the quantity demanded, hence there's "extra" supply. Pointy—headed economists generally use the more technical term surplus rather than excess supply. The reason, of course, is that surplus has two syllables and excess supply has four. The time saved in pronouncing two syllables rather than four is a definite efficiency plus for the entire economy.
exchange value
In Marxian analysis the theoretical value of any commodity exchanged or sold in the market place is the amount of socially necessary labor time embodied in it. In actual market conditions, the money or equivalent paid for a commodity (the price) may differ from the value of the commodity although, in a perfectly working market, price and value would be identical. It is the unique characteristic of capitalism that the great majority of goods and services are produced to be sold, rather than for their immediate use value to the producer. In less modern economies, the production of commodities took place only in limited sectors and most production was for use values.
excludability
The ability to keep people who don't pay for a good from consuming the good. For some goods, it's very easy (that is, the cost is low) for owners or producers to keep others from enjoying the benefit of a good. Examples of this abound, like candy bars, shoes, houses, computers, and well a bunch of other stuff. Other goods, however, prove more difficult to keep the nonpayers away. Examples of these include oceans, national defense, and fireworks displays. Excludability is one of the two key characteristics of a good (the other is rival consumption) that distinguishes between common—property goods, near—public goods, private goods, and public goods.
executive disengagement
The custom by which lower level employees assume that executives are best left uninformed of certain decisions and actions of employees, or the assumption that executives can not be legally expected to have complete control over their individual staff.

This concept has been challenged in Canada now that executives can be found liable for the sexual harassment committed by their staff. Executives are expected to create an environment in which harassment will not occur or if it does it will be identified and reacted to properly.

expansion
A phase of the business cycle characterized by a general period of rising economic activity. An expansion is one of two basic business cycle phases. The other is contraction. The transition from expansion to contraction is termed a peak and the transition from contraction to expansion is termed a trough. Expansions last an average of about 3—4 years, but this by no means not guaranteed. An expansion in the early 1980s lasted a mere 12 months. The next expansion then lasted over 8 years. Much of the 1960s was dedicated to a 106—month expansion, almost 9 years.
exploitation
Taking advantage of something for one's own use or benefit, especially in an unethical manner. Thus an employer who pays unreasonably low wages or makes unreasonable demands on his employees is guilty of exploitation. In Marxist theory exploitation refers to the making of profit (by capitalists) from the labor of others (the proletariat).
emotional labor
As used by Arlie Russell Hochschild, emotional labor refers to paid work requiring the worker to maintain observable facial and bodily displays with the intention of creating particular emotional feelings in clients. Among workers performing emotional labor are flight attendants (who continue to smile as the plane crashes), bill collectors, funeral directors, doctors, nurses, and others.
employment
The condition in which a resource (especially labor) is actively engaged in a productive activity usually in exchange for an explicit factor payment (such as wage or salary). This general condition forms the conceptual basis for one of the three categories used by the Bureau of Labor Statistics (BLS) when classifying individual's labor force status. Employed persons is the specific category used by the BLS classification procedure. The other two BLS categories are unemployed persons and not in the labor force.
employment equity
Equity can be thought of as a state of being equal or fair, and fairness in dealing with people. Employment equity has come to have several dimensions. First it suggests equal pay for equal work or equal pay for work of equal value. The goal of both these principles is to establish equality between men and women, or able—bodied and physically—challenged persons, or ‘whites’ and people of colour. The term has also come to imply proportionate hiring of various minority groups.
GNP (also, GDP)
Gross national product: the value of all the goods and services produced by a country in a oneyear period. GNP is used as a means of assessing the condition of a nation's economy.
gold standard
Refers to a monetary system in which the unit of currency is equivalent to a given amount of gold; currencies can be converted into gold at a fixed price; and gold is usable as a currency. The gold standard has not been in operation in any country since the 1930s, as a result of the worldwide disruption caused by the Great Depression. In other words, the value of the currency is not related to the value of gold on the free market.
good types
We can identify four different types of goods based on two key characteristics —— rival consumption and excludability. Private that are rival in consumption and easily subject to the exclusion of nonpayers. Public goods that are nonrival in consumption and the exclusion of nonpayers is virtually impossible. Near—public goods that are nonrival in consumption and easily subject to the exclusion. Common—property goods that are rival in consumption and not easily subject to the exclusion.
goods
When used without an adjective modifier (like "final" goods or "intermediate" goods), this generically means physical, tangible products used to satisfy people's wants and needs. This term good should be contrasted with the term services, which captures the intangible satisfaction of wants and needs. As such, you will frequently see the plural combination of these two phrases together "goods and services" to indicate the wide assortment of economic goods produced using the economy's scarce resources. As you might imagine this general notion of wants and needs satisfying goods and services pops up throughout the study of economics.
goods producing economy
An economy whose central method of capital accumulation is the manufacture of goods for consumers (televisions), for public consumption (trains) or for private economic use (robots for building cars). It has been claimed for several years that western societies have passed through this goods producing, or industrial, stage and have now entered a new economy founded on the delivery of services and the production and dissemination of knowledge.
Gross Domestic Product (GDP)
The value of all goods and services including the value of dividend, interest and other payments made to overseas investors produced by a nation over a one year period. The total market value of all goods and services produced within the political boundaries of an economy during a given period of time, usually one year. This is the government's official measure of how much output our economy produces. It's tabulated and reported by the National Income and Product Accounts maintained by the Bureau of Economic Analysis, which is part of the U. S. Department of Commerce.
Gross National Product (GNP)
Archaic: The total market value of all goods and services produced by the citizens of an economy during a given period of time, usually one year. Gross national product, often abbreviated simply as GNP, was once the federal government's official measure of how much output our economy produces. In the early 1990s, however, it was replaced by gross domestic product (GDP).
gross private expenditures
Expenditures on capital goods to be used for productive activities in the domestic economy that are undertaken by the business sector during a given time period. This is the official item in the National Income and Product Accounts maintained by the Bureau of Economic Analysis measuring capital investment expenditures. Gross private domestic investment tends to be the least stable of the four expenditures, averaging between 12—18% of gross domestic product.
export
The sending of goods or services to a foreign market for the purpose of selling.
factor market
A market used to exchange the services of a factor of production: labor, capital, land , and entrepreneurship. Factor markets, also termed resource markets, exchange the services of factors, NOT the factors themselves. For example, the labor services of workers are exchanged through factor markets NOT the actual workers. Buying and selling the actual workers is not only slavery (which is illegal) it's also the type of exchange that would take place through product markets, not factor markets. More realistically, capital and land are two resources than can be and are legally exchanged through product markets. The services of these resources, however, are exchanged through factor markets. The value of the services exchanged through factor markets each year is measured as national income.
factors of production
The four basic factors used to produce goods and services in the economy——labor, capital, land, and entrepreneurship.

These are also called resources or scarce resources. The term "factors of production" is quite descriptive of the function these "resources" perform. Labor, capital, land, and entrepreneurship are the four "factors" or items use in the "production" of goods and services.

fauna
Animal life.
Federal Trade Commission Act

This antitrust law passed in 1914 created the Federal Trade Commission to clarify which practices and activities were illegal under antitrust laws. The Federal Trade Commission Act was one of three major antitrust laws passed in the late 1800s and early 1900s. The other two were the Sherman Act and the Clayton Act. In particular, the Federal Trade Commission was responsible for setting the standards for what constituted unfair competition and for investigating business activities that might lead to monopolization of a market or restraint of trade. The Whealer—Lea Act, passed in 1938, was a major amendment t the Federal Trade Commission Act.

fifth rule of imperfection
The fifth of seven basic rules of the economy. It is the observation that the real world is not perfect. This means markets often fail to achieve efficiency because of several failings. This also means that government seldom enacts the policies needed to correct market failings. We are usually faced with the lesser of evils.
firm
An organization that combines resources for the production and supply of goods and services. The firm is used by entrepreneurs to bring together otherwise unproductive resources. The key role played by a firm is the production of output using the economy's scarce resources. Firm's are the means through which society transforms less satisfying resources into more satisfying goods and services. If firms didn't do this deed, then something else would. And we would probably call those something elses firms.
first rule of scarcity
The first of seven basic rules of the economy. It is the fundamental fact of economic life that he world is faced with limited resources but unlimited wants and needs satisfied from these resources.
first-degree price discrimination
A form of price discrimination in which a seller charges the highest price that buyers are willing and able to pay for each quantity of output sold. This is also termed perfect price discrimination because the seller is able to extract ALL consumers' surplus from the buyers. This is one of three price discrimination degrees. The others are second—degree price discrimination and third—degree price discrimination.
fiscal crisis
Refers broadly to a long—term situation where government expenditures exceed government revenues. Within modern Marxist theory (neo—Marxism), the term has been used more specifically to refer to a situation where governments have increased their role in society in serving the needs of private capital, but have not been able to adequately tax private capital to support the expenditures. For example, technical employment training has now largely become a preserve of the state (rather than the private employer), leaving the state with additional expenditures, but without corresponding revenues. According to neo—Marxism, this tendency is linked to the development of economic concentration and monopoly and inbuilt in the capitalist economic system. The fiscal crisis of the state is thought to drive much contemporary government policy on social programs.
fiscal policy
The use government makes of its taxing and spending powers to achieve particular ends, such as the rate of growth of the money supply, the amount of the budget deficit or surplus. Fiscal policy includes decisions about what level of taxation, and what type of taxation (direct, like income tax, and indirect, like sales tax), to impose.

Use of the federal government's powers of spending and taxation to stabilize the business cycle. If the economy is mired in a recession, then the appropriate fiscal policy is to increase spending or reduce taxes——termed expansionary policy. During periods of high inflation, the opposite actions are needed——contractionary policy. The consequences of fiscal policy are typically observed in terms of the federal deficit.

Government economic policies that rely on economic regulation and control exercised through government taxation and budgetary policy. These policies are in contrast to monetary policy which seeks to influence the direction of the economy and regulate levels of economic activity and inflation by control of both the rate of interest (the cost of borrowing money) and the amount of money available within an economy (the money supply).

flat tax
A tax structure that has gained significant public support in North America in which all citizens would pay the same percentage of taxation on their income. This would simplify tax law and the completion of a tax return but would make income tax regressive.
forces of production
In Marxian terms, the essential component of the economic system of society. Refers to the materials used in the production of goods as well as the tools, knowledge and techniques used to transform these materials. Does not include the class structure or relations of society, known as the ‘relations of production’.
foreign sector
The basic macroeconomic sector that includes everyone and everything outside the political boundaries of the domestic economy. This includes households, businesses, and governments in other countries. This is one of four macroeconomic sectors. The other three are household sector, business sector, and government sector. In terms of the circular flow model of the economy, the foreign sector is responsible for net export expenditures on gross domestic product.
fourth rule of competition
The fourth of seven basic rules of the economy. It is the notion that competition among market buyers and sellers generate an efficient allocation of resources. Competition depends on the relative number of buyers and sellers. Fewer numbers give that side of the market relatively more market control and thus limits competition.
franchise
A privilege granted to an individual or a corporation by a government to operate a business. The term also refers to a practice in the retail trade where a company (the franchisor) gives another company (the franchisee) the right to operate under the franchisor's name. The advantage for the franchisee is that they can have immediate name recognition for their business (particularly if the franchisor is nationally known). The franchisor gains by expanding their business with the minimum of capital.
Frankfurt School
A group of chiefly German social theorists associated with the Frankfurt Institute of Social Research founded in 1923. Authors associated with the School are T.W. Adorno, Max Horkeimer, Herbert Marcuse, Friedrich Pollock. The underlying philosophy of this group can also be found in the more recent work of Jurgen Habermas, a student of Adorno. The school developed critical theory, an extension and development of the ideas of Karl Marx and Sigmund Freud. Much important work flowed from this school examining culture as a lived experience and its role in modern societies.
free enterprise
The economic system that is fundamental to capitalism. The means of production are privately owned and decisions regarding producing and pricing are governed by market forces. i.e., prices are regulated only by free market competition. There is only minimal government intervention.
free market
Economic transactions that are conducted under the conditions of a free enterprise, market economy, i.e. one that is controlled only by forces of supply and demand.
free trade
The absence of trade barriers, or restrictions on foreign trade.

Based on the notion of comparative advantage, unrestricted trade is generally beneficial to a trading country. However, while consumers benefit through a greater selection of products and lower prices, producers in a country are on the receiving end of lower prices and stiffer competition. In that producers tend to have more political clout than consumers, completely, unhindered free trade is seldom seen in the real world. Numerous trade restrictions such as tariffs, nontariff barriers, and quotas are usually the rule of the day (also the rule of the week, year, decade and century).

Trade between nations that is conducted on free market principles, without tariffs, import quotas or other restrictive regulations. Free trade, especially with the United States, has been controversial throughout post —confederation Canadian history and has been widely distrusted as likely to lead to Canada playing the role of resource provider to a more advanced US manufacturing and service economy. Since 1989, when a Free Trade Agreement with the United States was introduced, Canadian opinion has tended to become more supportive of this policy especially in light of the general globalization of trade and international communication. Since the initial free trade agreement there is growing consensus that there has been an economic (and to some extent social) integration of the two nations. In 1993, Canada, the United States and Mexico entered into a trilateral free trade agreement: the North American Free Trade Agreement.

International exchange of goods without government regulation, such as tariffs, quotas, exchange controls, subsidies to domestic producers, etc. The principles of free trade hold that a country which is efficient at producing a given product will profit from exporting it to countries which are less efficient at producing it. In return, such a country can use the wealth it gains for exports to buy goods and services that are being more efficiently produced elsewhere. When each country focuses on what it does best, market forces of supply and demand organize distribution for maximum economic growth, and consumers benefit from lover prices. In 1995 the General Agreement on Tariffs and Trade (GATT) marked a new leap towards worldwide free trade. Tariffs will be cut by an average of 40 percent in the 124 participating countries.

free trade zones
Specially designated geographical areas within a nation that are exempt from the regulations and taxation normally imposed on business. They are intended to facilitate cross border production and trade. Examples of these zones are found along the United States—Mexico border where they are referred to as ‘maquilladora.’
GATT
The abbreviation for the General Agreement on Tariffs and Trade. A treaty, signed in 1947 by 23 countries including the United States, that was designed to reduce trade barriers. It now carries the signatures of about 100 countries and over the years has been pretty darn effective in reducing tariffs, eliminating some import quotas, and promoting commerce.
Gini coefficient
Developed by Italian statistician Corrodo Gini to provide a mathematical expression of the degree of concentration of wealth or income. While it has been criticized over the years it continues to be used by social scientists describing inequality or comparing inequality among nations. A Gini coefficent of approximately 0.400 is normal for most developed economies. For a fuller grasp of how the coefficient is determined see Lorenz curve.
glass ceiling
In the analysis of women in the work place, this concept is useful for describing the invisible barriers that block the promotion of women. It refers to barriers that are not explicit, but are inherent in the social organization and social relationships of the workplace. For example, women may find their corporate careers obstructed because they are excluded from the recreational and social associations created by male fellow workers and lack the social contacts that are important in gaining status and recognition.
globalization
World gone SMALL.

A comprehensive world-wide process of the internationalisation of communication, trade and economic organization. In the economic sphere it can be seen in international trade agreements, vast increases in the volume of international trade and growing economic interdependency. It is also marked by the expansion of the size and power of multinational corporations and the development of the American entertainment industry's domination of international cultural communication. Generally the process is seen as driven by the growth of international capitalism and involving the transformation of the culture and social structures of non-capitalist and pre-industrial societies.

hard currency
Currency that has a stable value in international exchange and is therefore freely convertible into currency of other countries. The opposite is soft currency, which is subject to exchange controls. Hard currency serves as an international currency.
heavy industry
Manufacturing activities engaged in the conversion of large volumes of raw materials and partially processed materials into products of higher value; hallmarks of this form of industry are considerable capital investment in large machinery, heavy energy consumption, and final products of relatively low value per unit weight (see Light Industry).
horizontal integration
The expansion of a corporation to include other previously competitive enterprises within the same sector of goods or service production. For example, one candy maker may take over another candy maker. This process is characteristic of capitalist economies which have a marked tendency to sectoral concentration into fewer and fewer enterprises and business conglomerates.
household sector
The basic macroeconomic sector that includes the entire, wants and—needs—satisfying population of the economy. The household sector is the eating, breathing, consuming population of the economy. In a word "everyone," all consumers, all people. This sector includes everyone seeking to satisfy unlimited wants and needs. While it's called "household" sector, this doesn't require that you own a house, live in a house, or even know someone has ever seen a house to be included. The term household sector is merely a short—cut used by economists to indicate the consuming, wants—and—needs—satisfying population.
human capital
The talents and capabilities that individuals contribute to the process of production. Companies, governments and individuals can invest in this ‘capital’ just as they can invest in technology and buildings or in finances.

The sum total of a person's productive knowledge, experience, and training. The acquisition of human capital is what makes a person more productive. One of the most notable methods of stocking up on human capital is through formal education——from grade school to advanced college degrees. However, human capital is also effectively obtained through less formal training and highly informal on—the—job experiences.

import
To bring goods or services from a foreign country into one's own country for purposes of sale. The opposite of export.
import quota
A form of government control over the number of imported goods. It may apply to a specific nation only, or to all imports of a certain item. It is designed to protect domestic industries.
incentive
Something that acts as a spur to action. In economics, for example, a system of incentive pay, in which wages are based on production, rather than a fixed rate per time, may improve output. Salesmen who work on commission are also on an incentive system.
income
Revenue earned or received by households that can be used for consumption or saving. For the aggregate economy, earned income is termed national income, while received income is termed personal income. The key is that income for the aggregate economy is generated in the production of goods and services.
income distribution
The manner in which income is divided among the members of the economy. A perfectly equal income distribution would mean everyone in the country has exactly the same income. The income distribution in the good old U. S. of A., while more equal than most nations of the world, is far from perfectly equal. A certain amount of inequality in the income distribution is to be expected because resources are never equally distributed. Some labor is naturally going to be more productive——better able to produce the stuff that consumers want——and thus get more income. The same is true for capital, land, entrepreneurship. However, without government intervention, an unequal distribution of income tends to perpetuate itself. Those who have more income, can invest in additional productive resources, and thus can add even more to their income.
incomes policy
Any government policy that exerts some kind of control over wages and prices. This is usually done to keep inflation down, and can take various forms: a wage freeze; voluntary controls; voluntary controls where the government sets a norm; a wage norm backed up by extra taxes on companies that exceed it.
incorporation
The creating of a corporation by going through the legal formalities. Applicants must apply for a charter, which is issued by the state, and which sets forth the powers, rights and privileges of the corporation. Also refers to the application of the protections of the Bill of Rights to the states, a process also known as absorption.
increasing returns to scale
A given proportionate increase in all resources in the long run results in a proportionately greater increase in production. Increasing returns to scale exists if a firm increases ALL resources —— labor, capital, and other inputs —— by 10%, and output increases by more than 10%. You might want to compare decreasing returns to scale and constant returns to scale.
incrementalism
A cautious type of decisionmaking, often used in budgeting, in which a limited range of gradual changes to a given policy are discussed, and then tested by implementation one at a time. Incrementalism can be frustrating to those who want radical change, because it means that governments tend to carry on the policies of their predeccessors with only small deviations.
indentured labor
Slavery caused by a weaker party submitting to a contract with a stronger party, voluntarily, usually to satisfy a debt.

Work performed according to a binding contract between two parties. During the early colonial period in America, this often involved long periods of time and a total work commitment.

indexation
A policy in the government pegs wages and unemployment benefits, etc., to inflation rates. As prices go up, so do wages. Countries that have tried indexation have often found that it drives up inflation even higher.
industrial relations
A general term referring to workplace relationships between workers and management. Industrial relations has become an important professional and academic discipline, since successful management of industrial relations is closely linked to workplace productivity and product quality. There have been many different approaches to the management of industrial relations in modern capitalist societies, but they generally share the characteristic that they seek to discipline, motivate and engage workers in processes of production or administration without making any fundamental change to the structure of ownership or direction of the workplace. At the end of the 19th century scientific management became increasingly popular as a means of workplace direction and this approach relied upon close and systematic control of the work process and of the methods of work employed. Beginning in the 1920's and 1930's, a new movement in industrial relations began to focus instead on the management of human relations in the workplace after it was demonstrated that creation of a positive communicative atmosphere at work was capable of stimulating worker productivity. In more recent years, the idea of quality control circles, where workers take direct responsibility as work groups for productivity and work quality has become popular following successful use of this approach in Japan. There have also been numerous schemes to increase worker participation in the workplace, either through enhanced workplace communication, consultation and co—operative worker—management planning or through worker representation and participation directly in management.
industrialization
The process of developing an economy founded on the mass manufacturing of goods.

Industrialization is associated with the urbanization of society, an extensive division of labor, a wage economy, differentiation of institutions, and growth of mass communication and mass markets. Many western societies are now described as post-industrial since much economic activity is based on the production of services, knowledge or symbols.

inelastic
In general, if changes in variable A cause changes in variable B, then the relative change in B is less than the relative change in A. In other words, large changes in variable A cause relatively smaller changes in variable B. An inelastic relationship between two variables is not a very responsive, or stretchable, relationship. You should compare inelastic with elastic.
inequality of condition
Where individuals have very different amounts of wealth, status and power. This is a characteristic of all complex modern societies, however equality of condition is often present in small—scale, hunter—gatherer societies.
inequality of opportunity
Where differences in individual possession of wealth, status and power result in definite advantages and disadvantages in the pursuit of personal success.
inertia costs of location
Costs borne by an activity because it remains located at its original site, even though the distributions of supply and demand have changed.
inferior good
A good for which an increase in income causes a decrease in demand, or a leftward shift in the demand curve. If demand decreases as income increases, it is an inferior good, or a good with a negative income elasticity of demand. An inferior good is one of two alternatives falling within the income determinant of demand. The other is a normal good.
inflation
An economic situation characterized by steadily rising prices, and falling purchasing power. It is in part caused by wage rates increasing faster than productivity. A persistent increase in the average price level in the economy. Inflation occurs when the AVERAGE price level (that is, prices IN GENERAL) increases over time. This does NOT mean that ALL prices increase the same, nor that ALL prices necessarily increase. Some prices might increase a lot, others a little, and still other prices decrease or remain unchanged. Inflation results when the AVERAGE of these assorted prices follows an upward trend. Inflation is the most common phenomenon associated with the price level.
informal economy
Also known as the ‘underground economy’, or the ‘hidden economy’, refers to those economic activities which are carried on outside the institutionalized structures of the economy. For most purposes this means they are transactions not reported to the taxation department, office of unemployment insurance, worker's compensation or municipal governments. Usually these transactions are based on cash exchanges but they may be bartered for goods or services.
intervening opportunity
The existence of a closer, less expensive opportunity for obtaining a good or service, or for a migration destination. Such opportunities lessen the attractiveness of more distant places.
investment
In terms of economics, investment is the spending of money on capital equipment, such as factories or machinery. In a more general sense, investment refers to purchasing an asset which can produce more money (buying shares, for example), or to any expenditure that involves a temporary loss in the hope of future benefit.
invisible hand
A term coined by Adam Smith in his classic text, The Wealth of Nations (1776). The notion that buyers and sellers, consumers and producers, households and businesses, pursuing their own self—interests, do what's best for the economy——automatically, without any government intervention, as if guided by an invisible hand. This invisible hand was essential to the economic analysis of markets in Adam Smith's The Wealth of Nations. It has continued to be cornerstone in conservative economic policies that call for limits on government intervention in the economy.

The idea is that if everyone in a society is pursuing their own economic selfinterest, an "invisible hand" ensures that they will also be serving the interests of society as a whole. Selfinterest is equated with universal interest. Such a notion is at the heart of the free enterprise system. Smith's phrase is that a person guided by selfinterest will be "led by an invisible hand to promote an end which was no part of his intention."

invisible hand of the market
A phrase associated with the great classical economist Adam Smith (1723—1790) referring to the self—regulating capacity of free markets. Free markets, through the mechanism of supply and demand, are assumed to provide the optimal allocation of scarce economic resources to alternate uses without the need for any conscious direction or control.
Kaldor-Hicks efficiency
A type of efficiency that results if the monetary value of society's resources are maximized. This is achieved if the marginal willingness to pay by those who benefit from an action is equal to the marginal willingness to accept of those harmed. If this condition is not achieved, then a Kaldor—Hicks improvement is possible. Kaldor—Hicks efficiency, named after Nicholas Kaldor and John Hicks, is the theoretical basis of benefit—cost analysis, a technique commonly used to evaluate the desirability of producing public goods (such as parks, highways, or reservoirs). This is one of two noted efficiency criteria used in economics. The other is Pareto efficiency.
Keynesian economics
Keynesianism
The economic theory of John Maynard Keynes (1883—1946) associated with a stress on the necessity of active government intervention in the direction and control of the economy. The most central idea is that the business cycle of capitalist economies, irregular alternations of boom and bust, can be smoothed out by government creation of credit, investment activity and income transfers during economic contraction and the raising of revenue surplus during periods of expansion. This approach, in Keynes' theory, offered insurance against the human cost of mass unemployment and the wastage of productive capacity by economic instability.

For several decades, beginning in the 1930's, this was the dominant model for the economic policies of western governments. Since the mid 1970's, monetarism has challenged and, to some extent, displaced Keynesian economics as the framework for public policy and academic work. Keynesian economics is linked to a strong public policy, the welfare state and active state involvement in the economy, while monetarism supports a non—interventionist state, privatization and reliance on the self—regulating forces of the market.

Aggregate demand is the primary source of business cycle instability, especially recessions. Keynes shifted the attention of economists from microeconomics to macroeconomics. Much of his book is on the causes of unemployment. Keynes stated that the economy had no selfbalancing equilibrium that resulted in full employment, as classical economics insisted. On the contrary, it could be in equilibrium at less than full employment (the first time this theory had been proposed). Keynes believed it was therefore the job of government to stimulate spending through deficit financing to ensure full employment.

The basic structure of Keynesian economics was initially presented in Keynes' book The General Theory of Employment, Interest, and Money, published in 1936 at the height of the Great Depression. Since then, governments have tended to accept a responsibility to provide full employmentalthough they have not always been successful in doing so. For the next forty years, the Keynesian school dominated the economics discipline and reached a pinnacle as a guide for federal government policy in the 1960s. It fell out of favor in the 1970s and 1980s, as monetarism, neoclassical economics, supply—side economics, and rational expectations became more widely accepted, but it still has a strong following in the academic and policy—making arenas.

labor
One of the four basic categories of resources, or factors of production (the other three are capital, land, and entrepreneurship). Labor is the services and efforts of humans that are used for production. While labor is commonly thought of as those who work in factories, it includes all human efforts (except entrepreneurship), such as those provided by clerical workers, technicians, professionals, managers, and even company presidents.
labor theory of value
A fundamental component of the economic and social theories of Karl Marx (1818—1883) and of his analysis of capitalist exploitation. Marx argues that the value of any commodity is determined by the socially necessary labor time that goes into its production. Marx uses the term ‘socially necessary labor time’ because the labor time required to create a commodity depends on the society's levels of technology and craft. In Marx's theory, commodities should in principle be exchanged in the market place for prices that exactly correspond to the necessary labor time embodied in them. When a commodity is exchanged— or sold — for more than its labor value, a surplus value is realized. This theory of value provides the foundation of Marx's claim that labor is exploited in a capitalist society: the capitalist, through the power of capital ownership, is able to pay the worker less than the market value of the commodities produced and the surplus value is captured by capital and largely re—invested to augment the means of production.
labor union
An organization of workers or employees who act jointly to negotiate with their employers over wages, fringe benefits, working conditions, and other facets of employment. The main function of unions is to provide a balance for the market control exerted over labor by big business.
laissez faire
Literally, ‘to leave alone’, a guiding principle of free enterprise systems. This is the economic doctrine that government should not interfere in the economic or social regulation of society unless absolutely necessary. It assumes that the competitive system of free markets is the best means of allocation of scarce resources between alternative uses.

It's based on the belief that markets alone can achieve an efficient allocation of our resources. This laissez faire philosophy of should be contrasted directly with the philosophy of paternalism, which essentially says "Government needs to care for you because you can't care for yourself."

Government intervention in the market place to regulate economic activity is seen as illegitimate and inefficient. This doctrine lost popularity in the middle of the twentieth century, with the rise of the ‘welfare state’ and extensive public ownership of parts of the economy, but has regained favor in the 1980's and 1990's. It has become the rallying cry for many business leaders of the second estate who oppose government intervention, regulation, or even taxation.

land
One of four basic categories of resources, or factors of production (the other three are labor, capital, and entrepreneurship). This category includes the natural resources used to produce goods and services, including the land itself; the minerals and nutrients in the ground; the water, wildlife, and vegetation on the surface; and the air above.
law of demand
The inverse relationship between demand price and the quantity demanded, ceteris paribus. This fundamental economic principle indicates that as the price of a commodity decreases, then the quantity of the commodity that buyers are able and willing to purchase in a given period of time, if other factors are held constant, increases. This law is incredibly important to the study of economics. If you compiled a top ten list of economically important laws, the law of demand would be right there at the top.
law of diminishing marginal returns
A principle stating that as more and more of a variable input is combined with a fixed input in short—run production, the marginal product of the variable input eventually declines. This is THE economic principle underlying the analysis of short—run production for a firm. Among a host of other things, it offers an explanation for the upward—sloping market supply curve. How does the law of diminishing marginal returns help us understand supply? The law of supply and the upward—sloping supply curve indicate that a firm needs to receive higher prices to produce and sell larger quantities. Why do they need higher prices?
law of diminishing marginal utility
The principle stating that as more of a good is consumed, eventually each additional unit of the good provides less additional utility——that is, marginal utility decreases. Each subsequent unit of a good is valued less than the previous one. The law of diminishing marginal utility helps explain the negative slope of the demand curve and the law of demand.
law of opportunity cost
The proposition that opportunity cost, the value of foregone production, increases as more of a good is produced. This "law" can be seen in the production possibilities schedule and is illustrated graphically through the slope of the production possibilities curve. It generates the distinctive convex shape of the curve, making it flat at the top and steep at the bottom.
law of supply
The direct relationship between supply price and the quantity supplied, ceteris paribus. This fundamental economic principle indicates that as the price of a commodity increases, then the quantity of the commodity that sellers are able and willing to sell in a given period of time, if other factors are held constant, also increases. This law, while not quite as iron—clad as the law of demand, is quite important to the study of markets.
lease
A contract in which one party gives to another the use of property, such as land or buildings, for a specified time for a specifed payment.
leisure
The portion of time workers and other people spend not being compensated for work performed when they actively engage in the production of goods and services. In other words, this is the time people spend off the job. 

Leisure activities can include resting at home, working around the house (without compensation), engaging in leisure activities (such as weekend sports, watching movies), or even sleeping. Leisure time pursuits becomes increasingly important for economies as they become more highly developed. 

leverage
The use of credit or loans to enhance speculation in the financial markets. Suppose, for example, that you take the $1,000 in your bank account to your stock broker and purchase $1,000 worth of stocks, bonds, or whatever. A leveraged purchase would let you use your $1,000 to buy, let's say, $10,000 worth of stocks or bonds. The remaining $9,000 of the purchase price comes from a loan.
leveraged buy-outs
A corporate takeover in which the purchaser finances the acquisition almost exclusively by incurring debt, rather than from corporate profits and income flows. Typically the acquiring corporation will issue shares and corporate bonds that are not backed by any significant collateral property or obligation. Bonds issued in these circumstances are popularly called ‘junk bonds’.
liability
Something that you owe. The biggest liabilities for most consumers are loans, including mortgages, car loans, credit—card balances, and installment accounts at stores.
light industry
Manufacturing activities that use moderate amounts of partially processed materials to produce items of relatively high value per unit weight.
limited liability
A condition in which owners are not personally held responsible for the debts of by a firm. Corporations are the main form of business in which owners have limited liability. The primary benefit of limited liability is that it makes it possible for a business to accumulate large amounts of productive resources that lets it take advantage of large scale production.
limited resources
Finite quantities of labor, capital, land, and entrepreneurship available to an economy for the production of goods and services. This is one half of the fundamental problem of scarcity that has plagued humanity since the beginning of time. The other half of the scarcity problem is unlimited wants and needs.
living standard
In principle, an economy's ability to produce the goods and services that consumers use to satisfy their wants and needs. In practice, it is the average real gross domestic product per person——usually given the name per capita real GDP.
macro goals
The three goals of a mixed economy that are most relevant to the study of macroeconomics are full employment, stability, and economic growth. Full employment is the condition in which all of the economy's available resources are engaged in the production of goods and services. Stability is the condition in which the economy avoids large changes in production, employment, and especially prices. Economic growth is the condition in which the economy's production possibilities are expanding over time.
macroeconomics
The branch of economics that studies the entire economy, especially such topics as aggregate production, unemployment, inflation, and business cycles. Macroeconomics deals with data such as the level of employment, Gross National Product, economic growth, balance of payments, inflation, etc., rather than with individual companies or markets, which is the province of microeconomics.

It can be thought of as the study of the economic forest, as compared to microeconomics, which is study of the economic trees.

macro-perspective
The perspective, or the form of analysis, which focuses on the structure of society and provides a way of seeing society as a unified whole. In this perspective minimal attention is given to the individual or the subjectivity of actors — the structures of society are thought to be primary and responsible for shaping the individual.
Malthusian Crisis
Refers to the ideas of Thomas Malthus (1766—1834) who argued that while populations grow exponentially the rate of increase in the food supply is much less. This creates a natural limit on populations and produces miserable conditions for society and inevitable mass starvation, unless of course individuals practice birth control. Malthus didn't advocate contraceptives, rather he advocated reducing sexual intercourse.

Malthus' central idea concerned the population explosion that was already becoming evident in the late 18th century, and argued that the number of people would increase faster than the food supply. Population would eventually reach a resource limit (overpopulation). Any further increase would result in a population crash, caused by famine, disease, or war.

managerial revolution
Traditionally, manufacturing enterprises had been owned and controlled by individuals or families. In the mid 19th century however, joint—stock companies began to emerge and over time increasing numbers of investors held a share of ownership and received a portion of the profits. These companies no longer had a single owner and managers emerged to control business operations. It was assumed that this new breed of salaried workers would transform the workplace: values other than profit would enter into business calculations and there would be greater harmony between workers and executives. Since most managers have become large stock holders (and thus owners) the significance of the managerial revolution has been called into question.
maquiladoras
Manufacturing plants in Mexico that producing parts for assembly in the United States; also maquilladores.
marginal cost pricing
A pricing scheme in which the price received by a firm is set equal to the marginal cost of production. This is not only the efficient outcome achieved by competitive markets, it is commonly used for comparison of other regulatory policies, such as average—cost pricing, that are used for public utilities (especially those that are natural monopolies). The bad thing about marginal—cost pricing for natural monopolies is that a normal profit is not guaranteed. The good thing about marginal—cost pricing is that marginal cost is equal to price, and the public utility is operating according to the price equals marginal cost (P = MC) rule of efficiency.
market economy
An economy in which goods and services are freely exchanged without obstruction or regulation and where decisions about production and consumption are made by many separate individuals each seeking satisfaction of specific needs and desires.

Sometimes used interchangeably with ‘capitalist economy’, but this is an error since a cooperatively based economy could also be operated on market principles.

market failure
A condition in which a market does not efficiently allocate resources to achieve the greatest possible consumer satisfaction. The four main market failures are——(1) public good, (2) market control, (3) externality, and (4) imperfect information. In each case, a market acting without any government imposed direction, does not direct an efficient amount of our resources into the production, distribution, or consumption of the good.
market forces
Refers to the mechanism by which basic questions of buying and selling are answered, such as the quantity of goods to be produced, the price they are to be sold at, etc., when this takes place without governement intervention. If, for example, a supply of certain goods suddenly becomes scarce (say a fruit crop is badly affected by the weather), the law of supply and demand will ensure that the price for those goods goes up, and this is an example of market forces at work.
marketing boards
Used frequently within Canada, bodies which attempt to regulate the marketplace so as to soften the harmful activities of a free market. For example, the Canadian Wheat Board (the 33rd largest firm in Canada and the fifth largest exporter) requires that Canadian grains be sold to the Board at a set price and the Board then sells the grain on the international market. Similarly marketing boards may regulate the number of commercial producers of eggs or chickens. These activities are thought to provide a stable market for products, guarantee the producer a reasonable return, limit foreign control of commercial activity and prevent major fluctuations in supply and prices. In recent years there has been growing pressure within Canada, as well as from international producers, to remove marketing boards and let the production of goods and their prices be set by the free market.
Mercantilism
An economic theory that preceded the modern concept of a market economy regulated by the forces of supply and demand. Mercantilist ideas were quite varied but a common theme is the importance to any nation of maintaining a favorable balance of international trade, ideally leading to net inflows of precious metals. To attain this end it was appropriate for the state to intervene in the market place by vigorous economic regulation backed by state authority.

Among classic mercantilist policies were laws requiring colonial territories to trade only with the imperial power, imposition of monopolies in merchant shipping and trading rights and the establishment of physical quotas to manage and regulate trade. In Canada's early history, trading monopolies of both French and English origin - like the famous Hudson's Bay Company - were an expression of mercantilist policies and they played a central role in the exploration and economic development of Canada. a school of economics in the eighteenth and nineteenth century that was directly opposite to the school of classical economics. Unlike the laissez faire classicists, mercantilists believed in government action designed to encourage the flow of gold and other precious metals into the country.

micro goals
The two goals of a mixed economy that are most relevant to the study of microeconomics are efficiency and equity. Efficiency is obtaining the most possible satisfaction of wants and needs from a given amount of resources. Equity is the "fairness" with which income and wealth are distributed. Of course, what is "fair" is not obvious.
microeconomics
A branch of economics that deals with the individual parts of an economy, rather than the aggregate, which is the sphere of macroeconomics.

The branch of economics that studies the parts of the economy, especially such topics as markets, prices, industries, demand, and supply. It can be thought of as the study of the economic trees, as compared to macroeconomics, which is study of the entire economic forest.

middle class
A buffer class within a stratification system. Middle class does not exist in societies that have both rigid class structures and low degrees of social mobility.

There have been several different approaches to defining this term. (1) In Karl Marx's (1818-1883) analysis of class, the middle class is the ‘petite bourgeoisie’ who are in small scale independent business or craft or who have special skills that provide an income outside the wage system of employed labor. Marx assumed that this class would diminish in number as capitalist enterprises developed, consolidated into larger units and eliminated small-scale competition. (2)The term can also be used statistically to define a group of individuals who occupy an intermediate position in a society's income strata: for example those who earn between 66% and 133% of a society's average family incomes. These are attempts to define the ‘middle class’ objectively, by some standard of measurement, but a more subjective view is possible: the middle class are those individuals who orient themselves to the values and expectations they consider normative for average members of their society. This approach is useful for understanding why most Canadians irrespective of occupation, wealth or income identify themselves as middle class.

mode of production
The dominant form of social and technical organization of economic production in a society. Historically a variety of modes of production can be distinguished based on both technology and the structure of social relationships. Historical modes of production include hunter—gatherer with very simple technology and common ownership; ancient, with more advanced technology and slavery; feudal, with simple technology and landowning lords and bonded serfs; and capitalist with sophisticated technology, private ownership of capital and a wage system.
monetarism
An economic theory advocating that governments use interest rates and control of the supply of money for the purpose of economic regulation. This is in contrast to Keynsian economics which advocates taxation and budgetary (‘fiscal’) policy . Use of monetary instruments for economic regulation is said to provide a lever to influence macro—economic cycles in the economy, while avoiding bureaucratic regulation or distortions of market forces. Monetarism has become the dominant framework of theory in both academic economics and public policy. It is closely associated with neo—conservatism, a version of liberalism that stresses free markets and individualism rather than the ‘welfare state’ vision that had become dominant in most western societies. There is controversy over the role of monetarist policies in the current deficit problems of most of the worlds' largest economies.
monetary policy
The use of monetary levers — interest rates, money supply, foreign exchange rate — by governments to achieve some control over the performance of the economy.

The Federal Reserve System's use of the money supply to stabilize the business cycle. As the nation's central bank, the Federal Reserve System determines the total amount of money circulating around the economy. In principle, the Fed can use three different "tools"——open market operations, the discount rate, and reserve requirements——to manipulate the money supply. In practice, however, the primary tool employed is open market operations. To counter a recession, the Fed would undertake expansionary policy, also termed easy money. To reduce inflation, contractionary policy is the order of the day, and goes by the name tight money.

money supply
The amount of money in an economy, made up of circulation currency and demand deposits (checking accounts) in commercial banks (the latter make up threequarters of the money supply). It does not include U.S. government deposits. The total amount of money supply results from the interaction of banks, the Federal Reserve, business, government, and consumers.
monopoly
A market structure characterized by a single seller of a unique product with no close substitutes. This is one of four basic market structures. The other three are perfect competition, oligopoly, and monopolistic competition. As the single seller of a unique good with no close substitutes, a monopoly firm essentially has no competition. The demand for a monopoly firm's output is THE market demand. This gives the firm extensive market control——the ability to control the price and/or quantity of the good sold——making a monopoly firm a price maker. However, while a monopoly can control the market price, it can not charge more than the maximum demand price that buyers are willing to pay.

Exclusive control of something. In economics, it refers to exclusive control of a commodity or service in a given marketwhich usually leads to higher prices for the consumer. Monopolies are not common in American industry, partly due to antitrust laws. The term also refers to an exclusive privilege, granted by the state, of engaging in a particular business or providing a service.

monopsony
A market characterized by a single buyer of a product. Monopsony is the buying—side equivalent of a selling—side monopoly. Much as a monopoly is the only seller in a market, monopsony is the only buyer. While monopsony could be analyzed for any type of market it tends to be most relevant for factor markets in which a single firm is the only buyer of a factor.
monopsony & efficiency
A monopsony firm generally produces less output and pays a lower price than would be the case for a perfectly competitive industry. In particular, the price charged by a monopsony is not equal to (in fact, lower than) the marginal revenue product. The equality between factor price and marginal revenue product is THE key indication that resources are allocated efficiently and that society's resources are being used to generate the highest possible level of satisfaction.
moral economy
The central characteristic of economic activity in a tribal society. Rather than economic exchanges being motivated by self—interest, greed or profit, exchanges are driven by moral obligations created by kinship relations, gift giving, and rituals. A hunter or food gatherer may by obliged to give much of the food to a network of relations, thus accounting for the distribution of food within the community. It was the final collapse of economic exchange as moral obligation that Karl Marx (1818—1883) bemoaned when he described the ‘cash nexus’ that has become the central medium and motivator of exchange in a capitalist society.
moral entrepreneurs
To be in the business of persuading the society to make policy from particular moral viewpoints. In symbolic interactionism (or labeling theory) social policy is not seen as the implementation of a shared consensus about what is best. Rather the society is viewed as consisting of a plurality of understandings of what is best. In order for social policy to arise, some individual or group has to initiate a social movement whose task is to articulate a definition of a social problem such that a desired social policy is consistent with this definition of the problem. These individual or groups are referred to as moral entrepreneurs. MADD (Mothers Against Drunk Driving), the pro—life movement, the gun lobby, anti—pornography groups, Emily Murphy, and the anti—tobacco lobby would all be examples of moral entrepreneurs.
multinational corporation
A company which has operations in more than one nation. The development of these corporations has challenged the belief of liberal ideology that economic power can be counterbalanced by political power. As corporations have less dependence on a national market and can adopt practices which minimize the effect of national policies they move outside the reach of any political system.
multinational corporations
Corporations that have operations in more than one country. A U.N. report estimated that multinationals were responsible for 20 percent of industrial production in the noncommunist world (this was before the fall of communism in Eastern Europe).
national debt
The total amount that the national government owes.
national income
The total income earned by the citizens of the national economy as a result of their ownership of resources used in the production of final goods and services during a given period of time, usually one year. This is the government's official measure of how much income is generated by the economy. National income, generally abbreviated as NI, is the broadest, most comprehensive of three income measures reported quarterly (every three months) in the National Income and Product Accounts by the Bureau of Economic Analysis.
nationalization
The act by which government takes over a business enterprise or service that has formerly been privately owned. The collective or public ownership or management of economic resources.

Opponents of nationalization say it is inefficient because it leads to overcentralization, and is costly. Supporters say that nationalized industries are easier to coordinate and can be expanded more easily and efficiently.

natural monopoly
A special type of monopoly that's able to lower its price when it produces and sells a larger quantity. This somewhat remarkable ability results because a natural monopoly uses a great deal of capital. In that capital carries an up front cost that must be paid regardless of production, a natural monopoly can spread these costs over larger quantity——if it produces more. The larger the quantity sold, the lower the cost for each unit. A single natural monopoly is thus able to produce and supply a good at a lower cost, and price, than two or more firms. In other words, if two or more firms try to supply the same good, the market will "naturally" end up with just one.
near-public good
A good that's easy to keep nonpayers from consuming, but use of the good by one person doesn't prevent use by others. The trick with a near—public good is that it's easy to keep people away, and thus you can charge them a price for consuming, but there's no real good reason to do so. From an efficiency view, the more people who consume a near—public good, the better off society. This mixture of nearly unlimited benefits and the ability to charge a price means that some near—public goods are sold through markets and others are provided by government. For efficiency's sake, none should be sold through markets.
net export of goods and services
The official item in the National Income and Product Accounts maintained by the Bureau of Economic Analysis measuring net exports by the foreign sector. Net exports of goods and services is the smallest of the four expenditures, averaging around 2% of gross domestic product. Unlike the other expenditures, net exports of goods and services can be either positive or negative. They are positive when exports are greater than imports and negative when exports are less than imports. In recent years, net exports of goods and services have been negative.
normal good
A good for which an increase in income causes an increase in demand, or a rightward shift in the demand curve. If demand increases as income increases, it is a normal good or a good with a positive income elasticity of demand. A normal good is one of two alternatives falling within the income determinant of demand. The other is an inferior good.
normal profit
The opportunity cost of using entrepreneurial abilities in the production of a good, or the profit that could have been received in another business venture. Like the opportunity costs of other resources, normal profit is deducted from revenue to determine economic profit. It is, however, never included as an accounting cost when accounting profit is computed.
number of buyers
One of the five demand determinants assumed constant when a demand curve is constructed, and that shift the demand curve when they change. The other four are income, preferences, other prices, and buyers' expectations. This determinant is based on the simple observation that if more people are willing and able to buy a good, then demand is greater.
obsolescence
In economics, a reduction of the life of capital assets, such as machinery, by improvements in technology or economic changes, rather than through natural wear and tear.
OECD
Organization for Economic Cooperation and Development: an international, intergovernmental organization with 24 member countries; promotes policies designed to achieve the rapid economic growth, employment, and standard of living in member countries, encourages sound economic expansion of world trade on a multilateral, nondiscriminatory basis in accordance with international obligations. Holds annual ministerial meeting every May in Paris, France where its headquarters is located.
oligopoly
A market structure dominated by a small number of large firms, selling either identical or differentiated products, and significant barriers to entry into the industry. The situation where a small number of companies own or control the production of a particular good or provision of services within a market economy.

This situation typically arises from the concentration of ownership and provides a challenge to liberal theory which claims benefit from a plurality of producers operating in a very competitive market. An example is the U.S. auto industry, in which three major manufacturers account for over ninety percent of the output of passenger cars.

This is one of four basic market structures. The other three are perfect competition, monopoly, and monopolistic competition.

opportunity cost
The highest valued alternative foregone in the pursuit of an activity.

This is a hallmark of anything dealing with economics--and life for that matter--because any action that you take prevents you from doing something else. The ultimate source of opportunity cost is the pervasive problem of scarcity (unlimited wants and needs, but limited resources). Whenever limited resources are used to satisfy one want or need, there are an unlimited number of other wants and needs that remain unsatisfied. Herein lies the essence of opportunity cost. Doing one thing prevents doing another.

other prices
A handy term referring to the prices of other goods that affect either the demand for a good or the supply of the good. On the demand side, other prices can be those for substitutes—in—consumption or complements—in—consumption. On the supply side, other prices can be those for either substitutes—in—production or complements—in—production. Changes in other prices cause shifts in the corresponding demand or supply curves.
Pareto efficiency
A type of efficiency that results if one person can not be made better off without making someone else worse off. Named after Vilfredo Pareto, this criterion is the guiding theoretical notion of efficiency used in the study of economics, especially welfare economics. Pareto efficiency is generally not attained if some resources are idle or unemployed. By engaging idle resources in production, some people can have more production without reducing that available to others. A problem with Pareto efficiency, however, is that it is based on the existing distribution of income and wealth. This is one of two noted efficiency criteria used in economics. The other is Kaldor—Hicks efficiency.
participatory management
partnership
One of the three basic forms of business organization (the other two are corporation and proprietorship). A partnership is a business that's owned and operated more or less equally by two or more people. The owners and the business are legally considered one and the same. As such, each owner has unlimited liability, which means that an owner is held personally responsible for any and all of the business's debts, including those made by a partner.
pay equity
Generally refers to laws and public and corporate policies that have as their objective the elimination of pay differentials linked to gender, ethnic identity or particular minority status.

Pay equity is usually concerned with correcting gender —based labor market inequality experienced by women. (In principle such policies could apply also to men, but there is little evidence of gendered disadvantage for men in the labor market.) Two issues are addressed. First, is the problem of relatively direct discrimination: women being paid less than men for the same or essentially similar work.

peak
The transition of a business cycle from an expansion and a contraction. The end of an expansions carries the descriptive term peak. At the peak, the economy has reached the highest level of production in recent times. The bad thing about a peak, however, is that it is a turning point, a turning point to a contraction. So even though a peak is the "highest" is not necessarily something we want. We would prefer never to reach the peak.
per capita
For each person, as in per capita income increased last year.

‘Capita’ comes from a Latin term referring to head. Criminologists and sociologists refer to crimes (or divorce rates etc.) per capita . For example if there are only 0.01 crimes per capita, this would mean meaning you have a risk of 1% of being victimised. Criminologists usually use the idea of a rate per 100, 000 rather than the idea of ‘per capita’.

perfect competition
An ideal market structure characterized by a large number of small firms, identical products sold by all firms, freedom of entry into and exit out of the industry, and perfect knowledge of prices and technology. This is one of four basic market structures. The other three are monopoly, oligopoly, and monopolistic competition. Perfect competition is an idealized market structure that's not observed in the real world. While unrealistic, it does provide an excellent benchmark that can be used to analyze real world market structures. In particular, perfect competition efficiently allocates resources.
perfect price discrimination
A form of price discrimination in which a seller charges the highest price that buyers are willing and able to pay for each quantity of output sold. This is also termed first—degree price discrimination because the seller is able to extract ALL consumers' surplus from the buyers. This is one of three price discrimination degrees. The others are second—degree price discrimination and third—degree price discrimination.
perfectly elastic
An elasticity alternative in which infinitesimally small changes in price cause infinitely large changes in quantity. In other words, quantity is hyper, super, infinitely responsive to price. Any change in price, no matter how small triggers an infinite change in quantity. Perfectly elastic should be compared with other elasticity alternatives——perfectly inelastic, relatively elastic, relatively inelastic, and unit elastic.
perfectly inelastic
An elasticity alternative in which changes in price do NOT cause any change in quantity. In other words, quantity is totally, completely unresponsive to price. Quantity just does not change, regardless of changes in price. Perfectly inelastic should be compared with other elasticity alternatives——perfectly elastic, relatively elastic, relatively inelastic, and unit elastic.
personal consumption expenditures
The official item in the National Income and Product Accounts maintained by the Bureau of Economic Analysis measuring household consumption expenditures on gross domestic product. Personal consumption expenditures are far and away the largest and tends to be the most stable of the four expenditures, averaging about 65—70% of gross domestic product. The other official expenditures included in the National Income and Product Accounts are gross private domestic investment, government consumption expenditures and gross investment, and net exports of goods and services.
political economy theory
A major tradition in Canadian history and the social sciences. This is not a specific theory but a general approach to social analysis that stresses the interconnection of social, political and economic processes in society. Classic writers within this tradition include Harold Innis (1894—1952) and C. B. Macpherson (1911—1987). It remains central to contemporary Canadian social analysis and academic discourse.
portfolio investments
post-industrial
An economy that gains its basic character from economic activities developed primarily after manufacturing grew to predominance. Most notable would be quaternary economic patterns.
post-industrial thesis
The theory that modern economies in the Western world have moved from a focus on goods production (an industrial base) to a new foundation of knowledge and sophisticated services. This new economy is assumed to demand different kinds of workers, to allow for more job satisfaction and to foster less labor conflict.
poverty
A condition in which a person lacks many of the basic necessities of life and the income needed to buy them. If these seems like a fuzzy concept, it is. Poverty is often a subjective notion, because the notion of basic necessities is also subjective. While everyone needs food for life, will a handful of wild grain do the trick or do you need an evening of fine dining? While there are no once—and—for—all, clear—cut answers, our good friends with the government have developed a so—called poverty line used as an official measure of who's in poverty and who's not. Most importantly, this poverty line is used to determine who's eligible to receive welfare and other forms of public assistance.
poverty line
That division, arbitrarily arrived at and usually based on income, which divides the poor from the non—poor.

There is considerable controversy about how this line should be determined and Statistics Canada uses the term low incomes rather than poverty and calculates low—income cutoffs. This line or cutoff can be determined in a variety of ways. One method is to determine the minimum income required to purchase a basket of goods and services thought to be necessary to maintain a minimum standard of living. Another alternative is to look at expenditures on the basic necessities of food, shelter and clothing. Poverty or a low income may be determined when a family spend 20% more of their income on these necessities than does the average family. This method has been used by Statistics Canada. A third method would be to assert that a family is in poverty if its income is less than 50% of the median family income, adjusted for family size. Changes to Statistics Canada policy in the late 1990's reduced the extent of poverty considerably by redefining the concept.

price
An asset or item voluntarily exchanged in a market transaction for another asset or item. This item or asset is usually, but not necessarily, money. A barter transaction occurs if money is NOT one of the assets or items exchanged. In a standard market diagram, price is displayed on the vertical axis. Price takes on several specific roles in the functioning of a market. On the demand side, the price reflects the willingness and ability of the buyers to purchase a product which is based on the satisfaction received (the demand price). On the supply side, the price reflects the opportunity cost of production (the supply price).
price controls
Government control of prices to keep the cost of living down. It most usually happens in time of war, but there also instances in peacetime: in 1971 in the U.S. all prices were frozen for 90 days as a measure to fight inflation.
price discrimination
Charging different prices to different buyers for the same good. This is an age old practice for suppliers who have achieved some degree of market control, especially those with a monopoly. The reason for price discrimination, of course, is higher profit. To be a successful price discriminator you must be able to do three things——(1) have market control and be a price maker, (2) identify two or more groups that are willing to pay different prices, and (3) keep the buyers in one group from reselling the good to another group. In this way, you will be able to charge each group what they, and they alone, are willing to pay.
price elasticity of demand
The relative response of a change in quantity demanded to a relative change in price. More specifically the price elasticity of demand can be defined as the percentage change in quantity demanded due to a percentage change in demand price. The price elasticity of demand should be compared with the price elasticity of supply.
price elasticity of supply
The relative response of a change in quantity supplied to a relative change in price. More specifically the price elasticity of supply can be defined as the percentage change in quantity supplied due to a percentage change in supply price. The price elasticity of supply should be contrasted with the price elasticity of demand.
price maker
A buyer or seller that possess sufficient market control to affect the price of the good. Price market should be compared with the alternative, price taker. From the selling side of the market, a monopoly is the best example of a price maker. As the only seller in the market, a monopoly firm has the ability to control the price. Firms operating under oligopoly and monopolistic competition are also price makers, although to a lesser degree, depending on their relative market control. From the buying side of the market, a monopsony is also a price maker. As the only buyer in the market, a monopsony firm is able to control the price. Firms operating under oligopsony and monopsonistic competition are price makers, also to a lesser degree.
primary activity
Agriculture, fishing, and extraction of mineral resources.
primary product
A product that is important as a raw material in developed economies; a product consumed in its primary (i.e., unprocessed) state.
primary sector
That portion of a region's economy devoted to the extraction of basic materials (e.g., mining, lumbering, agriculture).
private enterprise
A cornerstone of the free market, capitalist system, the term refers to those businesses that are owned by individuals rather than some level of government.
private good
A good that's easy to keep nonpayers from consuming (called excludability), and use of the good by one person prevents use by others (termed rival consumption). Examples include almost anything that you can buy at a grocery store or shopping mall. The reason for this is that private goods are privately owned and can be sold to others for a price. For efficiency, its best for these goods to be traded through markets without any direct government involvement (unless they have a market failure).
private sector
That part of the economy which is controlled or owned by private individuals, either directly or through stock ownership. The basic macroeconomic sector that includes everyone and everything outside the political boundaries of the domestic economy.

This includes households, businesses, and governments in other countries. This is one of four macroeconomic sectors. The other three are household sector, business sector, and government sector. In terms of the circular flow model of the economy, the foreign sector is responsible for net export expenditures on gross domestic product.

production
The process of transforming the natural resources of the land into consumer satisfying consumption and capital goods using scarce resources. In a world of scarcity, with unlimited wants and needs and limited resources, living standards are enhanced by transforming the planet's raw materials, that don't provide much satisfaction in their natural state, into goods, that provide more satisfaction.
production possibilities
The alternative combinations of goods produced if the economy fully uses all available resources. Production possibilities of an economy are limited because resources used to produce goods and services are limited. The basic presentation of production possibilities often takes the form of a production possibilities schedule, which is a table of numbers illustrating a discrete number of production bundles. A slightly more advanced presentation is through a production possibilities curve (or frontier), which is a graph of the alternative production bundles.
production possibilities curve
A curve that illustrates the production possibilities for the economy. A production possibilities curve (or PPC), like the one presented here, represents the boundary or frontier of the economy's production capabilities. That's why it's also frequently termed a production possibilities frontier (or PPF). As a frontier, it is the maximum production possible given existing (fixed) resources and technology. Producing on the curve means resources are fully employed, while producing inside the curve means resources are unemployed. The law of increasing opportunity cost is what gives the curve its distinctive convex shape.
production possibilities frontier
A curve that illustrates the production possibilities for the economy. A production possibilities curve (or PPC), like the one presented here, represents the boundary or frontier of the economy's production capabilities. That's why it's termed a production possibilities frontier (or PPF). As a frontier, it is the maximum production possible given existing (fixed) resources and technology. Producing on the curve means resources are fully employed, while producing inside the curve means resources are unemployed. The law of increasing opportunity cost is what gives the curve its distinctive convex shape.
production possibilities schedule
A table of numbers that illustrates the production possibilities of an economy——the alternative combinations of two goods that an economy can produce with given resources and technology. A production possibilities schedule illustrates that the economy must give up the production of one good to produce of another good——the basic economic notion of opportunity cost. A production possibilities schedule is also used to derive the highly useful production possibilities curve (or frontier).
productivity
Output of goods and sevices. It can be measured in terms of labor productivity (output per worker, for example) or of capital.
progressive taxation
A taxation structure which progressively increases the percentage of a citizen's income (or wealth) which is paid in tax as income (or wealth) increases.

The consequence should be that the more well off are taxed at a higher rate than are the less well off. Canadian income tax is of this form although recent changes in taxation regulations have made it somewhat less progressive than before.

proprietorship
One of the three basic forms of business organization (the other two corporation and partnership). It's a business that's owned and operated by one person. The owner and the business are legally considered one and the same. As such, the owner gets any and all profit and has what is termed unlimited liability the owner is held personally responsible for any and all of the business's debts. The owner can lose personal property over and above the amount invested in the business itself. The majority of businesses in our economy are proprietorships, but because their size is limited by the resources of a single person, they tend to be relatively small.
public good
A good that's difficult to keep nonpayers from consuming (excludability), and use of the good by one person doesn't prevent use by others (rival consumption). Examples include national defense, a clean environment, and any fourth of July fireworks display. Public goods are invariably provided by government because there's no way a private business can profitably produce them. Private businesses can't sell public goods in markets, because they can't charge a price and keep nonpaying people away. Moreover, businesses shouldn't charge a price, because there's no opportunity cost for extra consumers. For efficiency, government needs to pay for public goods through taxes.
public ownership
Ownership by some level of government of a business enterprise, as opposed to private ownerhship, in which an individual or individuals are the owners. When a government takes over the running of a business or industry it is called nationalization.
public sector
The basic macroeconomic sector that includes everyone and everything outside the political boundaries of the domestic economy. This includes households, businesses, and governments in other countries. This is one of four macroeconomic sectors. The other three are household sector, business sector, and government sector. In terms of the circular flow model of the economy, the foreign sector is responsible for net export expenditures on gross domestic product. That part of the economy that involves, or is controlled by, federal, state, or local government, as opposed to the private sector. The public sector accounts for about one—fifth of the total economy of the U.S.
public utility
The common term for a firm that provides and important (what some deem as essential) good or service primarily in and urban area and often through the use of an extensive distribution network. Common examples of public utilities are those that produce, provide, and/or distribute electricity, natural gas, local telephone services, cable television services, water, garbage collection, and sewage processing. A key feature is that capital requirements mean that public utilities tend to be natural monopolies. One firm can generally provide the services at a lower average cost that two or more firms. For this reason, public utilities tend to be either government owned and operated or heavily regulated by government.
quaternary economic activity
The collection, processing, and distribution of information.
quaternary sector
That portion of a region's economy devoted to informational and idea—generating activities (e.g., basic research, universities and colleges, and news media).
rail gauge
The distance between the two rails of a railroad.
raw materials
Materials in their natural state that are used in manufacturing to create something else. Raw materials become of political importance when their supply is obstructed or threatened, as happened in 1990, when Iraq's invasion of Kuwait threatened to put a sizable portion of the world's oil supplies in unstable hands.
recession
Usually defined as a contraction in the Gross National Product that lasts six months or longer. A recession might be marked by job layoffs and high unemployment, stagnant wages, and reductions in retail sales, and slowing of housing and car markets. A recession is much milder than a depression, and is often considered a normal part of the business cycle. The last recession experienced by the U.S. was in 1991 and 1992. Voter discontent with the economic recession was in part responsible for the defeat of George Bush in the presidential election of 1992.

The common term used for the contraction phase of the business cycle. A general period of declining economic activity. During a recession, real gross domestic product declines by 10 percent or so and the unemployment rate rises from it's full employment 5 percent level up to the 6 to 10 percent range. Inflation tends to be low or non—existent during a recession. Recession last anywhere from six to eighteen months, with one year being common.

relations of production
relative deprivation
Relative deprivation and absolute deprivation are often contrasted. Absolute deprivation refers to the inability to sustain oneself physically and materially.

Some right wing groups suggest that this is how Canada should define and measure poverty. Rather, Canada uses a form of relative deprivation; deprivation is not judged against some absolute standard of sustainability but of deprivation in relation to others around you. You may have sufficient money to meet your needs and even meet them adequately but feel relatively deprived.

relative poverty level
The amount of income a person or family needs to purchase a relative amount of basic necessities of life. These basic necessities are identified relative to the current structure of society and the economy. For example, while a refrigerator would be a basic necessity for someone living in the our modern U.S. economy, it probably would not be consider a necessity for nomads of sub—Saharan Africa or aborigines of Australia.
relatively elastic
An elasticity alternative in which relatively small changes in price cause relatively large changes in quantity. In other words, quantity is very responsive to price. Relatively elastic should be compared with other elasticity alternatives——relatively inelastic, perfectly inelastic, perfectly elastic, and unit elastic.
relatively inelastic
An elasticity alternative in which relatively large changes in price cause relatively small changes in quantity. In other words, quantity is not very responsive to price. Relatively inelastic should be compared with other elasticity alternatives——relatively elastic, perfectly inelastic, perfectly elastic, and unit elastic.
renewable resource
A resource that can be exploited without depletion because it is constantly replenished. This includes forest resources, the fisheries, naturally occurring food crops and the fertility of agricultural land.

There is heated debate in Canada about where to set the appropriate levels of resource use compatible with long term renewal.

rent
Factor payments to the owners of land for using the various resources of land in the production of goods and services. Rent is included in the National Income and Product Accounts maintained by the Bureau of Economic Analysis under the official title rental income of person. Rent is typically the smallest of the four factor payments, accounting for less than 5% of the income earned by the household sector.
resource
Anything that is both naturally occurring and of use to humans.
resource allocation
The process of dividing up and distributing available, limited resources to competing, alternative uses that satisfy unlimited wants and needs. Given that world is rampant with scarcity (unlimited wants and needs, but limited resources), every want and need cannot be satisfied with available resources. Choices have to be made. Some wants and needs are satisfied, some are not. These choices, these decisions are the resource allocation process. An efficient resource allocation exists if society has achieved the highest possible level of satisfaction of wants and needs from the available resources AND resources can not be allocated differently to achieve any greater satisfaction.
resources
The labor, capital, land, and entrepreneurship used by society to produce consumer satisfying goods and services. Land provides the basic raw materials——vegetation, animals, minerals, fossil fuels——that are inputs into the production of goods (natural resources). Labor is the resource that does the "hands on" work of transforming raw materials into goods. Capital is the comprehensive term for the vast array of tools, equipment, buildings, and vehicles used in production. Entrepreneurship is the resource that undertakes the risk of bringing the other resources together and initiating the production process.
restructuring
Usually refers to the re—organization and rationalization of administration and production in both public and private sectors. In the public sector it has been encouraged by growing deficits, in the private sector cost cutting and reorganization has been encouraged by high interest rates, recession and lower corporate profit margins.
rival consumption
Consumption of a good by one person imposes a cost on, or prevents consumption of the good by, another person. Some goods, like food, have extremely rival consumption. One person, and only one person, gets the benefit. Other goods, like national defense, have no consumption rivalry, everyone can benefit simultaneously without imposing a cost on others. This is one of the two key characteristics of a good (the other is excludability) that distinguishes between common—property goods, near—public goods, private goods, and public goods.
Say's Law
A classical economic proposition stating that the production of aggregate output creates sufficient aggregate demand to purchase all of the output produced. In other words, supply creates its own demand. This is one of the three assumptions underlying the macroeconomic theory of classical economics which concluded that unrestricted market activity would generate full employment. The other two assumptions are flexible prices and saving—investment equality. Say's law is closely associated with the circular flow model.
scarcity
An axiom of economics is that there are not enough resources to go around. There is always a situation of scarcity in that there are less goods available than there are people who want them (even if there are plenty of goods, there are always people for whom the goods are too expensive). In this sense, economics is the science of the allocation of scarce resources.

A pervasive condition of human existence that exists because society has unlimited wants and needs, but limited resources used for their satisfaction. In other words, while we all want a bunch of stuff, we can't have everything that we want. In slightly different words, this scarcity problem means: (1) that there's never enough resources to produce everything that everyone would like produced; (2) that some people will have to do without some of the stuff that they want or need; (3) that doing one thing, producing one good, performing one activity, forces society to give up something else; and (4) that the same resources can not be used to produce two different goods at the same time. We live in a big, bad world of scarcity. This big, bad world of scarcity is what the study of economics is all about. That's why we usually subtitle scarcity: THE ECONOMIC PROBLEM.

second rule of subjectivity

The second of seven basic rules of the economy. It is the notion that market prices are ultimately determined by subjective values and preferences of buyers and resource owners. While regular, everyday consumers are prone to accept the prices "set" by retail stores and other sellers as etched in stone (perhaps along with the Biblical ten commandments), such is not the case. The price of a product depends on two things, demand (especially the demand price that buyers are willing to pay) and supply (especially the supply price that sellers are willing to accept). Both, I repeat both, are subjectively determined. By subjective, I mean they are based on the values, beliefs, tastes, and preferences of people.

secondary activity
The conversion of raw material into a product.
secondary labor market
Refers to those occupations which tend to be located in the most competitive areas of the economy and are more labor intensive. These occupations tend to pay lower wages, have insecure employment, be less unionized, and provide less opportunity for advancement. Typical industries are restaurant and hotel services, cashiers and retail sales. This labor market has been dominated by women and minorities, while the other market (the primary labor market) has been dominated by white males. This term was originally part of what was referred to as dual labor market theory. The term segmented labor market is now used but studies continue to find a significant dualism to the labor market and this continues to be useful for understanding women's occupational location and their low wages relative to men.
secondary sector
That portion of a region's economy devoted to the processing of basic materials extracted by the primary sector.
second-degree price discrimination
A form of price discrimination in which a seller charges the different prices for different quantities of a good. This also goes by the name block pricing. This is possible because the different quantities are purchased by different types of buyers with different demand elasticities. This is one of three price discrimination degrees. The others are first—degree price discrimination and third—degree price discrimination.
service economy
Usually contrasted with a goods—producing economy and refers to an economy based largely on the provision of service rather than manufactured goods. These services may include medical service, accounting, social work, teaching, design, consultancy, short order cook, waiting tables, driving taxi. The shift to a service economy is sociologically interesting because it appears to be associated with different labor market demands, differing educational requirements, and differing wage structures.
services
Activities that provide direct satisfaction of wants and needs without the production of tangible products or goods. Examples include information, entertainment, and education. This term service should be contrasted with the term good, which involves the satisfaction of wants and needs with tangible items. You're likely to see the plural combination of these two into a single phrase, "goods and services," to indicate the wide assortment of economic production from the economy's scarce resources.
seven rules
Seven key economic principles underlying the study of economics and the operation of the economy. These seven rules are: first —— scarcity, second —— subjectivity, third —— inequality, fourth —— competition, fifth —— imperfection, sixth —— ignorance, and seventh —— complexity.
seventh rule of complexity
The seventh of seven basic rules of the economy. It is the observation that the world is complex, that every action has direct and often intended consequences and indirect and probably unintended effects (that is, cause and effect). A few of the more noted illustrations of this seventh rule are the circular flow (especially the expenditure multiplier) and market failures (especially externalities).
sharecropping
A form of agricultural tenancy in which the tenant pays for use of the land with a predetermined share of his crop rather than with a cash rent.
shifting agriculture
A system in which land is cleared and then cultivated until it is exhausted, at which point new land is cleared and the process restarted.
silk stocking district
An area where wealthy, aristocratic people live.
sixth rule of ignorance
The sixth of seven basic rules of the economy. It is a fact of life that obtaining information is a costly activity, it requires resources that have alternative uses. As such, no one knows everything and everyone is ignorant about something. I might know a lot about economics, but you can recite every line of every episode of "Gilligan's Island", and that weird—looking guy you bumped into at the store has a detailed account of everything you've done for the past five years.
status, socioeconomic (SES)
Position within a stratification system.

A term which is often contrasted with that of social class. Socioeconomic status, largely an American usage, has developed as a way to operationalize or measure social class on the assumptions that class groupings are not real groups. It is a rather arbitrary category and is developed by combining the position or score of persons on criteria such as income, amount of education, type of occupation held, or neighborhood of residence. The scores can then be arbitrarily divided so as to create divisions such as upper class, middle class, lower class. Sociologists are interested in socioeconomic status, as they are in class, since it is assumed that this status affects life chances in numerous ways.

space economy
The locational pattern of economic activities and their interconnecting linkages.
Speciesism
The attitude that it is naturally right and appropriate to give priority to human interests and demands over those of all other living creatures. It has led to endangerment and extinction of many animal species and to extensive environmental damage and depletion.
speculation
The practice of buying something (usually securities, commodities, or foreign exchange) at a fairly high risk for the purpose of selling the same thing later for an above average return.
stagflation
In economics, high unemployment and inflation taking place at the same time.
staple
As used by Harold Innis (1894—1952), a natural resource exported to a more advanced economy.

According to Innis the character of these resources and their export have given shape to the development of Canadian society. Staples such as beaver pelts, cod, wheat, forest products have each shaped settlement patterns, transportation routes, and the structure of power.

staple product
A product that becomes a major component in trade because it is in steady demand; thus, a product that is basic to the economies of one or more major consuming populations.
staple trap
Refers to economic or social forces which trap a nation or region within the export of a particular staple. The particular settlement patterns, characteristics of the labor force, methods of capital accumulation, or transportation routes make it difficult for British Columbia, for example, to move away from a major reliance on forest products even after the richest and most accessible forest resources have been consumed.
structural unemployment
Job losses caused by major shifts in the economic environment, and which are hard to alleviate. For example, if the coal mining industry in a country is in a longterm decline, it will create structural unemployment: a body of workers who are not easily retrained, centered in particular areas, where new industry cannot be quickly introduced. Structural unemployment is to distinguished from shortterm fluctuations in unemployment caused by workers moving between jobs.
subsidy
A grant made out of public funds to support some private enterprise that is considered to promote the public good. A current debate in the U.S. is whether the government should continue to subsidize the arts, through organizations such as the Natioanl Endowment for the Humanities.
subsistence
"Just getting by"

Means of support or livelihood; means of living. People who have enough only to cover basic needs are considered to be living on a subsistence income.

substitute
In terms of demand (that is, substitute—in—consumption), one of two goods that replace each other in consumption such that an increase in the price of one good leads to an increase in demand and a rightward shift in the demand curve for the other good. If the demand of good 1 increases as the price of good 2 increases, the goods are substitutes—in—consumption. In terms of supply (that is, substitute—in—production), one of two goods that replace each other in either producing using the same resources in an either/or fashion, such that an increase in the price of one good leads to a decrease in supply and a leftward shift in the supply curve for the other good. If the supply of good 1 decreases as the price of good 2 increases, the goods are substitutes—in—production.
supply
The willingness and ability to sell a range of quantities of a good at a range of prices, during a given time period. Supply is one half of the market exchange process; the other is demand. This supply side of the market is directly connected to the limited resources dimension of the scarcity problem. Folks who have ownership and control over resources (labor, capital, land, and entrepreneurship) use them to produce the goods and services that satisfy other's wants and needs. Ownership and control of resources is the ultimate source of supply.
supply and demand

The economic mechanism that operates in a free enterprise system, and that is responsible for prices, based on the assumption that sellers want to sell at the highest price they can, and buyers want to buy at the lowest possible price. If something is in heavy demand but short supply, prices will go up, and vice versa. A rise in price will reduce demand and expand supply, and vice versa (i.e. a fall in price will expnd demand and contract supply.) Prices tend to stabilize at the level where demand equals supply.

supply curve
A graphical representation of the relationship between the supply price and quantity supplied (that is, the law of supply), holding all ceteris paribus supply determinants constant.
supply decrease
A decrease in the willingness and ability of sellers to sell a good at the existing price, illustrated by a leftward shift of the supply curve. A decrease in supply results in a decrease in equilibrium quantity and an increase in equilibrium price.
supply increase
An increase in the willingness and ability of sellers to sell a good at the existing price, illustrated by a rightward shift of the supply curve. An increase in supply results in an increase in equilibrium quantity and a decrease in equilibrium price.
supply price
The minimum price that sellers would be willing and able to accept for a given quantity of a good. The emphasis here is on minimum. As a general rule sellers have a lower limit to the price that they would be willing to accept for a good. As a lower limit, they would gladly go higher.
supply shock
A disruption of market equilibrium (that is, a market adjustment) caused by a change in a supply determinant and a shift of the supply curve. A supply shock can take one of two forms——an supply increase or a supply decrease. An increase in supply is illustrated by a rightward shift of the supply curve and results in an increase in equilibrium quantity and a decrease in equilibrium price. A decrease in supply is illustrated by a leftward shift of the supply curve and results in a decrease in equilibrium quantity and an increase in equilibrium price.
supply-side economics
A branch of economics that emphasizes the productive capabilities of resources, especially in the context of macroeconomic instability and economic growth. Supply—side economics became popular in the 1980s after several decades of Keynesian "demand—side" economics. Supply—side proponents contended that policies aimed at the demand—side alone, especially fiscal policies, was causing economic stagnation. One note result of supply—side economics was the developed of the aggregate market, which combined existing demand—side economics with the newly emerging focus on the supply—side.
surplus
Extra, especially resources

The excess of production over the human and material resources used up in the process of production. In simple societies there was often little if any surplus since the production from hunting and gathering was entirely used up in subsistence. With the development of animal herding and settled agriculture, production exceeds immediate subsistence needs and social inequality and class division becomes possible when particular individuals or groups are able to take control of this surplus. A condition in the market in which the quantity supplied is greater than the quantity demanded at the existing price. A surplus occasionally goes by the terms excess supply and buyers' market. A shortage causes a decrease in the equilibrium price. The difference betwen a worker's wages and the value of the goods he produces.

surplus value
In Marxist theory this is the value created by individual labor which is left over, or remains in the product or services produced, after the employer has paid the costs of hiring the worker. It is this value which the worker produces but does not receive which allows the capitalist owner to expand their capital.

According to Karl Marx, surplus value was a measure of the exploitation of the worker by the capitalist, i.e. the worker contributed more than he received, and the profit went to the employer.

sustainable yield
The amount of a naturally self—reproducing community, such as trees or fish, that can be harvested without diminishing the ability of the community to sustain itself.
syndicate
An association between two or more companies to carry out a joint enterprise that requires large capital, often to establish control of a particular market.
tariff
A tax that's usually on imports, but occasionally (very rarely) on exports.

This is one form of trade barrier that's intended to restrict imports into a country. Unlike nontariff barriers and quotas which increase prices and thus revenue received by domestic producers, a tariff generates revenue for the government. Most pointy—headed economists who spend their waking hours pondering the plight of foreign trade contend that the best way to restrict trade, if that's what you want to do, is through a tariff. A surcharge placed on imported goods and services. The purpose of a tariff is to protect domestic products from foreign competition.

tertiary activity
Providing services such as banking or retail.
tertiary sector
That portion of a region's economy devoted to service activities (e.g., transportation, retail and wholesale operations, insurance).
factory
A center of manufacturing production.

Factories generally arose during the industrial revolution, when machines and the investments needed demanded large amounts of capital. They replaced the traditional artisan (home based, small shop) as the primary place of production (though this happened gradually); because goods could be mass-produced for a cheaper cost, factories essentially became more successful in production as well as the competition for investment, labor force, etc.

third rule of inequality
The third of seven basic rules of the economy. It is a fact of life that resources, income, and wealth are not equally distributed. Some people have more and some people have less. Why is this so? We can look to the age—old distinction between nature and nurture for insight. On the nature side, some people are born with more talents, abilities and intelligence than others, which they use to gain ownership and control of income—generating and wealth—producing resources. On the nurture side, some people work harder to develop skills, acquire education, and uncover opportunities that lead to ownership and control of income—generating and wealth—producing resources (human capital).
third-degree price discrimination
A form of price discrimination in which a seller charges different prices to groups that are differentiated by an easily identifiable characteristic, such as location, age, sex, or ethnic group. This is the most common type of price discrimination. This is one of three price discrimination degrees. The others are first—degree price discrimination and second—degree price discrimination.
three questions of allocation
The three basic questions that an economy must answer because of limited resources and unlimited wants and needs are: What? How? and For Whom? The basic problem of scarcity requires every society to determine: What goods to produce? How to produce the goods? and Who receives the goods that are produced?
threshold
The minimum—sized market for an economic activity. The activity will not be successful until it can reach a population larger than this threshold size.
trade barrier
A restriction, invariably by government, that prevents free trade among countries. The more popular trade restrictions are tariffs, import quotas, and assorted nontariff barriers. An occasional embargo will be even thrown into this mix. The primary use of trade barriers is to restrict imports from entering in country. By restring imports, domestic producers of the restricted goods are protected from competition and are even subsidized through higher prices. Consumers, though, get the short end of this stick with higher prices and a limited choice of goods. In that producers tend to have more political clout than consumers, it's pretty obvious why trade barriers are a "natural" state of affairs.
transferability
The extent to which a good or service can be moved from one location to another; the relative capacity for spatial interaction.
trans-humance
The seasonal movement of people and animals in search of pasture.

Commonly, winters are spent in snow-free lowlands and summers in the cooler uplands.

transit
Precision surveying instrument; a theodolite in which the telescope can be reversed in direction by rotation about its horizontal axis.
transnational corporations
Corporations whose sales and production are carried out in many different nations. As a result of their multinational reach these corporations are often thought to be beyond the political control of any individual nation states.
transportation
The movement of a good, resource, or commodity from one location to another. This is one of two primary types of production activity, the other being the physical transformation of a good. Transportation invariably involves significant amounts of capital goods, which makes it an industry prone toward either oligopoly or monopoly. In fact, many major oligopoly and monopoly industries are heavily involved with transportation. Public utility monopolies top the list (electricity and natural gas distribution). Oligopoly examples include airlines, railroads, long distance telephone, and television broadcasting.
trough
The transition of a business cycle from a contraction and an expansion. The end of a contraction carries the descriptive term trough. At the trough, the economy has reached the lowest level of production in recent times. The good thing about a trough, however, is that it is a turning point, a turning point to an expansion. So even though a peak is the "lowest" is not necessarily something that's undesirable.
underemployment
A condition among a labor force such that a portion of the labor force could be eliminated without reducing the total output. Some individuals are working less than they are able or want to, or they are engaged in tasks that are not entirely productive.
underground economy
underpopulation
Economically, a situation in which an increase in the size of the labor force will result in an increase in per worker productivity.
unemployment
The general condition in which resources are willing and able to produce goods and services but are not engaged in productive activities. While unemployment is most commonly thought of in terms of labor, any of the other factors of production (capital, land, and entrepreneurship) can be unemployed as well. The analysis of unemployment, especially labor unemployment, goes hand—in—hand with the study of macroeconomics that emerged from the Great Depression of the 1930s.
unemployment rate
The measure of how many unemployed people there are, as a percentage of the available workforce.
unfair competition
A wide assortment of business practices that are deceptive and dishonest, and usually hamper competition. Examples of unfair competition include false or misleading advertising, price discrimination, bribery, and even industrial espionage. These practices and many, many more are illegal according to antitrust law, specifically the Federal Trade Commission Act (1914).
union
An organization of workers or employees who act jointly to negotiate with their employers over wages, fringe benefits, working conditions, and other facets of employment. The main function of unions is to provide a balance for the market control exerted over labor by big business.
union shop
An employment arrangement, usually written into a collective bargaining agreement, in which a firm is free to hire both union and nonunion employees, with the stipulation that workers must join the union once hired. Union shops became a popular method of gaining control over the labor services when closed shops were outlawed by the Taft—Hartley Act passed in 1947. Those states with right—to—work laws effectively outlaw union shops. The alternative to a union shop is an open shop.
unit elastic
An elasticity alternative in which any percentage change in price cause an equal percentage change in quantity. In other words, any change in price, whether big or small, triggers exactly the same percentage change in quantity. Unit elastic should be compared with other elasticity alternatives——perfectly elastic, perfectly inelastic, relatively elastic, and relatively inelastic.
unlimited liability
A condition in which owners are not personally held responsible for the debts of by a firm. Corporations are the main form of business in which owners have limited liability. The primary benefit of limited liability is that it makes it possible for a business to accumulate large amounts of productive resources that lets it take advantage of large scale production.
unlimited wants and needs
A characteristic of people such that they are never totally satisfied with the quantity and variety of goods and services. This is one half of the fundamental problem of scarcity that has plagued humanity since the beginning of time. The other half of the scarcity problem is limited resources. Unlimited wants and needs essentially means that people never get "enough"——that there's always something else that they would want or need.
urban economics
The economic study of cities and urban areas based on the consideration of space, transportation cost, and location in production and consumption decisions. Urban economics studies a wide variety of topics, how and why cities are formed, how land is used within cities, the location of one city relative to another, and the relative size of cities. A closely related area of study that focuses on economic activity in larger regions is termed regional economics.
utility
In economics, the ability of a good or service to satisfy human want. It is therefore a psychological thing and cannot be measured in absolute terms. Goods that have utility for one person may not have for another. And goods that have utility for one person at a certain time may not have it at another time.

The satisfaction of wants and needs obtained from the use or consumption of goods and services. The terms utility and satisfaction are, for the most part, used interchangeably in economics. Two other somewhat technical economic terms frequently used to capture this notion are welfare and well—being. Whichever term is used, the underlying concept is the same: To what extent are unlimited wants and needs fulfilled using the goods and services produced from society's limited resources.

pre-industrial
The situation prior to the Industrial Revolution.

This does not mean that a particular pre-industrial economy had an absence of industry and manufacturing. What was absent was a system of factory and power-driven production.

value
Quite simply, this is the amount of consumer satisfaction directly or indirectly obtained from a good. service, or resource. The more a good satisfies a person's want or need, then the more valuable it is to that person. Furthermore, different people are likely to place different values on a good. Resources are valuable to the degree that they are used to produce stuff that consumers want. The bottom line is that value, like beauty, is truly in the eye of the beholder.
wage
A factor payment to the owner of labor for using labor services in the production of goods and services. Wages are included in the National Income and Product Accounts maintained by the Bureau of Economic Analysis under the official title compensation of employees. Wages is the largest of the four factor payments, accounting for about 70% of the income earned by the household sector. The other factors of production (and their corresponding resource) are: interest (capital), rent (land), and profit (entrepreneurship).
wants
This is often thought of as a psychological desire which makes life just a little more enjoyable, but which is not physiological necessary to life. You need oxygen, but you want a hot fudge sundae. Satisfaction is achieved by fulfilling wants.
ways and means
The financial resources of a government. For example, the Ways and Means Committee of the House of Representatives, which considers everything relating to the raising of revenues.
Wealth of Nations
Officially titled An Inquiry into the Nature and Causes of the Wealth of Nations.

This book written by Adam Smith and published in 1776, is considered to be the foundation for the modern study of economics. The Wealth of Nations was the first to combine assorted economic discourse and analyses into a single book. One of its most important themes is the efficiency of free trade and market exchanges unrestricted by government that leads to macroeconomic full employment and microeconomic efficiency.

welfare
Public financial or other assistance (food stamps, for example) given to people who meet certain standards of eligibility regarding income and assets.

An assortment of programs that provide assistance to the poor. The cornerstone of our welfare system is Aid to Families with Dependent Children (AFDC), which was created by the Social Security Act (1935). It provides cash benefits to assist needy families with children under the age of 18. Funding comes partly from the federal government and partly from states. Because states also administer their own programs, benefits and qualification criteria differ from state to state. A second part of the welfare system, one that's run entirely by the federal government, is Supplemental Security Income (SSI). This program provides cash benefits to elderly, blind, and disabled in addition to any benefits received through the Social Security system. Our welfare system includes a whole bunch of additional benefits, including Medicaid, food stamps, low—cost housing, school lunches, job training, day care, and earned—income tax credits.

white collar
Originally used as a contrast to blue—collar workers and captured the distinction between non—manual and manual labor or workers. With the rise of the service economy and the shrinkage of manual labor, the term has become less useful.
white elephant
Something that is of little use or profit, especially something that is maintained at great expense. Some in Britain argue that the Falkland Islands, which Britain retained pssession of after a war with Argentina in 1982, are a white elephant, because they cost a huge amount of money to defend, and yet they are very small and have only a tiny population.
zero
Sum a situation in which a gain for one must result in a loss for another.
developed nations
Replaced the outmoded "First World" in reference to nations which have historically gone through a period of Industrialization to the extent that they now control the production and distribution of certain segments of goods (or services). Examples: United States, Germany, Japan, Great Britain.
price level
The average of the prices of goods and services produced in the aggregate economy. In a theoretical sense, the price level is the price of aggregate production. In a practical sense, the price level is measured by either of two price indexes, the Consumer Price Index (CPI) or the GDP price deflator. The CPI is the price index widely publicized in the media and used by the general public. The GDP price deflator, in contrast, is less well—known, but is usually the price index of choice among economists. The inflation rate is calculated as the percentage change in the price level.
price ceiling
The upper legal limit on a price.
price floor
The lower limit imposed on a products price by a price control law.
price leadership
A method used by a group of firms in the same market (typically oligopoly firms) in which one firm takes the lead in setting or changing prices, with other firms then following behind. The lead firm is often the largest firm in the industry, but it could be a smaller firm that has just historically assumed the role of price leader perhaps because it is more aware of changing market conditions. While price leadership is totally legal, it could be a sign of collusion, particular implicit collusion, in which the firms have effectively monopolized the market.
price fixing
An agreement by two or more firms in an industry to charge the same price and avoid competing with each other. This is one of the methods businesses use to practice collusion or form a cartel. It is, by the way, against antitrust law.
non-price competition
A method of competition undertaken by firms in the same market (typically oligopoly firms) that involves advertising, brand—name promotion, support services, illegal activities, and everything but the price. Oligopoly firms are quite prone to nonprice competition due to the interdependence, especially such as that illustrated by the kinked—demand curve. Because oligopoly firms find difficulty competing through prices, they seek out alternative methods of competition, such as advertising or sabotage.
price rigidity
The proposition that some prices adjust slowly in response to market shortages or surpluses. This condition is most important for macroeconomic activity in the short run and short—run aggregate market analysis. In particular, rigid (also termed inflexible or sticky) prices are a key reason underlying the positive slope of the short—run aggregate supply curve. Prices tend to be the most rigid in resource markets, especially labor markets, and the least rigid in financial markets, with product markets falling somewhere in between.
oligopsony
A market structure dominated by a small number of large buyers controlling the buying—side of a market. Oligopsony is the somewhat obscure and seldom discussed buying counterpart to an oligopoly seller that controls the selling side of a market. Whereas oligopoly is most relevant to product markets, oligopsony is most relevant to factor markets.
price maker
A buyer or seller that possess sufficient market control to affect the price of the good. Price market should be compared with the alternative, price taker. From the selling side of the market, a monopoly is the best example of a price maker. As the only seller in the market, a monopoly firm has the ability to control the price. Firms operating under oligopoly and monopolistic competition are also price makers, although to a lesser degree, depending on their relative market control. From the buying side of the market, a monopsony is also a price maker. As the only buyer in the market, a monopsony firm is able to control the price. Firms operating under oligopsony and monopsonistic competition are price makers, also to a lesser degree.
price taker
A buyer or seller that possess so little market power that it has no control the price of the good, it must "take" or accept the going market price. The market structure widely populated with a bunch of powerless price takers is perfect competition. You should compare this term with price maker. Other related terms worth a look are price leader, natural monopoly, regulatory pricing.
monopsonistic competition
A market structure characterized by a large number of small buyers, that purchase but not identical inputs, relative freedom of entry into and exit out of the industry, and extensive knowledge of prices and technology. Monopsonistic competition is the somewhat obscure and seldom discussed buying counterpart to an monopolistic competition seller that controls the selling side of a market. Whereas monopolistic competition is most relevant to product markets, monopsonistic competition is most relevant to factor markets.
factor payments
Wage, interest, rent, and profit payments for the services of scarce resources, or the factors of production (labor, capital, land, and entrepreneurship), in return for productive services. Factor payments are frequently categorized according to the services of the productive resource. Wages are paid for the services of labor, interest is the payment for the services of capital, rent is the services for land, and profit is the factor payment to entrepreneurship. In the circular flow, these are payments made by the business sector for factor services purchased from the household sector through the financial markets.
factor price
The price paid for and received by the services of factor of productions (labor, capital, land, and entrepreneurship) when exchange through factor markets. Like prices in other markets, factor price adjusts to balance the forces of demand and supply. For factor demand and the factor demand curve, the factor price is negatively related to the quantity of factor services demanded. For factor supply and the factor supply curve, factor price is positively related to the quantity of factor services supplied. The key factor prices are wage rates, interest rates, rents, and profits. The rigidity or inflexibility of factor prices is an important aspect of the macroeconomic study of the short—run aggregate market.
factor demand
The willingness and ability of productive activities (that is, businesses) to hire or employ factors of production. Like other types of demand, factor demand relates the price and quantity. Specifically, factor demand is the range of factor quantities that are demanded at a range of factor prices. This is one half of the factor market. The other half is factor supply. The factors of production subject to factor demand include any and all of the four scarce resources——labor, capital, land, and entrepreneurship. However, because labor involves human beings directly, it is the factor that tends to receive the most scrutiny and analysis.
factor supply
The willingness and ability of scarce resources or factors of production to offer their services for use in productive activities. Like other types of supply, factor supply relates price and quantity. Specifically, factor supply is the range of factor quantities that are supplied at a range of factor prices. This is one half of the factor market. The other half is factor demand. The factors of production subject to factor supply include any and all of the four scarce resources——labor, capital, land, and entrepreneurship. However, because labor involves human beings directly, it is the factor that tends to receive the most scrutiny and analysis.
factor supply curve
A graphical representation of the relation between the price to a factor of production and quantity of the factor supplied, holding all ceteris paribus factor supply determinants constant. The factor supply curve is one half of the factor market. The other half is the factor demand curve. The factor supply curve indicates the quantity of a factor that would be supplied at alternative factor prices. While all factors of production, or scarce resources, including labor, capital, land, and entrepreneurship, have factor supply curves, labor is the factor most often analyzed. Like other supply curves, the factor supply curve is generally positively sloped. Higher factor prices are associated with larger quantities supplied and lower factor prices go with smaller quantities supplied.
consumption tax
A flat tax on goods and services consumed; current proposals are for replacement of the US tax code with a tax on consumption, with reliefs structured for individuals living at or near the poverty level. A variant is one that taxes the sale of all goods and services except those goods and services that are considered to be necessities readily purchased by those living at the lower end of the economic spectrum and/or increased tax rates on discretionary and luxury goods and services.
monopolistic competition
A market structure characterized by a large number of small firms, similar but not identical products sold by all firms, relative freedom of entry into and exit out of the industry, and extensive knowledge of prices and technology. This is one of four basic market structures. The other three are perfect competition, monopoly, and oligopoly. Monopolistic competition approximates most of the characteristics of perfect competition, but falls short of reaching the ideal benchmark that is perfect competition. In fact, the best way to think of monopolistic competition is our imperfect real world's best approximation of perfect competition. It aspires to perfect competition, but doesn't quite make it.

MONOPOLISTIC COMPETITION CHARACTERISTICS: The four key characteristics of monopolistic competition are: (1) large number of small firms, (2) similar but not identical products sold by the firms, (3) relative freedom of entry into and exit out of the industry, and (4) extensive knowledge of prices and technology.

government sector
Labor Theory of Value
The LTV is the theory that market prices are attracted by prices proportional to the labor time embodied in commodities. In other words, relative prices tend towards relative labor values. The LTV is restricted to the analysis of reproducable commodities that have a use value in a capitalist society. Although the LTV is commonly associated with Classical economics, arguably neither Marx nor any first tier Classical economist accepted the LTV as a valid theory for capitalist economies.
Classical School
The Classical School of economic theory began with the publication in 1776 of Adam Smith's monumental work, The Wealth of Nations. The book identified land, labor, and capital as the three factors of production and the major contributors to a nation's wealth. In Smith's view, the ideal economy is a self—regulating market system that automatically satisfies the economic needs of the populace. He described the market mechanism as an "invisible hand" that leads all individuals, in pursuit of their own self—interests, to produce the greatest benefit for society as a whole. Smith incorporated some of the Physiocrats' ideas, including laissez—faire, into his own economic theories, but rejected the idea that only agriculture was productive.

While Adam Smith emphasized the production of income, David Ricardo focused on the distribution of income among landowners, workers, and capitalists. Ricardo saw a conflict between landowners on the one hand and labor and capital on the other. He posited that the growth of population and capital, pressing against a fixed supply of land, pushes up rents and holds down wages and profits.

Thomas Robert Malthus used the idea of diminishing returns to explain low living standards. Population, he argued, tended to increase geometrically, outstripping the production of food, which increased arithmetically. The force of a rapidly growing population against a limited amount of land meant diminishing returns to labor. The result, he claimed, was chronically low wages, which prevented the standard of living for most of the population from rising above the subsistence level.

Malthus also questioned the automatic tendency of a market economy to produce full employment. He blamed unemployment upon the economy's tendency to limit its spending by saving too much, a theme that lay forgotten until John Maynard Keynes revived it in the 1930s.

Coming at the end of the Classical tradition, John Stuart Mill parted company with the earlier classical economists on the inevitability of the distribution of income produced by the market system. Mill pointed to a distinct difference between the market's two roles: allocation of resources and distribution of income. The market might be efficient in allocating resources but not in distributing income, he wrote, making it necessary for society to intervene.

Marginalist School
Classical economists theorized that prices are determined by the costs of production. Marginalist economists emphasized that prices also depend upon the level of demand, which in turn depends upon the amount of consumer satisfaction provided by individual goods and services.

Marginalists provided modern macroeconomics with the basic analytic tools of demand and supply, consumer utility, and a mathematical framework for using those tools. Marginalists also showed that in a free market economy, the factors of production —— land, labor, and capital —— receive returns equal to their contributions to production. This principle was sometimes used to justify the existing distribution of income: that people earned exactly what they or their property contributed to production.

Marxist School
The Marxist School challenged the foundations of Classical theory. Writing during the mid—19th century, Karl Marx saw capitalism as an evolutionary phase in economic development. He believed that capitalism would ultimately destroy itself and be succeeded by a world without private property.

An advocate of a labor theory of value, Marx believed that all production belongs to labor because workers produce all value within society. He believed that the market system allows capitalists, the owners of machinery and factories, to exploit workers by denying them a fair share of what they produce. Marx predicted that capitalism would produce growing misery for workers as competition for profit led capitalists to adopt labor—saving machinery, creating a "reserve army of the unemployed" who would eventually rise up and seize the means of production.

Keynesian School
Reacting to the severity of the worldwide depression, John Maynard Keynes in 1936 broke from the Classical tradition with the publication of the General Theory of Employment, Interest, and Money. The Classical view assumed that in a recession, wages and prices would decline to restore full employment. Keynes held that the opposite was true. Falling prices and wages, by depressing people's incomes, would prevent a revival of spending. He insisted that direct government intervention was necessary to increase total spending.

Keynes' arguments proved the modern rationale for the use of government spending and taxing to stabilize the economy. Government would spend and decrease taxes when private spending was insufficient and threatened a recession; it would reduce spending and increase taxes when private spending was too great and threatened inflation. His analytic framework, focusing on the factors that determine total spending, remains the core of modern macroeconomic analysis.

kleptocrat
Recent term referring to any dictator, generally deposed, who has made off with the wealth of his/her people.

A Thief. Somewhat derisive. Descriptive of an autocrat's tendency (in especially underdeveloped nations) for autocrats to, just as power is centralized, gather all the major economic resources and liberally help themselves to a majority of the pie. While the phenomenon certainly dates back to an earlier time (i.e., Absolute Monarchs), the tendency to label such an authoritarian regime as common criminals comes at a time when the industrialized world is less tolerant of the dictator who flees and leaves the international community "holding the bag."

resource market
consumer price index
An index that shows changes in the average prices of goods and services purchased by consumers over a period of time.

An index of prices of goods and services typically purchased by urban consumers. The Consumer Price Index, commonly known by its abbreviation, CPI, is compiled and published monthly by the Bureau of Labor Statistics (BLS), using price data obtained from an elaborate survey of 25,000 retail outlets and quantity data generated by the Consumer Expenditures Survey. The CPI is unquestionably one of the most widely recognized macroeconomic price indexes, running second only to the Dow Jones averages in the price index popularity contest. It is used not only as an indicator of the price level and inflation, but also to convert nominal economic indicators to real terms and to adjust wage and income payments (such as Social Security) for inflation.

Federal Reserve System
The country's central banking system, which is responsible for the nation's monetary policy by regulating the supply of money and interest rates

The central bank of the United States. It includes a Board of Governors, 12 District Banks, 25 Branch Banks, and assorted committees. The most important of these committees is the Federal Open Market Committee, which directs monetary policy.

The Fed (as many like to call it) was established in 1913 and modified significantly during the Great Depression of the 1930s. It's duties are to maintain the stability of the banking system, regulate banks, and oversee the nation's money supply.

putting out system
Original "cottage" industry. Industrialists in need of weaving or other textile operations prior to the machine/factory revolution found it advantageous to "put out" the goods to private home—based semi—skilled workers (often women) who would take raw material (wool, cloth) and perform additional steps towards finishing. These workers were typically paid on a per—piece basis (piece work)
modernization
Industrial Revolution
The industrial and technological changes that started in England around 1760 and spread rapidly to other countries.

The industrial revolution laid the foundations of the modern industrial system. Its main features were the invention of new machinery, which led to largescale factory production; the rise of industrialists who headed large enterprises; the rise of a wage-earning class; the expansion of trade; the growth of cities and the depopulation of the countryside.

The production of goods for trade and profit using machines to enhance the productivity of labor. The term is used to describe the profound technological changes that began in England in the mid 18th century. Before the 18th century there was very little power machinery except wind and water mills and production was carried out with hand tools and hard human labor. The industrial revolution introduced technologies that could employ power from water, steam, gas, coal, electricity and oil to replace or enhance human labor. This made possible a level of economic productivity that had never before been achieved and it initiated a process of unending technological transformation and social change. Socially, the industrial revolution is associated with the rational organization of work, a transformation from a society of self sufficient producers to a society of employed wage workers and the spread of a market-driven system of allocation of resources. Social scientists continue to be interested in how this technological transformation affected social relations, politics, community life, family structure, and women's role in society. Many people argue that the computerization of society is bringing with it a set of changes equal in importance to the industrial revolution.

settled agriculture
human settlement in one location and specialization in the cultivation of plants for food or domestication of animals.

A basic component of "Civilization"

Favorable Balance of Trade
Condition resulting from selling more goods than are bought
swidden
Slash & Burn Agriculture
Compoti
accounts
Mercantilism
Mercantilism was the economic policy of Europe in the 1500s through 1700s. The government exercised control over industry and trade with the idea that national strength and economic security comes from exporting more than is imported. Possession of colonies provided countries both with sources of raw materials and markets for their manufactured goods. Great Britain exported goods and forced the colonies to buy them.

Consignment system
One company sells another company's products, and then gives the producing company most of the profits, but keeps a percentage (a commission) for itself.
Quitrents
Nominal taxes collected by the crown in crown colonies, or by the proprietor(s) of proprietary colonies.
National debt, state debt, foreign debt
The U.S.'s national debt included domestic debt owed to soldiers and others who had not yet been paid for their Revolutionary War services, plus foreign debt to other countries which had helped the U.S. The federal government also assumed all the debts incurred by the states during the war. Hamilton's program paid off these debts.
Excise taxes
Taxes placed on manufactured products. The excise tax on whiskey helped raise revenue for Hamilton's program.
Laissez-faire
A theory that the economy does better without government intervention in business.
Adam Smith, The Wealth of Nations
Promoted laissez—faire, free—market economy, and supply—and—demand economics.
Horizontal consolidation, integration
A form of monopoly that occurs when one person or company gains control of one aspect of an entire industry or manufacturing process, such as a monopoly on auto assembly lines or on coal mining, for example.
Vertical consolidation, integration
A form of monopoly that occurs when one person or company gains control of every step of the manufacturing process for a single product, such as an auto maker that also owns its own steel mills, rubber plantations, and other companies that supply its parts. This allows the company to lower its costs of production and drive its competition out of business.
Stock watering
Price manipulation by strategic stock brokers of the late 1800s. The term for selling more stock than they actually owned in order to lower prices, then buying it back.
Pools
Agreement between railroads to divide competition. Equalization was achieved by dividing traffic.
Holding companies
Companies that hold a majority of another company’s stock in order to control the management of that company. Can be used to establish a monopoly.
Strikes
The unions’ method for having their demands met. Workers stop working until the conditions are met. It is a very effective form of attack.
Boycotts
People refuse to buy a company’s product until the company meets demands.
The single tax
A flat tax proposed by Henry George. (A flat tax is one in which every person pays the same amount, regardless of whether they are rich or poor.)
Bland-Allison Act
1878 — Authorized coinage of a limited number of silver dollars and "silver certificate" paper money. First of several government subsidies to silver producers in depression periods. Required government to buy between $2 and $4 million worth of silver. Created a partial dual coinage system referred to as "limping bimetallism." Repealed in 1900.
Sherman Silver Purchase Act
1890 — Directed the Treasury to buy even larger amounts of silver that the Bland—Allison Act and at inflated prices. The introduction of large quantities of overvalued silver into the ecomony lead to a run on the ferderal gold reserves, leading to the Panic of 1893. Repealed in 1893.
Bimetalism
Use of two metals, gold and silver, for currency as America did with the Bland—Allison Act and the Sherman Silver Purchase Act. Ended in 1900 with the enactment of the Gold Standard Act.
Free Silver
Movement for using silver in all aspects of currency. Not adopted because all other countries used a gold standard.
Drago Doctrine
Argentine jurist, Luis Drago, proposed that European countries could not use force to collect debts owed by countries in the Americas. They could not blockade South American ports. Adopted as part of the Hague Convention in 1907.
Thorsten Veblen, The Theory of the Leisure Class
An economist, he believed that society was always evolving, but not that the wealthiest members of society were the "fittest." Attacked the behavior of the wealthy. Muckraker novel.
Federal Reserve Act
Regulated banking to help small banks stay in business. A move away from laissez—faire policies, it was passed by Wilson.
Income tax
The first step toward building government revenues and redistributing wealth, a tax that was levied on annual income over a specific amount and with certain legally permitted deductions.
T.S. Elliot, “The Waste Land”
One of the most influential poets of the early 20th century, he had been born in St. Louis, Missouri, but moved to England after college and spent his adult life in Europe. The poem, written in 1922, contrasts the spiritual bankruptcy of modern Europe with the values and unity of the past. Displayed profound despair. Considered the foundation of modernist, 20th century poetry.
Keynesian Economics
The British economist John Maynard Keynes believed that the government could pull the economy out of a depression by increasing government spending, thus creating jobs and increasing consumer buying power.
Deficit spending
FDR’s admnistration was based on this concept. It involved stimulating consumer buying power, business enterprise, and ultimately employment by pouring billions of dollars of federal money into the economy even if the government didn’t have the funds, and had to borrow money.
Monetary policy, fiscal policy
In monetary policy, government manipulates the nation’s money supply to control inflation and depression. In fiscal policy, the government uses taxing and spending programs (including deficit spending) to control inflation and depression.
Common Market, European Union
Popular name for the European Economic Community established in 1951 to encourage greater economic cooperation between the countries of Western Europe and to lower tariffs on trade between its members.
Sunbelt versus Frostbelt
A trend wherein people moved from the northern and eastern states to the south and southwest region from Virginia to California.
Multinational Corporations
Most were American business firms whose sales, work force, production facilities or other operations were worldwide in scope. They represented the latest development in the continuing growth of corporate organization.
Organization of Petroleum Exporting Countries (OPEC)
An international oil cartel dominated by an Arab majority, joined together to protect themselves.
Balance of Trade
1973 — U.S. tried to balance its trade to make American goods cost less for foreigners, in order to encourage them to buy more American products. Resulted in a devalued dollar.
Stagflation
During the 60’s and 70’s, the U.S. was suffering from 5.3% inflation and 6% unemployment. Refers to the unusual economic situation in which an economy is suffering both from inflation and from stagnation of its industrial growth.
Reaganomics
Reagan’s theory that if you cut taxes, it will spur the growth of public spending and improve the economy. It included tax breaks for the rich, "supply—side economics," and "trickle down" theory.
Supply side economics
Reaganomics policy based on the theory that allowing companies the opportunity to make profits, and encouraging investment, will stimulate the economy and lead to higher standards of living for everyone. Argued that tax cuts can be used stimulate economic growth. Move money into the hands of the people and they will invest, thus creating prosperity.
animal traction power
Corporate consolidation of industry
Industrial Revolution
Economic Revolutions
Balance of Trade
The ratio of what is paid for imports to what is earned from exports. When more is imported than exported, there is a balance-of-trade deficit.
Capitalism
an economic system based on private ownership of capital
Collective bargaining
right of unions to negotiate with management for workers as a group
comparable worth
Issue raised when women who hold traditionally female jobs are paid less than men for working at jobs requiring comparable skill
demography
The science of population changes.
deregulation
The lifting of restrictions on business, industry, and professional activities for which government rules had been established and that bureaucracies had been created to administer.
Earned Income Tax Credit
The Earned Income Tax Credit, or the EITC, is a refundable federal income tax credit for low- to moderate-income working individuals and families, even if they did not earn enough money to be required to file a tax return.
entitlements
Policies for which Congress has obligated itself to pay X level of benefits to Y number of recipients that must be eligible for the benefits.
feminization of poverty
the increasing concentration on poverty among women, especially unmarried women and their children

A social process in which the incidence of poverty among women becomes much higher than among men. Changes in social policy, the structure of the family and the workplace, social security provisions, life expectancy and other aspects of society have had the unintended result of increasing the female proportion of the population on low incomes or in poverty. In America, poverty rates are particularly high among female single parents and among elderly women. The feminization of poverty is often cited as an explanation for an increase in women's involvement in crime and contrasted to a ‘liberation’ explanation.

Fiscal policy
the use of government spending and revenue collection to influence the economy
free-rider problem
The problem faced by unions and other groups when people do not join because they can benefit from the group's activities without officially joining. The bigger the group, the more serious the problem.
gross domestic product (GDP)
The sum total of the value of all the goods and services produced in a nation.
health maintenance organization
organization contracted by individuals or insurance companies to provide healthcare for a yearly fee. such network healthplans limit the choice of doctors and treatments. about 60% of americans are enrolled in health maintencance orgainizations or similar programs
incentive system
According to Charles Schultze, a more effective and efficient policy than command-and-control; in the incentive system, market-like strategies are used to manage public policy.
income
the amount of funds collected between any two points in time
income distribution
the "shares" of the national income earned by various groups
income tax
Shares of individual wages and corporate revenues collected by the government. The Sixteenth Amendment explicitly authorized Congress to levy this.
incrementalism
The belief that the best predictor of this year's budget is the last year's budget, plus a little bit more.
Inflation
an increase in the overall level of prices in the economy
Keynesian economic theory
The theory that a government policy of increasing spending and cutting taxes could stimulate the economy in a recession.
Labor union
an organization of workers that tries to improve working conditions, wages, and benefits for its members
Lasses-faire
An economic doctrine that opposes governmental regulation of or interference in commerce beyond the minimum necessary for a free-enterprise system to operate according to its own economic laws.
Minimum wage
a minimum price that an employer can pay a worker for an hour of labor
Mixed economy
an economic system that combines private and state enterprises
Monetarism
an economic theory holding that variations in unemployment and the rate of inflation are usually caused by changes in the supply of money
Monetary policy
The management of the money supply and interest rates
Multinational corporations
companies that operate across national boundaries: also called transitional corporations
Organization of Petroleum Exporting Countries
An economic organization consisting primarily of Arab nations that controls the price of oil and the amount of oil its members produce and sell to other nations.
Poverty Line
The income threshold below which people are considered poor, based on what a family must spend for an "austere" standard of living, traditionally set at three times the cost of a subsistence diet.
Progressive Tax
A tax by which the government takes a greater share of the income of the rich than of the poor—for example, when a rich family pays 50 percent of its income in taxes, and a poor family pays 5 percent.
proportional tax
a tax by which the government takes the same share of income from anyone, rich and poor alike -- for example, when both a rich family and a poor family pay 20 percent.
Protectionism
the policy of imposing duties or quotas on imports in order to protect home industries from overseas competition
public goods
Goods, such as clean air and clean water, that everyone must share.
Regressive Tax
A tax in which the burden falls relatively more heavily on low-income groups than on wealthy taxpayers. The opposite of a progressive tax, in which tax rates increase as income increases.
selective benefits
Goods (such as information publications, travel discounts, and group insurance rates) that a group can restrict to those who pay their annual dues.
standard operating procedures (SOPs)
These are used by bureaucrats to bring uniformity to complex organizations. Uniformity improves fairness and makes personnel interchangeable.
Supply-side economics
a school of economics that believes tax cuts can help an economy by raising supply
Tariff
A special tax added to imported goods to raise the price, thereby protecting American businesses and workers from foreign competition.
wealth
the value of assets owned
Mobility
The movement of people, objects, or ideas. As a social product, mobility has become central to work in the “new mobilities paradigm” or “mobility turn.”
Productive forces
A Marxist term for the sum of technologies of labor (knowledge, tools, arrangements of space, etc.) and labor power at a given moment in a society’s development. Together with the relations of production they form the mode of production, the development of which is seen as the prime driver of history.
Grey Market
An underground market in which buyers and sellers exchange goods and services&emdash; usually as “gifted”&emdash; for illicit products.

An example is marijuana in Washington D.C.: while it is illegal to “sell” cannabis, it is legal to consume it privately and grow it in small amounts. Therefore, a market mechanism has arisen in which say, one individual clears another's gutters in exchange for the gift of 1/2 ounce of marijuana.

tariff, tariffs
A tax on imported goods.

Tariffs have had a long and complicated history in the United States. Originally when the federal government was small and relatively inexpensive, tariffs were the main source of revenues to support the cost of federal government operations (prior to the income tax in the 20th century). Additionally, tariffs were used to protect domestic manufacturers from cheap foreign imports.

Therefore tariffs sparked outrage among such groups as farmers, because without the tax on the imported good, a foreign sourced good would be cheaper and more affordable. Tariffs generally enjoyed considerable support among business owners, manufacturers, and laborers whose jobs were protected. Tariffs were an early divider of political parties.