a comprehensive dictionary of economics (gnv64)

8/23/2019 A Comprehensive Dictionary of Economics (Gnv64)

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_axL_(OMPREHENJIVE[ ) I C T I ( ) ~ A l 2 ' "~ ~ ~ ~ ( J f ~ ~ ~ ~

ECONOMICSChief Editor &Compiler:

~ABHISHEK

Nelson Brian


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All rights reserved. No part of this book may be reproduced in anyform, electronically or otherwise, in print, photoprint, micro film orby any other means without written permission from the publisher.

ISBN

CopyrightFirst Edition

Published by

8/ -8247-03 /-5

Publisher2004

ABHISHEK PUBLICATIONS,S.C.O. 57-59, Sector 17-C,CHANDIGARH-160017 (India)Ph.-2707562,Fax-OI72-2704668Email: [email protected] & Design byXact Ad 'N' Art Studio, Delhi

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ISBN : 978-81-8247-031-6


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PrefaceEconomics is the science that deals with the production,distribution and consumption of wealth. It studies thevarious problems oflabour, finance, taxation, etc. and triesto find a solution or the best possible way to tackle theseproblems. The subject not only deals with the present andfuture growth ofa country's economy at the micro level,like the consumption ofa household or an individual [trm,but also studies the same at a bigger and more complexlevel or the macro level, like the national income or theproduction ofan industry. The job of the economists is toidentify the economic problems of a country's economyand find solutions for the same, thereby promoting a healthyand smooth economic growth.There are two schools of thoughts in economics, viz. theClassical and the Modern. The economists belonging tothese two schools have contributed a lot in the field ofeconomics through a number of theories. But, as the human wants are endless, so are the economic problems unending and therefore, economists are continuously working towards finding solutions for these new problems.The dictionary is made with the intent of providing thereaders with a handy referral for the terminology used in


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the subject. The dictionary covers almost all the termsthat form a part and parcel of economics in simple andeasily comprehensible language. In order to enhance thereaders knowledge and bring about more relevance, manyexamples and pictures have been used along with the definitions of the terms.


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II a foir trader / foir traders I c c e l e r a ~ :lepreciation 5- a fair trader / fair traders and government) of a country,contrasted with free trader, a ; in contrast to the total demandfair trader is a holder of the for that country's output.point ofview that one's country's : _ absorption approachgovernment must prevent ~ o r - a way of understanding the faceign companies from havmg ; tors of the balance of trade,artificial advantages over do- : noting that it is equal to thelb'estic ones. : earnings less a sorptIon.- abilene principle _ abstinencea description of a group's inabil- the giving up of the current conity to solve their disagreement. ; sumption in order to increaseNobody wants to reach a par- : the future consumption. It isticular destination (Abilene), often characterised by directingfor fear of offending or contra- ; the available resources towardsdicting each other. : the production ofcapital goods.- absolute advantage Due to this, the future produc-; tion of the consumer goods will. a term used in the interna- ...,tional trade theory, as per which increase.a country specialises in produc- : _ abundant factoring such goods and services that the factor which is available init is able to produce more ~ f f i - abundant supply in a countryciently (more output per urut of ; relative to other countries. Caninput) than any other country : be defmed both with respect to2. the ability ofa country to pr?- quantity and price.duce a good at lower cost, mil d d . . tionterms of real resources, than : - acce ~ r a ~ e eprecla

th untry In a Ricardian I depreCIatlOn of a new assetano erco . . . d h ' hmodel, cost is in term of only ; over a peno t at ISalmTuchI b . shorter than the norm. ea our. '. th d I- absorptionthe sum-total of demands forgoods and services by all residents (consumers, producers

I firms operatIng m e eve op-: ing areas usually follow thisI . .: method of depreCIatIOn.I

Economics======= I


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" , , 6 = = = = = = = = = = = ~ t i n g i n J l a t U m Iaccepting house II accelerating inflation I accelerator co-efficient

I states that any increase in thesudden inflation rate increase.I t is the result of thegovernment's efforts to hold theemployment level below its Inatural rate.

output is always accompaniedby a corresponding increase inthe capital, like machinery etc.,that is used to produce it. The

acceleration principle;acceleratorindicative of a relationship be. ween income and output and

incremented capital output raI tio depicts the amount of capital that should be increased in

order to raise an additional unitI of output.I accelerator principleI states that the aggregate netinvestment level is dependenton the expected change in outI putthe investment effects associ- I acceptance credit

ated with the changing output. a way of payment in internaThe size of the accelerator de- tional trade. In case the acceptpends on the marginal capital/ I ing house finds the credit of aoutput (C/O) ratio (i.e. how I foreign import merchant satismuch new investment is needed factory, it may open an accepin response to the changing de- I tance credit for him in say Newmand for output) and on a va- I York.riety of other factors influencing investment decisions. I accepting house acceleratorthe process in which demand Ichange for the consumer goodsleads to an even larger demandchange for the capital e q u i p ~ Iment used to produce them.

the establishments whose busi-ness is to accept or guaranteebills ofexchange. Such establishments may also be involved nseveral other services and functions.

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IIIICUSS / accessibility I accounts receiV:============7 access / accessibilityterm expressing the ease withwhich a location can be reachedand interacted with from otherlocations. a c c ~ s i o n ratealso known as the hiring rate,i.e. the total number of employees added to the payroll in agiven period of time. I t acts asan important indicator of thefuture business conditions.

. . . . . . ~ _1Aow ..... c . - __ _... ~ .....l" ""' ..... ,..- ......__ "....---_ .._- accessions tax

cepted or endorsed to make; some cash available for a short: term, without receiving anygoods in return. The sole purpose of this is of discounting; accommodation endorse-

mentI: the endorsing of a note or anyother bill of credit by one indi; vidual to another in order to: grant him the right to obtain aI loan.

accounts payableI the amount that a business: owes to its suppliers and other

parties, generally a period of 10I to 90 days is taken as standard. to pay for the goods alreadytransported .

the tax on the receiver of gifts Iand inherited property, it is levied by the government. accommodating move-

mentsthe transferring ofgold and convertible currency aboard by acountry in order to meet its balance of payment deficits. accommodation billthat bill, which is drawn, ac-

I accounts receivable; the amount that a business is: entitled to receive from its customers, generally a period of; 10 to 90 days is taken as stan: dard to receive payments forI

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8 accounts ;eiVIJble (finance) I active circulation "the goods already transported. I and Pacific less developed coun accounts receivable (fi

nance)I tries that were included in the

Lome Convention and now theI Cotonou Agreement.the entitlement of a firm to re-ceive application of money I across-the-board tarifffrom its debtors for obtaining I changesfunds to fincnce the current op- a change of all tariffs in a counerating expenses or some other try. They are raised or loweredexpense. I by an equal percentage. accrual basis I action laga method of accounting in I the delay between the formulawhich the income and expenses tion of a policy decision and itsare not charged until the time execution.they are actually earned or incurred. I actionable subsidy accrued

I a subsidy which is not prohib-the earnings, sales, expenses orother items of income or expen- Iditure, which are already madeor incurred and are outstandmg. accrued expenses

ited by the World TradeOrganisation (WTO), but thatmember countries are permitted to levy compensating dutiesagamst. active balancea term to indicate a balance ofpayments that is favourable fora country, when the revenueearned from exports is higher

an accounting entry ,,,herein a Iliability is recorded when thecost of a service used but notpaid for is observed. I than the expenditure incurredon tl1e import of goods and ser- accumulation

the acquisition of an increasing I VICes. active circulationquantity of something.

ACP countriesa group of Mrican, Caribbean

I at any given time, the part ofI the RBI's issue which is in cir-culation.

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1\ actiPe tnllritet Iaddition rule- active marketmarket for a specific set ofstockor shares traded quite frequently and regularly._ activity ratethe percentage of people in agiven population age group thatare employed, but not in thedefence forces of the country.- actual protection rateimplicit tariff._ actualsthe items that are bought withthe intention of immediate delivery in a stock exchange.- ad valorem1. in proportion to the value. Aterm used to refer to the taxesand duties levied on goods, etc.as a percentage of their value.

A. V.a--.Per Capita Ass. . . . .LN


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""l=O=========ad=rjust;lepeg Iad71ancedepositrequirement 1/functions of the variable. adjustable peg

I adjustment lagsI the time taken by a variable, likeccpital stock to adjust to tjechanges in its determinants.n exchange rate which is Ipegged, but for which it is lIDderstood that the par value willbe changed occasionally. Such Isystem can be subject to extreme speculative attack and fi

nancial crisis, as speculatorsmay easily anticipate thesechanges.

adjustment mechanismthe theoretical process throughwhich a market changes in dis-equilibria, moving toward equi

I librium i f the process is stable.I administered protectionI protection resulting from theapplication of anyone of several provisions that respond to

adjustment assistancea government program to assist those workers and/or firmswhose industry has declined,

" " ~ " " ' " _ t l a r f . . m w T'JlMAnm"JoY


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II tulT1l1ncerefunding IRtl!flomerlltWn c : ; m ~ : Y ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ l ~ lof import duties should be deposited prior to the payment,without competitive interestbeing paid.

of the view that the employees; should be free to decide about: joining a union or not and thosewho state that the employees; should not be allowed to enjoy- advance refunding : the benefits of a union withoutto exchange those bonds whose paying for them.expiry date is approaching for Inew bonds on advantageous : - agenda 21terms. a plan of action adopted at the,_ adverse selection ; Rio Summit for promoting sus-: tainable development.the tendency for insurance to be Ipurchased only by those per- : - agglomerationsons who are most likely to I 1. geographical concentrationneed it, thus raising its cost and I of people and/or activities.reducing its benefits. 2. a phenomenon of economic_ adverse terms of trade activity congregating in or closea term of trade which is consid- I to a single location, rather thanered unfavourable relative to I being spread out uniformlysome benchmark or to past expenence.- advicenote sent by one merchant toanother, requesting him to deliver the ordered goods.- agency shopthe mandatory requirement fora prospective employee joininga firm to pay the union dueswithout being a part of he tradeunion. T ~ i s kind of arrangement is generally found in theUS between the ones who are

over space.I: - agglomeration economiesI (of Scale or Scope)I benefits, savings or drop in av: erage cost resulting from theclustering of activities. Generally, the concept of agglomera; tion economies refers to savings: or benefits derived from theclustering of activities external; to the 'firm' and are therefore a: part of 'external economjes'.I: - agglomeration economyI any benefit which accrues to

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=12=========='Wf'Y'iJ==a; oncentration I"'IJ8"t94tetxpmditun IIeconomic agents as a result of aggregate demand curve relateshaving large numbers of other .agents geographically close tothem, thus tending to lead to Iagglomeration. aggregate concentrationthe state in which the goodsproduced in one sector of theeconomy or the whole is con- Icentrated around a few large the level of real national income(GDP) demanded (the totalcorpora tions. aggregate demandthe total demand

I quantity of goods and servicesdemanded) to the price level (asmeasured by the GDP deflator).In theeconomy. It takes into account Ithe total of all the desired ex

penditure at any time by all I aggregate expendituregroups in the economy. The I in macroeconomic theory, agmain groups who spend are gregate expenditure is sum-toconsumers (consumption),firms (who spend on invest- Iment), government (government expenditure) and overseas (exports).

AggregateExpenditure (AE)

A't'A.

E'

Price level (P)ADzPyR

=C+ 1+ G + NX

AD.---+:o VOR vf Reallncome('(II.. RGDp) aggregate demand curve

in macroeconomic theory, the

o Yo Y1 RGDPI tal of the amount of desiredspending by consumers, governments, private investors andI foreign buyers (net of spendingon imports) at each level of realnational income (GDP).

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II tI9!J1VJRte meRS'Unofsupport IRllocRted cost* = = = = = = = = = = = = = = ~

13 aggregate measure of ing the same.

supporth . aggregationt e measure of subsidy to ag- .riculture used by the WTO as 1. the puttmg together of the pri-the basis for commitments to 1 mary data. For example, the agreduce the subsidisation of : ~ e g a t e demand is an aggregate,agricultural products . It in- m ~ o n ~ ~ t with the demand ofeludes the value of price sup- an mdiVldual. .ports and direct subsidies to . 2. the amalgatlon of two or morespecific products, as well as k i ~ d s of an economic entity intopayments which are not prod- a s m ~ l e category. For macroecouct specific. ; n o ~ c purposes, all goods and aggregate supplyit is the total quantity suppliedat every price level, i.e. the toPrice Lovel (P)AS O

Real Income(YR. RGDp)tal of goods and services produced m an economy in a giventime period.

: ~ e r v I ~ e s are usually aggregated1 mto Just one.

aggregative model; a model used in econometrics: where the creation of variables

is.done by using groups of indi-1 VIdual variables.; agio: it refers to the fee that is paid1 : for exchangmg one currency foranother, or for a foreign bill of; exchange.; agistment

aggregcte supply curve : to feed or take care of the cattlein macroeconomic theory, the with the intention of getting ashort run aggregate supply 1 reward.c ~ r v e relates the total quan- ; allocated costmy of goods and services sup- . thpiled and the price level (as; e.allocation ofexpenditures to

d : vanous accounts.measure by the GDP defla- 1tor) and with all else remain-

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14=================* allocation

alloctJrion Iangel inPUtor II

distort production and trade. American Depository

Receipt (ADR)

an assignment of economic ;resources to uses. In general :equilibrium, an assignment offactors to industries produc- Iing goods and services, to-gether with the assignment of :resulting final goods and ser- Ivices to consumers, within acountry or throughout theworld economy. allocative efficiency .the best possible allocation of ;

I a document given to a shareholder and issued by the USBank in response to the depositof shares by the shareholder.resources.

allongea sheet of paper to provide anadditional space for endorsements, usually attached to a billof exchange. all-or-none order (US)

I amortisationthis term is U5ed in relation tothe payment of a loan in ad

I vance, over a specified time period. Such fund can also be cre-

a limited price order for buying or selling of shares and Istocks, with the condition of :I est.

ated when equated instalmentsI are deposited at regular interI vals of time, so as to accumu

late an amount equivalent to theamount of debt including inter-being executed entirely or none :at all. I AMS amber box Aggregate Measure of Support. angel investorhe category of subsidies in the IWTO Agriculture Agreement,the total value of which is to bereduced. It includes most domestic support measures that

a venture capitalist with a soI cial conscience. They are likeI other venture c a p i t a l i s t s ~ in thesense that 'angels' are 'lookingfor higq.growth potential with

II =======; ; ;; :; :; ;; :: ;: ;E&onom ics


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a five-to-ten-year cash-out. Angel investors often look for' psychic income' beyond just balance sheet and income statement- the chance to help otherentrepreneurs, assist with innercity problems ... for example.- anglo-saxon biasWalter Isard's characterisationof the 19th century in a spatialeconomic theory in Britain, incontrast to the 'Germanic Bias'in the development of the classical location theory.- annuityis a type of life insurance contract that gives periodic pay--- 1

~ . .."-f t---..I

. .. . .. .. .. ill 'I. A .... .. . .. .. II .. Q II .. .. .... .. .. - T_ _ ca.

15*================- anticipation, in accounting parlance is, to: record the earnings or profitbefore they are actually realised.- antitrust legislationa law that targets healthy com; petition amongst all the players: in a particular industry and thusrestricts monopolistic practices; followed by a private b ~ i n e s s .

; - anti-trust policy: the U.S. term for competition, li: po cy.,: -ANZCERTA

Australia-New Zealand Closer; Economic Relations Trade: Agreement.,: _APMAverage Propensity to Import,: - appellate bodythe standing committee of the

~ m ~ments to the insured at some ,future time, usually retirement.

:'1 , . ":::.:::?,/ ." " - : ~ ~ r " '

- antedateearlier dating of a document,such as a life insurance policy, ,than what is current, so that itmatures or takes effect sooner.

S; l ! (f i ~ ~ F ~- ~ ! . l

~ ~ ~ ~ ~ ; ~ :WTO which reviews decisions

&tmomit:s======= I


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16=================*of dispute settlement panels. applied economicsa branch ofeconomics that stud- Iies practical problems and usesthe principles and tools of economic analysis. applied tariff ratethe effective actual tariff rate at

applied economics Iarbitrat'ion IICan YouKeep It?

Is It a Buslaes.? appropriationin accounting, money or tnatea country's border.

I rials set aside or spent for a spe appreciation cific purpose or allocating thea rise in the value of a country's resources between the numercurrency on the exchange mar- I ous uses.ket, relative to a particular othercurrency or to a weighted average of other currencies. The Icurrency is said to appreciate. appreciative theory

(Nelson)attempts to structure qualitative Inotions about the nature of a Ifirm and its activities, in a manner that is less straining butricher at the formal level.

I bO ar ItrageI the simultaneous buying of currency, securities or goods fromone market for the purpose ofI selling in another market at ahigher price.

appropriability problemproblems associated with theability of the firm to captureacceptable levels of benefits, Iassociated with the exploitationof its own technological innovations through confidentiality,

arbitrationis a way of settling a disputeI between two parties, by a thirdI person who has interest in thatatents, etc. matter.

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\1 argument orprotection Iasymmetric fo"",'"","tI."","'"",tion========"",1"",7

argument for protectionthe reason given for restrictingimports by tariffs. armington assumptionthe assumption in which internationally traded products aredifferentiated by the country ofongm. articles of associationan official document legally required to be filed with the registrar by the promoters of apublic limited company. a r ~ b a i t opart-time work. asset strippingthe selling of those assets by acompany that are not requiredin its day to day functioning.

A has given a loan to Mr. B,; then he can authorise another: person to recover loan fromMr. B.

assignment problemI this is aimed at using macroeconomic policies to achieve bothinternal balance and externalI balance, specifically, with onlymonetary and fiscal policiesavailable under fixed exchange .rates.

assimilative capacityI the ambit to which the environ: ment carl accommodate or tolI: erate pollutants.I d. asslste areas

those relatively backward areas; which are recognised by the con-cerned administration or thegovernment as being eligible to; receive special assistance.; associated company: the connection or relation of anindependent company with anI other independent company.

asymmetric information assignment ; the failure of two parties to athe right of transference of : transaction to have the samebenefit of loan that a person I relevant information.is entitled to receive from an- Iother person, for instance Mr.

Economus======= I


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=1" , ,8=========== ;:mPtotic distribution Iautarkyprice " asymptotic distribution I at sight

I the payment of a bill of eX-Ichange or promissory note asand when demanded.the probability distribution towards which a statistic movesor inclines at the point whenthe sample size reaches infin- Iity. Generally used in econometrics in assessing the largesample properties of its esti- I

at the marketI an instruction given by a clientto his stockbroker for buying or

selling stocks or shares, andI permitting the broker to buy orI sell at a price that is around the

mators. at bestin relation to the stock market,an abbreviation used to indicate market price prevailing at thetime.

ATehe lowest possible price in re- Ispect of a buying order, and 'thehighest possible price' in respectof a selling order.

I Agreement on Textiles andClothing. at discretionan instruction given by a clientto his stockbroker for buying orselling stocks or shares andgranting the broker to exercisehis own judgement for the priceat which to buy.

atomistic competitionmarket structure characterised by

I a large number of firms, whoI compete independently.I autarky

1. self-sufficiency and independence of a nation in economic at limit I terms.an instru'ction given by a cli- I 2. the situation of disengageent to his stockbroker for buy- ment in international trade, selfing or selling stocks or shares, sufficiency.but placing a limit on the high- I autarky priceest price that may be paid or I price in autarky, i.e. the price ofthe lowest price for making a something within a countrysale. when it is not traded by that

I country.

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II"uthorised cllpitlllillutoregnssion * = = = = = = = = = 1 = 9 authorised capitalthe maximum amount of capital that can be raised by a public limited company through thepublic issue of shares. Thisamount is also stated in the

I lined or can be avoided withoutI any specific effon of the government.I: autonomous expenditures

those expenditures which reI main unaffected by the level ofmemorandum of association,which is filed along with the I

articles of association with theregistrar. authority constraintsas and when individual orjoint activities occur and who Ican participate in such activities is constrained by authority constraints, which are re- Ilated to who controls the particular piece of time-space:working hours, land owners' I

~ I ~ I )c : J J - ~ Bt:-"\- ~ ( 7t ~ - I -- I ~ J'-8.7

property rights, zoning, cur- income, in the income expendifew, public transportation ture model. For example, govschedules and routes, office I ernment expenditure, mvesthours of governments and I ment expenditure, etc.organisations, etc. I autoregression automatic stabiliser a set of data wherein the value1. government spending pro- I of each observation is partiallygrams that respond to changes Iin the level of national income insuch a way as to offset thosechanges.2. are the ways through whichthe fluctuations in the differenteconomic variables are stream- " lie ti l ...... fitI " 'ull

- .....--_ .....01_==--&onomics======= I


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20 A11er;e Fixed Cost (APC) Ibackbonefirms "dependendent on the value of ing, average revenue product isthe observation that immedi- ; the total revenue divided by theately precedes it. number of units of the factor Average Fixed Cost (AFC) I employed.1. The average flxed cost is in- I average tariffversely proportional to the out- I an average of a country's tarput. This is because as output iff rates. I t can be calculatedincreases the fixed costs are in several ways, none of whichspread further and further. I are ideal for representing how2. in the theory of the flrm, I protective the country's tariffsflxed costs are the costs of pro- are.duction that are constant, what- Average Total Cost (ATC)ever the level of output. Aver- Iage flxed costs are total flxedcosts divided by the number ofunits of output, that is, flxed Icost per unit of output.

lBB

-- 0 5aa8

the amount spent for producing each unit of output. Theaverage cost is calculated by dividing the total cost by the num

I ber of units produced. The av-erage total cost comprises oftwo elements, the average flxedI cost and the average variablecost

Average Variable Cost(AVC) average propensity to I the variable cost per unit ofout-

import I put. I t is obtained by dividingis the ratio of the aggregate I the average variable cost by thevalue of goods and services that number of units of output proa country impons in a year to I duced.the national income. I backbone firms average revenue productas per the theory of factor pric-

/

Japanese concept to describemedium-sized flrms which ex-

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II backhaul transportation Ibalance f ; ~ h . = ' I J = n d = u e = =trtule========2=1hibit the effects of strong entre- I backward linkagespreneurial leadership and vital- I linkages to suppliers of inputs. Airy. In such firms, strategies are : useful concept to differentiateshaped by technological innova- direction of flows in complextion, marketing and attention I economies.given to skilled and participa- . _ . ~ _ . __ ...__ _tory workforces . backhaul transportationutilisation of otherwise empty Icargo space on the return trip,after a primary transport activity has taken place. Since Ithe primary transport function Imay have paid for the partialor full cost of return transpor- Itation, the price of backhaul I balance of merchandiseutilisation may be relatively tradelow. backward bending the value of a country's merchandise exports minus the

I value of its merchandise imI ports.

a curve which reverses direction, usually if, after movingout away from an origin oraxis, it then turns back to- Iwards it. The term is used Imost frequently to describesupply curves for which the Iquantity supplied declines asprice rises above some point,as may happen in a labour supply curve, the supply curve for Iforeign exchange, or an offer

81Bion. of u.s. daHII,.' O O ~ - - - - ____________50 - - - - - - ~ ~ ~ ~ . . ---_o .. ~ . - - - - - - , . - - - - - . - - . - - , - - - - - . _ - = = = = = = _

'1190 1911' 19112 19113 '9114 '_'_'997 1_

curve.

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""22=====b""I1a=1IU=ofJ""paymen==""tS=tuijustmen==t",,mec=h="n=ism==,=bl=11=nced==budo==et= II*.balance of payments I balance on current ac-adjustment mechanismany proceSs, especially (any automatic one, by which a country with a payments imbalance Imoves towards balance of payments equilibrium. balance of payments

argument for protectiona common reason for restrict- Iing imports, particularly underfixed exchange rates, when acountry is losing internationalreserves due to a trade deficit.

counta country's receipts minus payments for current accounttransactions. I t is equal to thebalance of trade plus net inflows of transfer payments.

k l . - a on o..n-ft'It Account.


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II balancedgrowth IBayesiananalysis . .========== " , , 2 = 3revenue) to boost the economy which acts as a bank for centrciland when the economy is I banks, fostering cooperationbooming, they can run a surplus among them and with other(spending less than revenue). In I agenCies.this wa); they can balance the lb' arrters to entrybudget in the long-run. I factors that prevent firms from balanced growth entering a market, such as gov-a macroeconomics model that ernment rules or patentsexhibits balanced growth if con- I base moneysumption, investment and capi-al I monetary base.t grow at a constant rate whilehours of work per time periodstays constant. balanced trade1. a balance of trade equal tozero.

I basic balancelone of the more frequently usedmeasures of the balance of payments surplus or deficit underI pegged exchange rates, the basic2. the assumption that the bal- Iance of trade must be zero inequilibrium, as would be the casewith a floating exchange rate and

balance is equal to the currentaccount balance plus the balanceI of long-term capital flows.I basing-point pricing

no capital flows. Bank for InternationalSettlementsan international organisation

I a pricing method in whichprices arc quoted to includetransportation from one (or

I more) given point(s), regard-less of the location fromwhich actual shipment IS

I made.I Bayesian analysis

developed to provide a subjectively- rational framework forI decision-making under uncerI tainty.

Economi.s====================== II


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, ; , , 2 4=========== ;war thy neighbqur Ibill ofe:x:change IIBayesian Analysis

poster1or IkeIhood pIIorP(9,A.ix,I) = P(xI9,A.,I)P(9,A.II)" J (xI9,A.,I)P(9,A.II)

8.Amwglnllliza10n

P( x,l)=J ( 9, A.I x,l)1 is the prior Infennalon A

beggar thy neighbour

I bid price (or rent) function

a set of combinations of landprices and distances, amongI which the individual (or firm)is indifferent. It describesprices which the householdI (firm) would be willing to pay

at varying locations and forvarying amounts of land, inorder to achieve a given levelor a country to use a policy for Iits own benefit which harms I of satisfaction (utility/ profits) .ther countries. Examples areoptimal tariffs and, in a reces- Ision, tariffs and/or devaluation

to create employment. bid/ask spreadthe difference between the

benign neglectdoing nothing about a problem, Ihoping that it will not be serious or will be solved by others.

I price which a buyer must payon a market and the price thata seller will receive for theI same thing. The differencecovers the cost of and providesprofit for the broker or otherI intermediary, such as a bankI on the foreign exchange market.

bequest savings motivepeople save so that they canleave an inheritance to their children. bicycle theory I bill of exchangewith regard to the process of : a contract entitling an exportermultilateral trade liberalisation, I to receive immediate paymentthe theory which if ceases to I in the local currency for goodsmove forward (i.e., achieve fur- that would be shipped elsether liberalisation), will collapse I where.(i.e., past liberalisation will be Ireversed).

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II Bts Iinuleetsurplus

._ _ c.. . ...ro ......nc-- BISBank for International Settlements. blue box

25*================such as a bank in a foreign-ex; change transaction.; bubble economy

term for an economy where: the presence of one or moreI bubbles in its asset markets is: a dominant feature of its per-formance. Japan was said to

be a bubble economy in the; late 1980s .; budget deficit: the negative of the budget surI: plus, thus the excess of expen-I diture over income.a special category of subsidies

permitted under the WTO I ~ .. -Agriculture Agreement. It in- ..,I . .eludes payments which arelinked to production but with Iprovisions to limit productionthrough production quotas orrequirements to set aside landfrom production. border tax adjustment ; budget surplusrebate on indirect taxes ' (taxes : in general, an excess of incomeI dOon other than direct income, : over expen lture, but usuallysuch as a sales tax or VAT) on refers specifically to the governexported goods and levying of ; ment budget, where it is thethem on imported goods. : excess of tax revenue over expenditure (including transfer; payments).broker's feethe fee for a transaction chargedby an intermediary in a market,

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",,26============* usinesscycle I capability constraints IIBillionNOK

12080.0

-4 0-8 0

a4 88 sa liM) 82 8.C eEl 88 00 02

12080.0

-4 0-8 0

I cable or telegraph rather thanthrough mail. The payee is thennotified about the arrival of theI payment by the correspondent

I bank. CACM

.....MII... Central American Common business cycle Market. Founded in 1960, pre-the pattern followed by macro- I ceded by Organisation of Ceneconomic variables, such as GDP I tra! American States.and unemployment that rise and cain rulefall irregularly over time, relative a rule used to determine theto trend. I derivative of a function in rela-

Boom

C\,VP u ~ s w i n g/ ''. \ Dov\'nswing

I tion to a variable, where thefunction consists of anotherfunction. call

I in the stock exchange terminol-ogy, an option to purchase a business services specific amount of some stockservices that are forwardly I at a quoted price, known as thelinked to other business activi- I striking price, within a specifiedties. Such services tend to per- period of time.form functions, which are more Iefficiently 'externalised' by the Idient firms, i.e. cannot be effi

call loana loan that can be concluded orciently performed in-house. I 'called' at any point of time bythe creditor or the debtor.For example banking, lfiSur- Iance, etc. cable transferin the context of foreign trade,

capability constraintsconstraints on human activities

I in time and space, imposed bynature or available tools. Parta bank draft which is sent by I of Hagerstrand's time-geo-II ========Economics


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27I capital Icapital structure *================graphic conceptualisation. capital

I tion than in labour. capital intensity

1. monetary capital: the moneyused for investment purposes. I the amount of capital per unitof labour input.2. real or invested capital: thecapital goods needed for the Iproduction of goods and ser-vlCes. capital accounta part of the balance of payments where flows of savings, Iinvestment and currency arerecorded.

A._ ... _ ~ " _ e o . k I I " " " - " " ", ... .-......

, .... ...... . --. . . . . . . . . . A ' . . . . . . ._.. .,

capital consumption I capital marketin national accounts, capital con- I the market in which savings aresumption is the amount by I made available to investors.which gross investment exceeds capital ratiothe net investment. It is the I a measure of a bank's capitalsame as replacement lllvest- I strength used by the U.S. regu-ment. latory agencies. capital deepening 14 Banks' core capital ratio

" Dc__ cW . . . . . . M1.. .....I

II:I

an addition in capital intensity,normally in a macro context, Iwhere it is measured by something analogous to the capitalstock available per labour hour I" " 85 " .7 Hspent. In a micro context, it I ..... _ ... H '1 .could mean the amount ofcapi-

tal available for a worker to use, I capital structure

""

but this use is rare. Capital I of a firm is broadly made up ofdeepening is a macroeconomic its amounts of equity and debt.concept, of a faster-growingmagnitude of capital in produc- I&onomic s======= I


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28=================* capi-tatUm I chaebol II capitation I early 1970s by Eugene Famaa system of payment for each I among others. The data therecustomer served, rather than by was so much more convenientthe service performed. I than alternatives that it drove

I the study of security prices fordecades afterward. I t did notcausationrelationship which results when Ia change in one variable is not Ionly correlated with, but actually causes the change in an- Iother one.

have volume data, which meantthat volume/volatility tests wererarely done. certainty equivalent

CBIConfederation of British industry..CDCertificate of Deposit

--- -------- - ------ ~ .......the amount of payoff (e.g

I money or utility) which anagent would have to receive, tobe indifferent between that payI off and a given gamble is calledI that gamble's 'certainty equivalent'. For a risk averse agent (asmost are assumed to be), theI certainty equivalent is less than

the expected value of thegamble because the agent preI fers to reduce uncertainty.I ceteris paribusall other things remaining thesame.

chaebol Center for Research in one of a small number of verySecurity Prices (CRSP) I large, highly diversified anda standard database of finance I centralised Korean firms,information at the University of : owned and controlled by theChicago. I t has daily informa- I founding patriarch's family bytion of NYSE, AMEX, and a central holding company.NASDAQ stocks. Started in

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II chained IeIFStill go rging " . ' . " .

\ " , , , , , , :" .. t

chained

29*================tions or customs can or should; maintain the value of money,: not intrinsic content of valuablemetal.

chi-square distribution; a continuous distribution, with: natural number parameter r. ItIan index number which is fre

quently reweighted. An example is an inflation indexmade up of prices weighted bythe frequency with which they Iare paid and the frequent recomputation of weights makesit a chained index.

. ,~ ... . :.--- chaotica description of a dynamic system which is very sensitive toinitial conditions and mayevolve in wildly different ways,from slightly different initialconditions. characteristic equationsa polynomial whose roots areeigenvalues. characteristic rootsis a synonym for eigenvalues.

is the distribution of sums ofsquares of r standard normal

I variables. Mean is r, variance is2r, and moment-generating: function (mgt) is (1-2t) -r/2 .I .: chOIce

economic choices involving the; alternative uses of scarce re: sources.I: choke price

the rock bottom price where thequantity demanded is zero.l . e lF

chartalism Cost, Insurance and Freight. Aalso known as 'state theory of : price quotation which covers themoney' - 19th century mon- merchandise cost, the shippingetary theory, formulated more ; insurance and the freighton the idea that legal restric- : charges to a particular landingIE & u n o m u : s = ~ = ~ = ~ ~ II


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30=================* circuit I cluster IIplace. I Clayton Act circuit I a 1914 U .S. law on the subjectof antitrust and price discrimi-description of a network with Ione or more loops, creating alternative paths between nodesand thus creating network re- Idundancy.

nation.

circular flowthe manner in which fundsmove through the capital,labour and product marketsbetween households, firms, thegovernment and the foreignsector.

The Circular FlowIn (:omes.................... . - .Houuholds [ K p e n d i 1 u r ~ $ " ...................... .- classical

clearsin this context it is a verb. AI market clears if the vector ofI prices for goods is such that theexcess demand at those pricesis zero. That is, the quantityI demanded of every good atthose prices is met.

cliometricsthe study of economic history. closed I/O modelan input-output model is ei

I ther open or closed with respect to certain sectors or activities. cluster

according to Lucas (1998), aclassical theory would have no Iexplicit reference to prefer-

I a concept associated withMichael Porter's work, a 'cluster' is a geographically proxi

I mate group or geographic con-ences.

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II coase theorem I oefficient ofspecialisa; 31centration of interconnected I tion and outputs from produccompanies, specialised suppli- I tion will be chosen by agents,ers and service providers, firms regardless of how propertyin related industries and as- I rights over the inputs were associated institutions linked I signed to the agents.by commonalities and I Cobb-Douglas Productioncomplementarities . The geo- Functiongraphic scope of a cluster can Irange from a single city or relate s the productivity of

I labour to the capital intensitystate to a country or even agroup of neighbouring coun- I (capital-labour ratio) under thetnes . condition of a constant profit

ti- - .... - _ - - -

coase theoreminformally, the theorem saysthat in the presence of complete

wage ratio.

Cochrane-Orcutt Estimation

I an algorithm aimed at estimatI ing a time series linear regression in the presence of auto correlated errors. The implicit ciI tation is to Cochrane-Orcutt(1949) .

coefficient of specialisationthis coefficient is calculated just

I like the coefficient ofcompetitive markets and the I localisation, except that regionsabsence of transactions costs, an become industries and indusefficient set of inputs to produc- I tries become regions.

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""3""2==========""C,,,,oeffic=ientojllamtWn I concentratWn ratio II coefficient of variationan attribute of a clistribution,i.e. its standard deviation divided by its mean.

Coefficient of Variation%CV Definitio n = Sl.Dc\' x 100MEAN

/\CV= l O( \I' \ CV=.l.O! ; . ~: L M ~ N J " "-

Crucial in establishing : Ahgmnent AUldic st.'1bility SlalOmJ!' of cell,

cohorta group of persons experiencing the Sartle event during the

I collusionI an agreement between partiesto refrain in participating in anactivity which they normallyI would in order to reduce competition and gain higher profits.

c o m ~ a c t setsI a closed and bounded set.I competitive equilibriumprice

the price at which the quantitysupplied and the quantity deI manded are equal to each other.I complementI a good for which demand decreases when the price of aI closely related good increases.I concavity of distribution

functionsa property ofa distribution fimcsame period of time. Cohort I tion-utility function pair. Theanalysis traces those persons I assumption is to hold in someborn during the same time pe- principal-agent models so as to

riod, as they age and live make certain conclusions posthrough common time-specific I sible.experiences and life stages. Themost important experiences ofan aging cohort are the cohort Ibirth rates and cohort deathrates.

concentration ratioa way of measuring the concentration of market share held byparticular suppliers in a market.

I It is the percentage of totalmarket sales accounted for by

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II conceptual frameworkfor economicge:;aphy Iconditional foetor demands 33a given number of leadingfirms. conceptual framework foreconomic geography

I the smallest characteristicI root is S (both being pre-

I gamma = (L/S)s; Values larger than 20, according: to Greene (93), are observed i fand only i f the matrix is 'nearlyI singular' .

the structure that serves to holdthe conceptual parts (concepts) Itogether and within which theideas, facts, principles, insightsand circumstances of EconomicGeography exist and are related

sumed to be positive here, thatI is, the matrix being diagnosedI is presumed to be positivedefinite), then the conditionnumber is:

to each other. condition numbera measure of how close a ma- I conditionaltrix is to being singular. Rel ; it has a special use in finance,,-------- --------, : when used without otherCondition HUla It., v . S Ize f .r '1 u l.u .,1.

modifiers. Often means 'con; ditional on time and previous: asset returns'. In that context,one might read 'returns are; conditionally normally distrib-

1_ .,. 10000 10000 1000 10 0 10 I : uted.'L = = = = = = = = = = = ~ Ievant in estimation if the matrix of regressors is nearly singular, the data are nearly collinear and (a) it will be hard tomake an accurate or precise inverse (b) a linear regression willhave large standard errors.The condition number is calculated from the characteristic roots or eigenvalues of thematrix. If the largest characteristic root is denoted Land

: conditional factor de-I mandsI a collection of functions which; give the optimal demands for: each of the several inputs as afunction of the output expected; and the prices of inputs. Often: the prices are taken as given and

incorporated into the functions; and so they are only functions: of the output.I

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",,34===========* conformable I consumer strPereignty II conformable I and local opinion indicates thatI there is support for the compo-enerally used in conjunctionwith matrices . A matrix maynot have the right dimension orshape to fit into some particu- Ilar operation with another matrix. Take matrix addition - the

nent areas.

-N Imatrices are supposed to have I. the same dimensions to be - * - - - - - - - - --ummed. If they don't, we can @!!! ! ! ! . . . . Isay that they are not conform- I Constant Relative Riskable for addition. The most I Aversion (CRRA)common application of this :term comes in the context ofmultiplication. a property of some utility functions, also said to have isoelasticform. CRRA is a synonym for

consistent estimators ICES.an estimator for a parameter is I constant returns to scaleconsistent if the estimator con- when all inputs are increasedverges in probability to the true Ivalue of the parameter. by a certain proportion, out-I put increases by the same pro- Consolidated Metropoli- I portion.tan Statistical Area Capital

a n ( : ~ : ~ h i C h meets the re- 1 ;: . ~ r ~ :: : Hquirements for recognition as a 300 _. ~ 4 0 0'Metropolitan Statistical Area' 200 __ _ : _.:, , " X - JOO(MSA) and also has a popula- I 100 . 'A . . __ , '. . . :: ' : X -l ,X-200tion of one million or more can I 0 100 200 400 600 LUorbe recognised as a CMSA if : consumer sovereigntyseparate component areas can I when resources are allocated asbe identified within the entire I per the wishes of consumers,area by meeting statistical criteria specified in the standards, I i.e. in a perfectly free market.

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II consumer surplus Icontractionary7=ry""P""OI""ic""'=======,,,,3=5 consumer surplusthe difference between what aperson would be willing to payand what he actually ha,s to payfor buying a certain amount ofa good. consumptionthe individuals and corporationswhich buy products and services. In economics, consumption refers only to consumingthat involves a monetary transactIon. consumption functionthe relationship between disposable income and consumption.

Q :::..:::.': ' . :- .....- - ..-I ~ ~ " ' : . ~ _0,,_ ......... ..., ....

: : . . " ' ; ' . ' ! " ' ~ - - -...................-........ " ' ~ - - -r . ~ : ' ! . ~ = - - -

contingent valuations; the use of questionnaires about: valuation, to estimate the willingness of respondents to payI for public projects.I contract curve

the same as the Pareto set, withthe implication that it is drawnI in an Edgeworth box.

I contractionary fiscal policyI a government policy of reduc-

ing the spending and raisingtaxes.Visual

Contractlonary Fiscal Polley

LRAS SRAS

AD, AD,

Real NatloNl OUtput (GOP) contingency theory US!.nd describe ,Iv. .. lion"he governmentcould take in order Co decrease aggregate denW'ldregards the design of an effec _ I from AD, 1.0 AD,tive organisation, as necessarily contractionary monetaryhaving to be adapted to cope policywith the 'contingencies' that a government policy of raisingderive from the circumstances I interest rates charged by theof environment, technology, : central bank. In the texts ofscale, resources, work task and I some ftrst courses in macroecoother factors. I nornics, it shifts the LM curve

II


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~ 3 ~ 6 = = = = = = = = = = = . controlvariabJes Icorporatewelfon II(liquidity/money curve) to theleft.

A ~ ~ - - - - k ~::::"l'-..._ ~- . . .&M;" ~ _~ ~.

control variables

I for each data point, how far itI is from the means of the independent variables and theI dependent variable. If it is farI from the means of the independent variables, it may bevery influential and one canI consider whether the regres

sion results are similar without it.

a variable in a model controlledby an agent in order to optimise Isomething. convergence in quadraticmean 12 3 458789101112- cCHJperative gamekind ofconvergence of randomvariables. I f Xc converges in qua- Idratic mean, it converges in probability but it does not necessarily a structure where the playersI have the option of planning asa group, in advance of choos

ing their actions.onverge. convolutionthe convolution of two functionsU(x) and V(x) is the function:U*V(x) = (integral from 0 to Xof) U(t)V(x-t) dt. ~ C H J k ' s I>istancea metric for determiningwhether a particular pointalone affects regression estimates much. After a regression is run, one can consider,

corporate welfareI when a government givesI money or a monetary break(like tax cuts or subsidies) to aI business. Governments giveI money to businesses which arevery profitable to keep themfrom moving to other provincesI or countries.

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11 Co'stAndFmght(CAF) I c o u n t e n r a d : ~ ~ ~ ~ = ~ ~ ~ ~ ~ 3 ~ 7_ Cost And Freight (CAF) _ costate variablesa price quotation that includes I a Lagrangian multiplier orboth the merchandise cost and Hamiltonian multiplier.the freight charges- for its shipment to a given destination.- cost curvea graph of total COStS ofproduction as a function of total quantity produced.Toral Cost Curves

- cost function

: - cost-of-living index,: measures the changing cost ofa constant standard of living.; The index is a scalar measure: for each time period. Usually,it is a positive number, that; rises over time to indicate that: there was inflation. Two in-I .: comes can be compared across

I time by seeing whether the in; comes changed as much as theindex did.oMlCMc.e. . . . . . . . . . . . . .

_ , ___ __ . ______ : I ! " ~ ~ - - - - - - - .. ---

a function of input prices and Ioutput quantity. Its value is the Icost of making that output,given those input prices. - cost-push inflation; inflation whose initial cause is: a rise in production costs.C = "\)X I: - countable additivity

property0, . the third of the properties of a

; measure.- countertrading: the bilateral international trad-y, l'> y, Y. Y ing relationships between com

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countrrvailing power I Cowles CommissUm II=================,*================38 countervailing power I functions are assumed to be theJ.K.Galbraith' thesis of the ten- I same for all firms.dency of market (monopoly) I covariance stationarypower to be reduced by the a stochastic process is covariemergence of countervailing I ance stationary, if neither itsgroups and forces. mean nor its autocovariances coupling constraints I depend on the index t.the need to join with other .: Covariance StationaryI . Class of processes X(t}, t .. o. 1, 2 .. _. that have::people, organisations 'or capital .: .. ; . ~ : : : : : ~ : : , I ' ~ ~ : .ur ]investments (as 'bundles') to I .. " " ~ " " . " .."jkl ElIX,",(X. , , ~ , , , r J

(11.11 ; . I , . ' ! : ~ u d .-rJly 011 .:accomplish an objective. . We mume the oulocorrel.tion ho, the form Cournot Duopolya pair of firms which split amarket, modelled as in theCournot Game.

Coumot Duopoly In the Coumolmodd each of the two finnspickIhe quantities 'i and Q2 to ~ pro.tJced Each finn laIC. . he other linn ' s oUlpul as giva!and choo. . . the ootput Ulf rriaxidtizes its profits The price lhat emerges clears the market (demand

=supply)

Cournot Modelsa generalisation of the Cournot

,\ k l - It; f l!ti.;:)us I. . , , ~

Cowles CommissionI a: 1950s panel on econometrics,

that focused attention on the

Game, for describing the indus- IlIlulfllarthcSo.. ,oIls..:"-'fft.'eRuIJdinllh: . IQ4" rtlprvw: J ...nbColKft.try structure. Each of the N I ~ : : ; ; : . , K",1oIY "" ' ,"" row ..... Kkm. " " ' " f


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II Cronbach'sAJpha I u r r m t a c c o u n t ; ~ n c = e = = = = = = = = = 3 ~ 9tige and influence of the CowlesCommission. Cronbach's Alpha

I errors made in predicting eachI data point, by using a kernel: regression on the others.I: .CSO

Central Statistical Office.I. CTT

a test for a model or survey'sinternal consistency. I t is sometimes called .a 'scale reliabilitycoefficient'. Cronbach's alphaassesses the reliability of a rat- Capital Transfer Tax.ing, summarising a group of I current accounttest or survey answers, which I a part of balance of payments,measure some underlying fac- where payments for the purtor (e.g., some attribute of the I chase and sale ofgoods and sertest-taker). A score is computed I vices are recorded.from each test item and the I current account balance

the difference between aoverall rating called a 'scale' isdefined by the sum of these Iscores over all the test items. country's savings and its inThen reliability is defined to be I vestment . If the current acthe square of the correlation I count balance is positive, itbetween the measured scale measures the portion of aand the underlying factor that I country's saving investedthe scale was supposed to mea- I abroad and if it is negative, it

measures the portion of thedomestic investment financedsure. cross-section data I by foreigners' savings.is the parallel data on manyunits such as individuals, house- Iholds, firms or governments. cross-validationa way of choosing the windowwidth for a kernel estimation.The method is, to select, from a Iset of possible window widths,one that minimises the sum of

Developmenta in the CUITODt IIOOOOII1t belance,Igovernment net lending and real dispooable income.. _ c..ntf'lllk"COl. .. p e f t t n l . 1 g l " ' G O P

14 " , , * M C ! O f ~ ~ t.t. t.t . . . 2000

&onomit:s======= I


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40=================* current balance Ideductive II current b a 1 a n c ~difference between total exportsand total imports. CWO

I decision or choice.I 2. a mapping from the expressed preferences of each ofa group of agents to a groupI decision.Cash With Order. The first is more relevant to de minimis decision theory and dynamica legal term for an amount I optimisation, while the second

which is small enough to be ig- I is relevant to game theory.nored, too small to be taken I decoupleseriously. Used to restrict legal provision of support to an enprovisions, including laws re- Igarding international trade, to terprise, usually a farm, in aamounts ofactivity or trade that I manner that does not provide" all all an incentive to increase produc-are not tflVl y sm . tion. Farm subsidies that are deadweight loss I decoupled are included in thethe net loss in economic welfare I green box and are thereforewhich is caused by a tariff or permitted by the WTo.other source of distortion, de- I deductionfmed as the total losses to those I also known as deductive reason-

I ing. A process of inference,which leads from general principles or universal premises via

I logical reasoning to expectations or conclusions about particular cases.

who lose, minus the total gainsto those who gain. Usually identified in a supply-and-demand Idiagram in terms of change inconsumer and producer surplus, together with government Irevenue. The net of these appears as one or two welfare tri- deductiveangles. I characterises a reasoning pro- decision rules I cess of logical reasoning from1. a function which maps from I the stated propositions.the current state to the agent's

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II deep itltror4tUm Ide-itulustrialisatUm .========== " , , 4 = 1- deep integration - deficit ,

I in the balance of payments or: in any category of internationaltransactions within it, the defiI cit is the sum of debits minusthe sum of credits or the nega-

economic integration whichgoes well beyond the removalof formal barriers to trade andincludes various ways of reducing the international burden ofdiffering national regulations,such as mutual recognition and Iharmonisation. Contrasts with

tive of the surplus.I _ ..-- .......".. .......I 2DO r--------------------IL---

shallow integration.- deep marketsa capital market may be said tobe deep if it has great depth.May less formally be used todescribe a market with a largetotal market capitalisation.- defaultfailure to repay a loan. International loans by governmentsand private agents lack mechanisms to deal with default, comparable to the legal mechanisms that exist within countries.- deficiency paymentpayment to a producer of anamount equal to the differencebetween a guaranteed price andthe market price, with the latter often determined on theworld market. A form of subsidy to production.

I

: f = = ~ ~ ~ ~ ~ ~ ~ = ~ = = = = ! ~400 -4r--'-r--r--,- I ! i \ - i - -"l - ; - - - r - r '1111__ __ 1__1171_I = I::::. Ci .....

: - degressivegoing down with income or

lover time. A degressive incometax takes a smaller fraction of: higher incomes. Degressivity intrade policy might be a tariff,; the ad valorem size of which is: scheduled to decline over time,or a quota that is scheduled to; expand faster than demand for: lmports.I: - de-industrialisation: a decrease, over time, . n theI share of the manufacturing in: an economy, usually accompa-I .: nied by growth in the share of

services. Typically, accompanied; by an increase in manufactured: imports.I

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" "4 , , , , 2=========== :i17eredprice Idemographic transition II delivered pricethe price which includes freightcharges to the location of thebuyer.

I demand elasticityI normally, the price elasticity of

demand. demand price

delta the price at which a given quanis used with respect to options. I tity is demanded. The demandThe rate of change of a finan- I curve viewed from the perspeccial derivative's price with re- tive of price as a function ofspect to changes in the price of quanuty.the underlying asset. Formally, ;this is a partial derivative. A demand schedulederivative is perfectly delta- I a list of prices and correspondhedged if it is in a portfolio with ing quantities demanded or thea delta of zero. Financial firms graph of that information.make some effort to construct I Thus, a demand curve.delta-hedged portfolios. demand curvethe graph of quantity demanded, as a function of price,normally downward sloping,straight or curved and drawnwith the quantity on the horiwntal axis and price on the vertical axis.

I demand setI in a model, the set of the mostpreferred bundles of goods thatan agent can afford. This set isI a function of the preference relation for this agent, the prices

of goods and the agent's enI dowment.I demographic transition

demand deposit model of population changea bank deposit which can be based on European experiwithdrawn 'on demand'. The I ences. The model describesterm usually refers only to I the effects of changes in ferchecking accounts, even though tility and mortality, associateddepositors in many other kinds I with industrialisation,ofaccounts may be able to write I urbanisation and health carecheques and regard their depos- lmprovements.its as readily available.II=======Eeonomics


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II dependency theory Ideriveddematul .. = = = = = = = = 4 ~ 3The Demographic TransitionRata_ ,er 1101.. I\. ...........~ ~ M F t . . ... DnthRak .........SOote SOote 2 SOot, SOote

dependency theorythe theory that states that theless developed countries arepoor because they allow themselves to be exploited by thedeveloped countries throughinternational trade and investment.

."" DependenclI Theorv~ .'-. . Blami" Ille sYSlem~ ,110. Glullal cconomv a ~ o r s rIch COUlilfles... " " G10hal economu cKPloils 11001 natIOns~ RIch nahons mlclillonalfy keep lIoor

113110ns llOor~ . RIch lIallOlIS eKlllolfS natural resources.. and labor to tloor coUnltteS..-. . Core SeIDl pentl/wry Periphery

dependent variable

Thus, the relationship is often; expressed as: a dependent vari: able is a function ofone or more'independent' variable(s).

depthI an attribute of a market. In securities markets, depth is measured by the size of an order

flow innovation, required to; change prices by a given: amount.I: derivatives

securities whose value is deI rived from the some other: time-varying quantity. Usually,

that other quantity is the priceI of some other asset such asbonds, stocks, currencies orcommodities. It could also beI an index or the temperature.I derived demand

the demand that arises or ISActIvItythe variable to be 'explained'with the help of 'independentvariables'. These independent Ivariables serve as the 'explana- Itory' variables, however, theextent to which this relationship Ior 'explanation' actually implies I'causality' varies. It may merelyrefer to a statistical relationship.

defined indirectly from someI other demand or underlying

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" , , 4 4===========* de-skilling Idigital nervous system IIbehaviour. de-skilling

I ics specialising in the processesI of long term growth and

change, especially in the case ofthe less developed economies.I. DFS Modellone of the continuum-of-goodsmodels of Dornbusch, Fischer,and Samuelson (1977, 1980).

differentiated productI 1. a firm's product which is notI identical to the products of

a decrease in the level and scope Iof skills within a local/regionallabour market, resulting frommainly two corporate strategies: (1) mechanisation andcomputerisation of productionand office activities (2) trunca- Ition of corporate activi tieswithin the region. destabilising speculationspeculation which increases themovements of the price in themarket where the speculationoccurs. Movement may be defined by amplitude, frequency Ior some other measure.

other firms in the same industry. Contrasts with homogeI neous product.

deterioration

2. sometimes applied to products produced by a country, eventhough there are many firmswithin the country whose prod-ucts are the same, i f buyers dis

I tinguish products based on thethe process or occurrence of anasset's declining productivity as country of origin. This is calledit ages. This is a component of ; the Armington assumption.depreciation. . digital nervous system deterministic functions the digital processes which en

and variablesnot random. A deterministic Ifunction or variable oftenmeans one that is not random,in the context of other variables Iavailable. development economicsa sub-discipline within econom-

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II directfoetor content Idiscrete choice ~ r mmlels 45able a company to perceive and the expiry date of the bond. Inreact to its environment, to : difference to coupon bonds, dissense competitive challenges . COWlt bonds only pay the bearerand customer needs, and to once, when the bond expires.organise timely responses. discount factor direct factor content I in a multi-period model, agentsa measure of factor content may have different utility funcwhich includes only the factors tions for consumption (or otherused in the last stage of produc- experiences) in different timetion, ignoring factors used in ; periods. Usually, in these modproducing intermediate inputs. : els they value future experi- direct-plus-indirect factor ences, but to a lesser degreecontent ; than present ones. For simplica measure of factor contentWhich includes factors .used inproducing the intermediate inputs and so forth. That is, it includes all the primary factorsthat contributed, however indirectly, to the production of agood. discoUnt bondsa bond perchased at a discountor at a price less than its face

Bents Issued at a [ l scomtI; ~ . I CIIIII ",149Ua___ U-t 3,151_Pl lJ l l tk 111 ,_

1


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" " 4 6 = ~ = = = = = = = d " " i s C " " r e t e , , , , = r ; e s . r i o n mmiels Idispute settlementbody 11as endogenous. Often the 1 tion or economic activities.choice is denoted Yi. discrete regression modelseconometrics models in whichthe dependent variables assumediscrete values.

I disembodied technologicalchangealters the production functionwithout requiring gross invest

I ment to carry it into place. discrete time I disintermediationthe division of time into indi- the prevention of banks fromvisible units. In economic mod- flowing money from savers toels, these units represent peri- I borrowers as an effect of reguods, such as days, quarters or I lations.years . diseconomies of scalesimilar to economies of scale,but with the implication thatthey are negative, so larger scalewould increase the cost per unit.

ATC I I I It--Olseconomin occurf--- whon output gO " Ibeyond the minimum Imr.m.I-- point of tho long run --r-t-- average cost curve i-"'"V , It-,.. / '-

Output

I dismal sciencerefers to economics, which because it is so often used in ref

I erence totradeoffs, is widelythought to be depressing tostudy. dispute settlement

I in the GAIT, the adjudicationI of disputes among parties. In

the WTO this is done by thedispute settlement mechanism. dispute settlement body

I the entity within the WTOwhich formally deals with dis- diseconomies of scale, putes between members. It con-scope or agglomeration I sists of all WTO memberscost increases or other disadvan- I meeting together to considertages associated with .e scale reports of panels and the Apor scope of operation or with I pellate Body.the agglomeration of popula - I

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II dissaving I dumestic dissavingwhen individuals or householdsspend more than their currentincome. dissipate rent

47*================I eludes taxes and subsidies, tarI iffs and NTBs, externalities, in-complete information and imI perfect competition.I Dixit-Stiglitz utilityI the Dixit-Stiglitz function usedas a utility function.

dollar standard

to use up, in real resources, thefull value of the economic rentsthat are being sought by rentseeking. an international financial sys distance decay I tem in which the U.S. dollar isthe diminishing level of inter- I used by most' countries as theaction or value of a variable, primary reserve asset, in conwith increasing distance, largely . trast to the gold standard mresulting from the effect ofvari- I which gold played this role.ous forms of distance-sensitivetransaction costs on demand orcost patterns or functions. distance elasticity ofdemand

I dollarisationofficial adoption by a countryo u ~ e r than the United States of

I the U.S. dollar as its local cur-I rency.

Domar Aggregationthe principle where the growthrate of an aggregate is the

the relative response of effective demand to a change in thedistance (or transport costs) Iwhich a consumer (or consumers) has (have) to overcome, inorder to purchase a good or ser- II weighted average of the growthrates of its components, whereeach component is weighted byI the share of the aggregate itice at a given price.

distortionany departure from the ideal ofperfect competition which interferes with economic agents,maximising social welfare whenthey maximise their own. In-

makes up. The idea comes upin the context of national acI counts and national statistics.

I domestic; within one's own country. Adomestic producer is one that

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""4""8=========,,,,dome.=::content requirement Idual economy IIproduces inside the home country. A domestic price is the priceinside the home country. Opposite of 'foreign' or 'world'. domestic content requirement

I ture of a product or processI which becomes the acceptedmarket standard. DominantI designs may not be better thanI the alternatives nor can it bepromised that they will be in-novative. They have the benchI mark features to which subsein a country contain a certain quent designs are compared.minimum of domestic value I

a requirement where goods sold

added. double coincidence of domestic credit wantsI a problem that is generally re

I lated to the Barter System. Re-redit extended by a country'scentral bank to domestic borrowers, including the government and commercial banks. Inthe United States, the largestcomponent by far is the Fed's Iholdings of U.S. governmentbonds, but it also makes someshort-term loans to banks to use

fers to a situation where theI supplier of good X wants goodI Y and the supplier of good Ywants good X.

drawbackrebate of import duties whenI the imported good is re-exported or used as input to the

production ofan exported good.as their reserves.

3D

'"01 .

--_ .. --- ----20 ...... _ ............lD....,....1/01 4/01 7/01

... --- ...----

10/01- eom.ucO"MlIt .. - - N I t ~ t D ~

___ N o n ~ c r e d t t

dominant designs

dual economyI an economy that is supposed toI consist of two relatively distinctparts, in terms of specific distinguishing attributes. In theI development literature, numer-ous theories use this proposeddualism to isolate relationshipsI between the two parts, whichare suggested to reinforce thedualism.

after a technological innovationand a subsequent era of fermentin an industry, a basic architec- I

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49I duallabourmarket Idynamicgainsfromtrade*===============DualF.ronomy \fOO.I: RuralAgrladturalSeclor implicit citation is to Durbin

I (1 7 0 ) . The h statistic is asymp-Q.-q . . .utyora,product : toncally distributed normally, ifthe hypothesis is that there is

I no autocorrelation.I Durbin-Watson statistic

1 , . " 1 1.1'0' a test for first-order serial cor- dual labour market : relation, in the residuals of aa segmented labour market in time series regression. A value

~ v h i c h one part is, usually and ; of 2.0 for the Durbin-WatsonI ~ b r o a ~ terms, characterised by : statistic indicates that there ishigh skills and wages, job secu- no serial correlation. This rerity and desirable working and ; sult is biased towards the find

c a r ~ e r development conditions, : ing that there is no serial correWhIle the other part has low lation if lagged values of thewages, no or inferior benefits, regressors are in regression.a temporary or unstable nature, ; dynamic effectsno or little chance of advance- .; certain effects of trade and tradement and otherwise poorer I bi eralisation that are poorlyworking conditions. dun erstood, including both dummy variables ; multilateral and preferentialIn an econometric model a : trade agreements, that extendvariable which marks or ~ n - beyond the static gains fromcodes a particular attribute. A I trade. Such dynamic effects aredummy variable has the value : thought to make the gains fromzero or one for each observa- trade substantially larger thantion, e.g. 1 for pass and 0 for I in the static model.fail . ; dynamic gains from trade Durbin's h test the hoped-for benefits froman a l g o r i t ~ m ~ o r detecting : trade which accrue over timeautocorrelanon ill the errors of in addition to the conventionala time series regression. The ; static gains from trade of trade

E c o n o m i C S = = = = = = = 1 I


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" " , 5 0 = = = = = = d y n a = " " , m " " , i c " " , m " " , u l = t i P " " , I = i e r ~ Economic Overhead Capital (EOC) 1\theory. Sources of these gains I methods to the empirical estiare not well understood or I mation of economic relationdocumented, although there ships. Econometric analysis isexist a variety of possible theo- I used extensively in internationalretical reasons for them and I economics, to estimate thesome empirical evidence that causes and effects of internacountries have benefited more tional trade, exchange rates andthan the static gains alone I international capital move-would suggest. ments . dynamic multipliersthe impulse responses in a distributed lag model. dynamic optimisations

Economic and MonetaryUnion (EMU)

I a currency area formed in 1999,I as a result of the MaastrichtTreaty. Members of the EMUshare the common currency, theI Euro.

the maximisation problems to Iwhich the solution is a function. dynamic programming I economic freedom

freedom to engage in economictransactions, without governI ment interference, but with thesupport of the government in

stitutions necessary for thatI freedom, including rule of law,

the study of dynamicoptimisation problems through Ithe analysis of functional equations like value equations. Thisphrase is normally used, analo- Igously to linear programming,to describe the study of discreteproblems. I sound money and open mar- early harvest

kets. Economic Overhead

Capital (EOC)term, in trade negotiations, Ifor agreeing to accept the results of a portion of the negotiations, before the rest of the Inegotiations are completed.

I economic infrastructure, such asroads, railways, port facilities,power facilities. econometricsthe application of statistical

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II economic rent I e.ffictiveprotection ..============5=1 economic rent I diseconomies of scale, which

f I occur when an increase in all theany rerum which a factor 0 pro-duction receives, in excess of its : inputs brings about a less thanopporrunity cost. proportionate increase in outO'scoa.. dIKCftClmfCrWpne .. .dUfldltota""bI.andbed

q,tot........ DUI . . . . . . o1qlfot.I put. .I economy, economIes: two meanings of 'economies'need to be distinguished:I 1. the economies of regions (as"'::..%,,::'v aggregates of interrelated eco- economic union nomic activities).

a common marke.t with the I 2. in the sense of economising,added feature that additional I savings, cost reductions, etc. aspolicies: monetary, fiscal, wel- used in agglomeration econofare, are also harmonised across : mies, scale economies,the member countries. localisation economies. economies of flexibilitythe advantages accruing to aproducer with many plants ofdifferent sizes, in allocating increases or decreases in operations to that plant whose size issuch as to handle the total output change of the producermost efficiently. economies of scaleif all the inputs in a productionprocess are increased and theoutput increases proportionately, by more amount than theincrease in the inputs, economies of scale are being realised.There may also be

I effect of trade; the effect of a change in some: policy or other exogenous variable which will increase the; quantity of trade. Since in trade: models trade itself is endogenous the effects associated,I with a change in trade dependon what caused it.

effective protection: the concept in which the protection provided to an industry; depends on the tariffs and other: trade barriers on both its inputsand its outputs, since a tariff onI inputs raises cost. Measured by the effective rate of protec-

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",,52=========Effec=ti;Rate ofProteetion (ERP) I eltuticity IItion.- Effective Rate of Protection (ERP)

I efficient, which in turn impliesI that future exchange rates cannot profitably be predicted.

a measure of the protection - elasticprovided to an industry by the having an elasticity greater thanentire structure of tariffs, tak- lone. For price elasticity of deing into account the effects of mand, this means that expentariffs on inputs, as well as on diture rises as price falls. Foroutputs. I income elasticity, it means that

EtTectIVera!eofprotectJon.ERP expenditure share rises with in-VIII_..wcd(__ pn"'").vaI . . d c d . w . . n < l p n e u ) d..........._._.-_ ...-........_......_......._ ....._..M come, a supenor goo .vllluc-addcd: (world pncel)

EN' jh:!'!L:[}!,:2d M ~ + . . ~ : " , , ( 1 + ~ } - ( 1',,-__") ., [,,,to:"'!.~ - ~ ~ ~ ~

P4' p"" . . . . . . . 4Dmctflc__ dpm:coJGUtpul.


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II elasticityofdemand or exports I m P l ~ t argument or protection 53 elasticity of demand for

exportsthe price elasticity of demandfor exports of a country, eitherfor a single industry or for theaggregate of all imports.Equals the rest of world's elasticity of demand for imports. elasticity of demand forimportsthis is normally the price elasticity of demand for imports of

ticity with respect to their price.1 ratio.; - elasticity of supply: the (price) elasticity of supplyis the percentage change in the1 quantity supplied of a good orservice divided by the percent: age change in its (own) price .1: - embeddedness1 the idea that economic1 behaviour is influenced by the

a country, either for a single in- 1dustry or for the aggregate ofall imports. The latter plays acritical role in determining howthe country's balance of traderesponds to the exchange rate.

dominant norms, institutionsand social practices which, in1 turn are culturally embedded.; - empirical findingsomething which is observedfrom real-world observation or

- elasticity of substitution 1 data, in contrast to somethingthat is deduced from theory.the elasticity of the ratio of two 1inputs to a production (or util 1 employment argument forprotectionL the use of a tariff or other trade1 restriction to promote employment, either in the economy atlarge or in a particular indus-1 try. This is a second best argu-ment, since other policies, such

K as a fiscal stimulus or a produc-ity) function, with respect to the tion subsidy, could achieve theratio of their marginal products ; same effect at lower economic(or utilities). With competitive cost.demands, this is also the elas-

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54=================* enabling clause Immplltmule 1/ enabling clausethe decision of the GAIT in1979 to give developii!lg countries special and differentialtreatment. endogenous growtheconomic growth whose longnm rate depends on behaviourand/or policy.

I accumulated.I Engel's CurveI a general reference to the linethat shows the relationship between various quantities of aI good that a consumer is willingto purchase at varying incomelevels (ceteris paribus).I With rising incomes, the shareI of expenditures for food products declines. The resulting shiftin expenditures affects demandI patterns and employment struc-

endogenous protectionprotection which can be ex- Iplained as the outcome of economic and/or political forces. tures. It suggests that consum endogenous variable ers increase their expendituresan economic variable which is I for food products at a percentdetermined within a model. It age rate, which is lower thanis therefore not subject to direct that of their increases in inmanipulation by the modeller, I come. Poorer families willsince that would override the I spend a larger share of theirmodel. In trade models, the total expenditures on food thanquantity of trade itself is almost I the wealthier families.always endogenous. I engine of growth endowment I sometimes used to describe thethe amount ofsomething which role that exports may havea person or country simply has, played in economic developrather than their having some- I ment, both of some of the rehow to acquire it. In the H-O gions of recent settlement in theModel of trade theory, endow- nineteenth century and ofments refer to primary factors I today's NICs.ofproduction, ignoring the fact I entrepot tradethat some of them, especiallycapital and skill, are deliberately I the import and then export of agood without further process-

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II en:'Pelope IetJ.uilibriutnlJuantitying, usually passing through anentrep6t, which is a storage facility from which goods are distributed. envelopethe outermost points traced outby a moving curve. envelope eurvea curve enclosing, by just touching, a number of other curves. environmental dumpingexport of a good from a country with weak. or poorly enforcedenvironmental regulations, reflecting the idea that theexporter's cost of production isbelow the true cost to society,providing an unfair advantagein international trade. Alsocalled eeo-dumping. Environmental KuznetsCurve

55*================a situation in which there is noI tendency for change. For ex: ample, in the Keynesian expenditure model, the equilibrium; condition is that planned spend: ing just equals the current level

of national income. Once thatI condition is satisfied, there is no: tendency for the level of national income to change.

equilibrium priceI a price at which the quantity; supplied equals the quantity: demanded. At this price, thereis no excess of quantity de; manded or supplied, nor is: there any deficiency of eitherand consequently, the price willI remain at this level.

Il 'Lian inverse V-shaped relation- Iship hypothesised between percapita income and environmental degradation. Named after Ithe Kuznets Curve dealing withinequality. equilibrium conditiona condition that must be satisfied for the equilibrium to exist, equilibrium being defmed as

equilibrium quantity; the quantity of a good de: manded and supplied at theequilibrium price.

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56 equivalent variation IEuropeal1.Free TradeAssociation (EFTA) II~ = = = = = = = = = = = = = = * = = = = = = = = = = = = = = =- equivalent variation I country, denominated in athe amount of money which, I eurocurrency.paid to a person, group or _ Europe Agreementwhole economy, would make an agreement between the EUthem as well off as a specified I and each of the ten Easternchange in the economy. Provides I European countries (startinga monetary measure of the wel- with Hungary and Poland infare effect of that change, which I 1994), creating free trade areasis similar to, but not in general I and establishing additionalthe same as the compensating forms of political and economicvariation. cooperation in the preparation- escape clause I for these countries' eventualmembership in the EU.1. the portion of a legal textwhich permits departure from ; _ European Economicits provisions in the event of: Community (EEC)specified adverse circum- I a customs union formed 111stances. I 1958 by the Treaty of Rome,2. the US statute (section 201, among six countries of Europe:. I1974 trade act) that permits Belgium, France, Germany,imports to be restricted, for. a I Italy, Luxembourg, and Nethlimited time and on a nondls- erlands.criminatory basis, if they havecaused injury to US firms or Iworkers. _ European Free TradeAssociation (EFTA)

I a free trade area, comprising of- Euro Interbank Offered countries in Europe that did notRate (EURIBOR) join the European Economica euro-denominated interest I Community. EFTA was estabrate charged by large banks, I lished in 1960 among Austria,

among themselves, on euro- Denmark Norway, Portugal,I 'denominated loans. Sweden, Switzerland and the_ eurobond I United Kingdom. As of 2000,

it includes Iceland,Liechtenstein, Norway, anda bond which is issued outside Iof the jurisdiction of any single

I l = = = = = = = E & o n o m i c s


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II EftropeanMonetaryAgreement = c h " " , a " " , n o " " , e " " , m a = ~ " " , k e t = = = = = = " " , 5 ~ 7Switzerland.- European MonetaryAgreement (EMA)

I in relation to its deposit liabiliI ties and the amount it actuallyholds.I: - excess supply'supply minus demand. Thus, a

I country's supply of exports of aan intergovernmental organisatio

a comprehensive dictionary of economics (gnv64)

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