Definitions of Economics by Jim Stanford for preparations of Master of Economics or other Business Studies. These definitions is also useful for anyone who do business.
Central Planning: An economic system in which crucial decisions regarding investment, consumption, interest rates, exchange rates, and price determination are made by central government planners (rather than determined by market forces).
Class: The different broad groups in society, defined according to what work they do, their wealth, their degree of control over production, and their general role in the economy.
Classical Economics: The tradition of economics that began with Adam Smith, and continued with other theorists including David Ricardo, Thomas Malthus, Jean-Baptiste Say, and others. The classical economists wrote in the early years of capitalism, and they uniformly celebrated the productive, innovative actions of the new class of industrial capitalists. They focused on the dynamic economic and political development of capitalism, analyzed economics in class terms, and advocated the labour theory of value.
Climate Change: As a consequence of the cumulative emission of carbon dioxide (a by-product of fossil fuel use) and other chemicals over the past two centuries, the concentration of these gases in the global atmosphere is growing dramatically. These chemicals capture more solar energy within the atmosphere, and hence average global temperatures are rising – by about a full degree Celsius (on land) over the past half-century. The rise in global temperatures is causing many serious consequences, including changes in rainfall, rising sea levels, extreme weather and storms, and changes in plant and animal habitats.
Commodity: Anything that is bought and sold for money is a commodity – including produced goods and services, inputs (such as capital or raw materials), and even labour.
Comparative Advantage: A theory of international trade that originated with David Ricardo in the early 19th Century, and is maintained (in revised form) within neoclassical economics. The theory holds that a national economy will specialize through international trade in those products which it produces relatively most efficiently. Even if it produces those products less efficiently (in absolute terms) than its trading partner, it can still prosper through foreign trade. The theory depends on several strong assumptions – including an absence of international capital mobility, and a supply-constrained economy.
Competition: Competition occurs between different companies trying to produce and sell the same good or service. Companies may compete with each other for markets and customers; for raw materials; for labour; and for capital.
Conditionality: International financial institutions (like the World Bank and the International Monetary Fund) often attach strong conditions to emergency loans they make to developing countries experiencing economic and financial crises. These conditions require the borrowing countries to follow strict neoliberal policies, such as reducing government spending and deficits; unilaterally opening markets to foreign trade; and privatizing important public assets.
Consumer Price Index: The consumer price index (CPI) is a measure of the overall price level paid by consumers for the various goods and services they purchase. Retail price information is gathered on each type of product, and then weighted according to its importance in overall consumer spending, to construct the CPI. Monthly or annual changes in the CPI provide a good measure of the rate of consumer price inflation.
Consumption: Goods and services which are used for their ultimate end purpose, meeting some human need or desire. Consumption can include private consumption (by individuals, financed from their personal incomes) or public consumption (such as education or health care – consumption organized and paid for by government). Consumption is distinct from investment, which involves using produced goods and services to expand future production.
Corporation: A corporation is a form of business established as an independent legal entity, separate from the individuals who own it. A major benefit, for the owners, of this form of business is that it provides for limited liability for its owners: potential losses resulting from their ownership of the company (should it lose money, face legal difficulties, or experience other problems) are limited to the amount initially invested by the owners. The owners’ other personal wealth is kept separate and protected from claims against the corporation. The corporation is thus well-suited to the joint stock form of ownership.
Corporatism: A system for managing wage determination and income distribution, in which wage levels are determined centrally (across industries or even entire countries) on the basis of productivity growth, profitability, and other parameters, following some process of consultation or negotiation involving unions, employers, and often government. Variants of this system are used commonly in Scandinavia, parts of continental Europe, and parts of Asia.
Cost of Job Loss: When a worker is laid off or fired, they experience a significant out-of-pocket cost. That cost of job loss depends on how much they were earning in their job, how long it takes them to find a new job, the level of unemployment benefits they are entitled to, and the level of their pay in the new job. The higher the cost of job loss, the more employers will be able to threaten and discipline their workers. Cutting unemployment insurance has been one key neoliberal strategy for increasing the cost of job loss.
Counter-Cyclical Policies: Governments can take many different actions to offset the ongoing booms and busts of the private-sector economy. These policies include fiscal policies (increasing government spending when the economy is weak), monetary policies (cutting interest rates when needed to stimulate more spending), and social policies (like unemployment insurance) to maintain household incomes and spending even in a downturn.
Credit: The ability to purchase something without immediately paying for it – through a credit card, a bank loan, a mortgage, or other forms of credit. The creation of credit is the most important source of new money, and new spending power, in the economy.
Credit Squeeze: At times private banks become reluctant to issue new loans and credit, often because they are worried about the risk of default by borrowers. This is common during times of recession or financial instability. A credit squeeze can dramatically slow down economic growth and job-creation.
Debt: The total amount of money owed by an individual, company or other organization to banks or other lenders is their debt. It represents the accumulated total of past borrowing. When it is owed by government, it is called public debt, and it represents the accumulation of past budget deficits.
Debt Burden: The real economic importance of a debt depends on the interest rate that must be paid on the debt, and on the total income of the consumer or business that undertook the loan. For public debt, the most appropriate way to measure the debt burden is as a share of national GDP.
Deficit: When a government, business, or household spends more in a given period of time than they generate in income, they incur a deficit. A deficit must be financed with new borrowing, or by running down previous savings.
Defined Benefit Pensions: A pension plan that pays a specified monetary benefit, usually based on a pensioner’s years of service and their income at the time of retirement.
