The Accelerator Principle is an economic concept that proposes investment levels respond to growth in output, suggesting that changes in the rate of output growth result in changes in investment.
Adaptive expectations is a theory that states individuals adjust their expectations of the future based on past events. This approach to predicting future events implies that people base their expectations on what happened in the recent past and modify them incrementally as new information arises.
The utilization of economic theories and principles to address practical real-world problems and inform governmental policy-making.
Bounded rationality describes the type of rationality that individuals and organizations utilize when confronted with complex decisions in real-life, fast-moving situations where perfect information is unavailable. Instead of aiming to maximize profits, decision-makers seek acceptable solutions that yield satisfactory results.
Term used by Marxist economists to denote the social class that owns property and financial assets and thus derives income from investments. Also may be used to refer to the middle and upper classes and the prevailing social values of mainstream society.
The foundational questions that address what a society decides to produce, the methods used for production, and the distribution of the products among its members.
Consumer sovereignty refers to the ability of consumers to obtain exactly what they want by paying a price that is satisfactory to suppliers. It is considered a prerequisite of properly functioning markets. However, sovereignty can be limited by factors such as lack of information, constraints on prices and supplies, and third-party influences on purchasing decisions.
The Consumption Possibility Line represents the maximum amounts of consumption possible at varying levels of disposable income, or of Gross Domestic Product (GDP).
Cross-price elasticity measures the extent to which the price of a specified good is affected by the price of another complementary or substitute good. It is a crucial concept in microeconomics that helps understand the interdependencies between different products in the market.
Crowding out occurs when heavy federal borrowing leads to higher interest rates, which subsequently reduces the borrowing ability of businesses and consumers.
A deflationary gap is an economic term that describes a situation where the Gross Domestic Product (GDP) is below its full-employment level, leading to unemployed resources and potentially falling prices (deflation).
The Law of Diminishing Marginal Utility is an economic proposition that states that successive units of a good or service provide less and less satisfaction to a consumer, given that the previous units already have been consumed.
A phenomenon in economics where adding additional units of resources to a production process results in smaller increments of output due to overcrowding, inefficiency, or less effective resource allocation.
Diseconomies refer to costs resulting from an economic process that are not borne by those directly involved in the process, often leading to negative externalities. Pollution is a common example where the polluters do not bear the resultant costs.
Division of labor refers to the separation of the workforce into distinct categories of labor and assigning specific tasks required to produce a product to different workers. This concept is integral to increasing efficiency and productivity in various industries.
Engel's Law is an economic principle formulated by 19th-century economist Ernst Engel, stating that as a family's income increases, the proportion of income spent on food decreases, even if absolute spending on food rises.
In economics, the Exclusion Principle refers to the right of an owner of private property to exclude others from using or enjoying it.
Human capital refers to the skills, knowledge, and experience possessed by an individual, viewed in terms of their value to an organization. This concept helps explain variations in wages and employment decisions in the labor market.
The Kondratieff Cycle, also known as the Kondratieff Wave, is a theory proposed by Soviet economist Nikolai Kondratieff in the 1920s, which suggests that the economies of the Western capitalist world experience major up-and-down 'supercycles' lasting 50 to 60 years.
The Laffer Curve is an economic theory that illustrates the relationship between tax rates and tax revenue, suggesting that there is an optimal tax rate which maximizes revenue.
Laissez-faire is a doctrine that advocates minimal government intervention in business and economic affairs, allowing for free market forces to dictate economic outcomes.
The Law of Diminishing Returns, also known as the principle of diminishing marginal productivity, is an economic rule stating that if one factor of production is increased while other factors are fixed, a point will be reached at which additions of the factor will yield progressively smaller increases in output.
A period of time long enough for an industry to make all necessary adjustments to changing economic conditions, to increase or decrease capacity, or for firms to enter or leave the industry.
The Long-Wave Cycle, also known as the Kondratieff Cycle, refers to a theorized cycle in the modern world economy spanning approximately fifty to sixty years, marked by periods of high sectoral growth followed by declines.
A comprehensive overview of Marxism, detailing the political, social, and economic theories of Karl Marx. Examines applications in communist and socialist economies.
Mercantilism is an economic theory and practice dominant in Europe during the 17th and 18th centuries that promoted governmental regulation of a nation's economy for the purpose of augmenting state power at the expense of rival national powers. It advocates that a nation should export more than it imports to accumulate wealth, primarily in the form of precious metals like gold and silver. Under mercantilism, trade surpluses were viewed as critical for increasing the nation's reserves.
A monetarist is an economist who believes that the money supply is the key to the ups and downs in the economy. Monetarists, such as the late Milton Friedman, think that the money supply has far more impact on the economy's future course than, say, the level of federal spending.
A market situation in which the products supplied are not perfect substitutes, thereby allowing the suppliers to exert some monopoly power. Each firm attempts to establish its brand as a distinctive and superior form of the product, which allows it to command a higher price than other suppliers.
The monopoly price is the price arrived at in a market where the supply is controlled by a monopoly, typically higher than the price that would prevail under competitive conditions.
Neoclassical economics is a school of economic theory that flourished from about 1890 until the advent of Keynesian economics and asserts that market forces lead to efficient allocation of resources and full employment.
The normal price refers to the price level that goods or services typically command in a market over the long term. It is a stable price expectation absent extraordinary market fluctuations like sudden shortages or surpluses.
An empirical relationship between unemployment and gross domestic product (GDP), developed by economist Arthur Okun, which states that for every 1% increase in unemployment, there is a corresponding 2% decrease in the national GDP.
A market condition wherein no buyer or seller has the power to alter the market price of a good or service. Characteristics of a perfectly competitive market include a large number of buyers and sellers, a homogeneous good or service, equal awareness of prices and volume, absence of discrimination in buying and selling, total mobility of productive resources, and complete freedom of entry. Perfect competition exists only as a theoretical ideal, also called pure competition.
Permanent income is a long-run measurement of average income, wherein temporary fluctuations in income do not significantly affect consumption patterns.
The Phillips Curve is an economic proposition stating that there is an inverse relationship between unemployment and inflation rates within an economy. As inflation increases, unemployment tends to decrease and vice versa.
Public choice theory is the application of economic theory to the public sector and the analysis of the demand and supply of government services. It views the public sector as a supplier attempting to maximize its welfare, typically focusing on decisions designed to promote the reelection of incumbent politicians.
Pure competition is a market condition where numerous producers and consumers exchange a homogeneous product, resulting in the largest output at the lowest price without any single entity influencing the market independently.
In Marxist theory, the large number of unemployed whose existence assures that wages will be kept at minimum levels.
A proposition in 19th-century classical economics, asserting that supply creates its own demand, implying that whatever quantity is supplied will also be demanded. It is named after the 19th-century French economist J.B. Say.
Substitution Law is an economic proposition stating that no good is absolutely irreplaceable; at some set of prices, consumers will opt for substitute goods.
Supply-Side Economics is a theory of economics contending that drastic reductions in tax rates will stimulate productive investment by corporations and wealthy individuals, ultimately benefiting the entire society. This theory was championed in the late 1970s by Professor Arthur Laffer.
The term 'takeoff' refers to a critical point in the development and growth of a producer, an industry, or an economy, marking the stage at which it becomes economically viable and self-sustaining.
Technological Unemployment refers to the loss of jobs caused by technological changes, as new technologies either eliminate jobs or alter the nature of work such that workers' skills become obsolete.
