Economicae^©

an illustrated encyclopedia of economics

Famous Economists

Mathematics of Economics

earnings report:	An earnings report (or income statement) is an accounting record of the revenues realized, accounting costs incurred, and profits or losses or other net surpluses or deficits during a period by a household, firm, or government agency. Open the file accounting vs. economic costs for a discussion of economic costs and profits. See also accounting costs vs. economic costs, balance sheet, explicit costs, and implicit costs.
easy money policies:	Expansionary monetary policies are sometimes characterized as “easy money” if a central bank follows policies that reduce nominal interest rates and significant expand the availability of credit. Contrast with “tight money” policies.
e-commerce:	Purchases or sales of products and services online, through the internet, is called e-commerce.
econometrics:	Econometrics is the development and application of mathematical and statistical techniques to study economic problems.
economic (capital) investment:	Economic investment in new physical capital is the purchase of new output that can be used for further production. The four basic types of new capital are: (a) new business structures; (b) new residential structures; (c) new machinery and equipment; and (d) inventory accumulation.
economic anthropology:	Economic anthropology is the study of interdependencies between economic processes and the milieu of institutional and socio-cultural conventions that influence economic processes. Individual and social human behaviors both influence economic processes and reflect economic processes. [See also institutionalism.]
economic development:	Economic development entails qualitative changes in an economic system; and occurs when there are improvements in either the quality of life or the quality of goods, or both.
economic discrimination:	Economic discrimination exists when equivalent resources (e.g., units of labor) receive different payments (wages), even though their potential productive contributions are identical.
economic dual:	The term economic dual refers to the mathematical equivalence of the requirement for economic efficiency that cost be minimized subject to a given output constraint with the requirement of maximization of output, given an identical cost constraint.
economic efficiency:	Economic (global) efficiency for society as a whole is achieved when the society produces the combination of goods with the highest attainable total value, given our limited resources. See also consumption efficiency, productive efficiency, and distributive efficiency.
economic freedom:	Economic freedom exists when individuals have the right to engage in voluntary exchanges of goods and services. Economic freedom is a foundation for market economies and pure capitalism.
economic growth:	Economic growth occurs when a society acquires better technology or more resources, enhancing the ability to produce goods with greater value that can be used for consumption or investment. See also development. Click on the link on economic growth for a more in-depth look.
economic incidence of a tax:	The economic incidence of a tax falls on the party who actually pays the final burden of the tax through reduced purchasing power.
economic loss:	An economic loss is a negative economic profit, and occurs when the opportunity costs of production exceed the sum of the values of changes (whether positive of negative) in a firm’s inventories and a firm’s revenues.
economic profit:	Economic profits are the excess of total revenues (TR) over the total opportunity costs (TC) of all the resources a firm uses. Economic profits (TR – TC) are a premium to the entrepreneur for innovating, bearing risks and uncertainty, and they are viewed as a reward for an entrepreneur if they exceed the minimum necessary for the firm to survive.
economic reductionism:	Critics of conventional economic analysis often accuse economists of “economic reductionism,” by which they mean that economists consider only very narrow economic elements when they analyze individual behavior or social interactions. The charge of reductionism suggests that economists ignore social reality, institutions, and non-economic behaviors essential to the maintenance of societies and environments. This charge of reductionism is especially frequent when economists practice “intellectual imperialism” by using the lens of economic analysis to examine such issues as political behavior, crime and punishment, drug addiction,, or other social problems viewed by the practitioners of other disciplines as exclusively within their domain.
economic rent:	Economic rent is a surplus reaped by owners of a resource paid more than the minimum necessary to elicit the supply of the resource. The term rent, once applied only to payments for the use of land, is increasingly applied by economists to any such surplus paid to a resource supplier.
economic theoreticians:	Economic theoreticians use mathematical tools to construct or revise theories based on a blend of received doctrine, conventional wisdom, casual observation, introspection, and logic. Theoreticians evaluate any specific model or broad theory by its interior logic and conformity to other mathematically “proven” theories, and argue that contradictions between “real world” data on the phenomena being investigated and logically rigorous “proofs” should be resolved in favor of mathematical rigor. At the extreme, this approach becomes indistinguishable from praxeology, the hallmark of Austrian economic methodology, which rejects both the possibility of empirical validation and any need to empirically test subjectively constructed theories. See also a priori and the more general term economic theorists and contrast with empirical economists.
economic theorists:	Economic theorists construct or revise economic models and theories. Some economic theorists are also empirical economists, who use data to ascertain the validity of their theories. Other theorists collectively known as economic theoreticians emphasize interior logic as the dominant proper test of a theory and rely primarily on intuition and mathematical rigor.
economic typology:	The process of economic typology entails categorizing societies by their primary forms of production (e.g., agriculture, mining and mineral extraction, industry, services).
economic union:	An economic union is an agreement among two or more nations to eliminate trade barriers with each other, to adopt a common trade policy with other nations, to allow free movement of resources among the countries, and to adopt common monetary policy or fiscal policy.
economics:	Economics is the study of how individuals and societies allocate their limited resources in attempts to satisfy their unlimited wants.
economies of agglomeration:	Economies of agglomeration [or economies of clustering] are the reductions of transaction costs realized because firms that are sequential actors in a supply chain locate close to each other. The more that related firms cluster together, the lower their production costs will be, which helps explain why urban centers and suburbs increasingly dominate the economic landscape.
economies of clustering:	See economies of agglomeration.
economies of scale:	Economies of scale exist when increases in inputs result in more than proportional increases in output so that long-run average costs fall as output rises. Click on the link to economies of scale and scope for more.
economies of scope:	Economies of scope are cost savings realized because certain types of production are complementary, so that it is less costly one firm to produce two or more products than it would be for different firms to separately produce each product. See also: economies of scale and scope.
economist:	An economist is a person who studies choices and their consequences, not only for the decisionmaker, but for persons external to the decisionmaker as well.
economizing:	Economizing is an attempt to minimize the costs of an activity, thereby allocating resources efficiently.
economy:	(1) An economy is the overall system of production, distribution, and consumption of goods and services in a society. (2) An economy is the reduction in cost that is a consequence of some institutional arrangement.
Edgeworth box:	An Edgeworth box is a rectangular diagram that shows distributions of fixed amounts of two variables between two entities or processes. For example, an Edgeworth box can illustrate the distribution of fixed amounts of apples and fixed amounts of bananas between two consumers, or between two countries. Alternatively, and Edgeworth box can be used to illustrate the allocation of fixed amounts of capital and labor between two production process. Examples of such uses of Edgeworth boxes are available here.
efficiency:	Economic efficiency occurs when the opportunity cost of some specific amount of a good is at its lowest possible value, and when maximum production from given resources and costs is achieved. A state of economic efficiency implies that gains to anyone entail losses to someone else.
efficiency wages:	Efficiency wages are wages that exceed the opportunity costs of an employee’s next best alternative job (which would be a market clearing wage). Efficiency wage theory suggests that people are more diligent and work harder if their wages are higher. Firms pay efficiency wages with the intention of reducing shirking by employees by raising the costs of dismissal. This theory modifies the more conventional explanation for wage structures that people who are more productive will be paid more.
efficient markets theories:	Efficient markets theories assert that all the information available is rapidly integrated into the prices of assets. The three basic types of efficient market theories are: (a) Weak: All published information is completely capitalized and reflected in the relative prices of alternative assets. (b) Semi-strong: All new information is immediately capitalized into the relative prices of alternative assets. (c) Strong: In addition to all the information available that might affect a particular asset, asset prices also reflect rational forecasts of all possible future events (including, e.g., predictions about changes in government policies). See also complete information, capitalization and rational expectations
effluent charges:	The effluent charge approach to abating pollution entails government setting the fee (charge) on pollution or the reward for reducing pollution. Polluters are then allowed to adjust without overt coercion. Click on the link for a comparison between effluent charges and subsidizing abatement. See also abatement.
egalitarianism:	Egalitarianism is the idea that everyone should be treated identically in some way, such as legal rights, opportunities, or wealth. One common form of egalitarianism advocates equality in the distribution of income. See also equal distribution of income standard, contribution standard, and needs standard.
elastic:	The term “elastic” is often used as shorthand economic jargon to refer to relatively elastic.
elasticity:	Elasticity in a broad sense is a measure of the sensitivity of one variable relative to some other variable. See also income elasticity of demand, price elasticity of demand, and price elasticity of supply.
elasticity of substitution:	The elasticity of substitution measures the proportional change in a resource ratio in response to a given proportional change in relative prices for resources. This concept [e.g., d ln K/L / d ln w/r], developed independently by Sir John Hicks and Joan Robinson in the 1930s, quantifies the relative change in, e.g., the capital to labor (K/L) ratio as their relative payments (w/r) change, and reflects, in part the marginal rate of technical substitution within a specific production process. A greater MRTS [in absolute value] implies that substitution is more difficult, and consequently yields a lower elasticity of substitution.
elasticity pessimism:	Elasticity pessimism is a term sometimes applied to the contention of John Maynard Keynes that neither saving nor investment respond significantly to changes in interest rates, with the result that even if interest rates were as flexible as neoclassical theorists assumed, markets would adjust only slowly towards a full employment level of output. Keynes asserted, instead, that saving is primarily a function of income, and that the level of investment depends primarily on the profit expectations of business investors. Moreover, Keynes pointed out that decisions to invest and decisions to save are made by different economic agents who usually have very different motives and perceptions. See also neoclassical economics and Keynesian economics.
electronic payments:	Electronic payments are automatic (and often regular, e.g., monthly) charges to a credit card, or automated payments from checking accounts on the Web.
elimination by aspect:	A heuristic termed “elimination by aspect” or “screening by attributes” is used when a decisionmaker facing numerous units of close substitutes for a good or resource narrows the range of choices by specifying attributes that eliminate some options. For example, a potential renter might inspect only furnished apartments within a specific distance from school or work, with x bedrooms and renting for no more than y dollars. This type of screening helps cap the costs of acquiring information about choices, but it may eliminate superior options that are, on balance, less costly. For example, the “best” apartment “for the money” by far might not be considered because of an additional 100 yards of commute. Alternatively, an employer may fail to hire the best possible applicant for a job by eliminating candidates who lack a specific amount of experience or education.
embargo:	An embargo is government prohibition against the export or import of all or certain products to a particular country for economic or political reasons. One example of an embargo is the U.S. embargo against trade with Cuba.
embezzlement:	Embezzlement is the fraudulent diversion of corporate or government agency funds by an employee or trustee for the personal use of the embezzler.
emigration:	Emigration is the movement of people out of a county when they immigrate to another country.
eminent domain:	A government’s legal right to eminent domain allows it to acquire property without the previous owner agreeing to the price government pays.
emissions fee:	An emissions fee is a tax on each unit of a firm’s emissions, and incentivises the firm to reduce its total production costs, including such fees, by reducing polluting forms of production, or by converting to cleaner, more efficient technologies. See also pollution abatement programs, pollution rights and emissions standards.
emissions standards:	An emissions standard is a legal limit on pollutants a firm can emit during a specific span of time or per product produced. Firms that violate such standards typically face monetary and/or criminal penalties. See also emissions fee and pollution.
empire building:	Empire building is a process of exaggerating the difficulty of the mission of a bureaucracy so that the budget of the agency will be expanded.
empirical:	Empirical phenomena can, at least in theory, be observed and evaluated.
empirical economists:	Empirical economists build data bases and use data to ascertain how well an economic theory explains individual or collective human behavior. See also economic theorists and contrast with economic theoreticians.
empiricism:	Empiricism is reliance on experience and analysis of “real world” data to either reject a theory or to conditionally accept the theory until it is shown to be inconsistent with more data as additional data are collected and processed. In the views of empiricists, theories that cannot be validated by data should be discounted heavily, or even rejected outright. Contrast with a priorism, praxeology, and economic theoreticians.
employed persons:	The Bureau of Labor Statistics measures as an employed person: (a) anyone in the United States who worked for pay any time during the week that includes the 12th day of the month or without pay for 15 hours or more in a family-operated firm, and (b) those temporarily absent from regular jobs in the United States because of illness, vacation, strikes, or similar reasons.
Employment Act of 1946:	The Employment Act of 1946 established the President’s Council of Economic Advisors and set priorities of “maximum employment, purchasing power, and economic growth,” but provided few directives about how to achieve full employment with reasonable price level stability, or clarity as to whether “maximum … purchasing power” refers to the purchasing power of the dollar, or the purchasing power of household income.
employment cost index (ECI):	The employment cost index reflects a weighted-average cost of an hour of labor, comprising the cost to the employer of wage and salary payments, employee benefits, and contributions for payroll taxes (e.g., Social Security and Unemployment Compensation taxes). The ECI automatically adjusts for changes in the mix of occupations as well as changes in employment by industry.
employment discrimination:	Employment discrimination is closely related to occupational discrimination and occurs when particular groups suffer a higher incidence of unemployment than other groups.
employment-to-population ratio:	The employment-to-population ratio is total employment (E) relative to a population (Pop), or E/Pop. See also labor force participation rate,{L/Pop) which is the sum of the unemployment rate (U/Pop) and the employment-to-population rate.
endogenous variable:	An endogenous variable is a variable that is an effect changes in other variables in a system, and is not an initial cause of changes in the system. The value of an endogenous variable is determined internally, and cannot be changed prior to a change in the value of at least one other variable in the system. Contrast with exogenous variable.
endowment effect:	The endowment effect is the widespread tendency to prefer items or assets owned more highly than alternative bundles of items or assets that have higher value in exchange, even though there is no rational reason to value the owned bundle more highly, and no reasonably meaningful emotional attachment to the items or assets. The endowment effect may be closely related to the status quo effect and certainty effect. Synonyms for the endowment effect are attachment bias, divestiture aversion, and selling aversion. Contrast with sunk cost and see also prospect theory.
endowment motive:	The endowment motive is the incentive that some people have to generate income through work or investment and to save because they want to enrich their heirs or other assigns. Also known as the bequest motive or the legacy motive.
endowments:	Economists use the term endowments to refer to the assets of both individual economic agents and nations: [1] In the theory of international trade, a nation’s current “portfolio” of productive resources (land, labor, capital) is sometimes referred to as the nation’s endowments. The Heckscher-Ohlin model identifies relative endowments as the foundation for explanations of trade patterns. [2] The marginal productivity theory of income distribution identifies an individual’s endowments of land, labor, and capital and the relative marginal productivities of these resources as jointly determining the level and distribution of income, Y.
Engel curve:	An Engel curve is a graph developed by the German statistician Ernst Engel [1823-1896] to show how the consumption of a good changes as income increases. See also income elasticity of demand.
Engel’s law:	Engel’s law, named after Ernst Engel, is the assertion that the proportion of income spent on food declines as income rises.
English auction:	In English auctions goods being sold are initially offered at a price expected to be well below the final price. This is followed by successively higher offers by bidders until no one is willing to pay more than the offer by the successful bidder. Alternatively, if the auction is for a work contract or the purchase of a good or service, the initial asking price is set well above the expected final price. This is followed by successively lower offers by bidders until no one is willing to sell the good or perform the service for less than the offer by the successful bidder. See also Dutch auction and second price auction.
enterprise:	An enterprise is a business firm or other organization that is primarily engaged in some form of production or commerce.
entitlement theory of justice:	Robert Nozick proposed an entitlement theory of justice by which individuals are assumed to have certain rights that have been acquired over time and that it is ethically wrong for the government to take away property or other rights from some and given to others. This approach is intended to place an ethical base under the adage that “possession is nine tenths of the law.” Contrast with the veil of ignorance proposal of John Rawls.
entitlements:	Entitlements are transfer payments from a government agency (e.g., Social security) to individuals with specified characteristics or circumstances, such as age, disability, or poverty.
entrepreneur:	An entrepreneur perceives potentially profitable unmet wants and then absorbs risks and uncertainty in the process of establishing and operating an organization (usually a firm) to produce new types of goods or to innovate new production technologies. In their capacities as managers, entrepreneurs then coordinate productive services provided by other resources so that these previously unmet wants are accommodated.
entrepreneurship:	Entrepreneurship is