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.

earmark:

An earmark directs funds in an appropriations bill to be used for a specific program or project. Earmarks can also invgolve tax exemptions for certain states or political districts. Congress members often add earmarks to bills in order to bring money to their own state and/or district. See also appropriations bill and pork barrel.

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. See Economic Development and Political Freedom

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 indicators:

See Economic Indicators

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 systems:

Economic systems are conventionally classified by who makes decisions and who owns which resources–crucial issues in attaining a good balance between government relative to the market system.

economic stimulus:

The governments of many countries including China and the United States followed stimulative fiscal policies intended to increase Aggregate Demand during the worldwide 2008-2009 Recession. In the United States, the fiscal stimulus included tax cuts, federal spending on “shovel-ready” projects, federal grants to states and municipalities, loans (flows of liquidity) to financial institutions that included insurance companies and both commercial banks and investment banks, and both direct federal investment and loans to the U.S. automobile industry. See also fiscal policy.

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. See Economics in Transition See Soviet Economy

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 is effectively an assertion that the income elasticity of demand is positive but less than one. Thus. although total spending on food typically increases as a family becomes more prosperous, according to Engel’s law spending on food decreases as a percentage of total spending as the family’s income increases. This statistical relationship was originally noted by Ernst Engel, the German statistician (1821-1896) for whom this law is named.

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. See Entrepreneur and Economic Profit

entrepreneurship:

Entrepreneurship is specialized labor that coordinates the combining of the services provided by other resources so that goods are produced, while innovating new types of goods and production technologies and absorbing risks and uncertainty in the process. See the entrepreneur link for more discussion. Also feel free to examine the link on resources for further information on entrepreneurs.

entry and exit:

Entry and exit are the movements of firms into and out of specific industries or markets. If there are no barriers to entry and exit in the long run, entry into an industry by outside competitors or exit of existing firms continues until economic profits are zero; positive profits attract new entrants, while economic losses cause exit from an industry. Potential entry by competitors is the key to “contestable markets” theory.

entry deterrence:

Entry deterrence is a firm’s or oligopoly’s reliance on technological or legal impediments or strategic behavior to make entry into an industry unwise for potential new competitors.

envelope curve:

A firm’s long-run average cost curve is an “envelope curve” at the bottom of the short-run average total cost curves respectively associated with the lowest possible average costs for each potential level of output.

Environmental Protection Agency:

The Environmental Protection Agency [EPA] develops and enforces environmental regulations limiting industrial noise and emissions of waste products into the atmosphere, water, and garbage dumps. See this link for a discussion of the EPA, and you can also visit the EPA’s official site.

equal distribution of income standard:

The “equal shares” standard is one ethical criterion for distributing income and wealth; assumes that an extra dollar means more to the poor than to the rich, and ignores the disincentives for production that occur when incomes are independent of productivity. See also egalitarianism, contribution standard, and needs standard.

Equal Employment Opportunity Commission:

The federal Equal Employment Opportunity Commission investigates complaints of discrimination based on race, religion, sex, or age in hiring, promotion, firing, wages, testing, and all other conditions of employment.

equal marginal advantage, law of:

Efficiency requires similar resources to be used to equally advantage. In consumption, the last cent spent on any good must yield the same satisfaction as the last cent spent on any other good. In production, the last cent spent on any resource must yield the same output as the last cent spent on any other resource. Open the at the margin file for more discussion.

equal marginal productivities per dollar, principle of:

The last few cents spent on any resource must yield the same additional output as the last few cents spent on any other resource. This is a requirement for least cost production and maximum profit. Click on the marginal productivity link for more information on the principle of equal marginal productivity per dollar.

equal marginal utilities per dollar, principle of:

The last few cents spent on any good yield identical amounts of satisfaction or utility; algebraically, this requires MU1 ∕ P1 = MU2 ∕ P2 = . . . = MUm ∕ Pm, where the subscripts 1 through m‑1 denote commodities and m denotes money. Click on the equal marginal utility link for more discussion.

equality standard:

The equality standard for the distribution of income or wealth asserts that income and/or should be distributed equally across the population.

equation of exchange:

The income version o f the equation of exchange is written MV = PQ, where M denotes the nominal money supply, V denotes the income velocity of money, P denotes an index for the general price level, and Q denotes real output; a tautology, since it is true by definition. The transaction version o f the equation of exchange is MVt = PT, where Vt is the transaction velocity of money, and T is the total volume of transactions. The transaction version of the equation of exchange was originally formalized by Irving Fisher

 in a slightly different form than the version written here. Equations of exchange are tautological accounting identities, but can be used as foundations for the quantity theory of money by assuming that velocity and the total “real” amounts of output or transactions are unaffected by the money supply. See also Cambridge equation and quantity theory of money.

equilibrium:

Equilibrium exists when the pressures for change in a system, such as a market, system are in balance. Macroeconomic equilibrium exists when desired demand expenditure equals actual income or output. Microeconomic equilibrium exists when the quantities of a good or resource demanded and supplied are equal. See Search for Equilibrium

equilibrium price:

The equilibrium price (market-clearing price) is the market price that clears the market so that the quantities demanded and supplied are identical.

equilibrium quantity:

Also equilibrium quantity (also called the market-clearing quantity) of a good or resource is the quantity both supplied and demanded at the equilibrium price.

equimarginal principle:

The mathematical requirement that marginal cost must be equated with marginal benefit to maximize the net benefit from any activity. Open the at the margin file for more discussion. See Equal Marginal Product

equity:

[1] Equity refers to fairness, a normative concept; value judgments are inherent in specifying what is fair. [2] Equity can also refer to the difference between the values of assets and the amounts owed on the assets.

equity capital:

Equity capital is the financial capital owned by the holders of common stock in a corporation. The rates of return earned by shareholders are not guaranteed, depending instead on potential appreciation of the stock and the dividends the corporation pays, which in turn, usually depend on the success of the corporation. Equity capital may result from the sale of common stock in a primary market, or from retained earnings of the corporation. Corporations may also acquire capital through debt – bank loans or the sale of bonds.

error of commission:

A decisionmaker makes an error of commission when a change in plans yields an outcome that is inferior to the outcome that would have occurred if plans had not been changed. For example, an investor who sells one asset to buy a different asset would have made an error of commission if the market value of the original asset subsequently increased while the newly-acquired  asset declined in value. Contrast with error of omission.

error of omission:

A decisionmaker makes an error of omission when a failure to change plans yields an outcome inferior to the outcome that would have occurred if a proposed change in plans had been adopted. For example, an investor who fails to sell an asset that subsequently declines in value or who fails to buy a proffered asset that subsequently increases in value has committed an error of omission. Contrast with error of commission.

escalator clauses:

Escalator clauses are contractual obligations specifying that future payments of money will be adjusted for price level changes.

ETF:

See exchange traded funds.

Euro:

The Euro (€) is now the standard currency in most countries in continental Europe, with the notable exception of England.

Euro zone:

The Euro zone refers to the combined physical and economic territories of all European Union nations that have adopted the Euro as their standard currency.

eurobond:

A eurobond bond is a bond sold in one country but denominated in the currency of another. A eurobond does not require denomination in euros. For example: a eurobond sold in Paris could be priced in Japanese yen. 

eurocurrency:

A eurocurrency account is a deposit in a commercial bank denominated in a foreign currency. Eurodollars are accounts denominated in dollars but deposited in foreign banks.

eurodollars

Eurodollars are deposits in a foreign financial intermediary but denominated in dollars. Eurodollar transactions account for much of the activity in the money market.

Euromarkets:

A Euromarket is a domestic financial market in which financial instruments are traded that are denominated in a currency issued by a foreign nation. Euromarkets need not be in Europe.

European Central Bank:

The European Central Bank is headquartered in Frankfurt, Germany, and operates as the central bank for the twelve countries [the Eurozone] that use the Euro currency (€) as of 2006.

European option:

A European option may be exercised only on the date specified in the option contract. An option is a financial document that gives its owner the right to buy (call) or sell (put) some asset at a specified price on or before a specified date. See also American option.

European Union:

The European Union has is an organization that attempts to coordinate and unify public policies ranging from law markets and contract laws to foreign affairs and defense to international trade for its 25 member nations.

evolutionary economics:

Members of the evolutionary economics school of thought view the economy as an evolving system and examine economic structures as determined by dynamic interactions among such social, political, and economic forces as innovation, selection and imitation.

evolutionary psychology:

Evolutionary psychology is an academic discipline that emphasizes evolutionary survival and genetics to study the social, cultural, and economic behavior of humans and animals. All sentient organisms are assumed to behave in ways they expect to maximize the weighted probabilities that the organism’s gene pool will be perpetuated. Evolutionary psychology and sociobiology differ primarily only in the formal academic disciplines in which researchers in this area were trained.

ex ante:

Ex ante is a Latin term that economists use to mean “before the fact” or “in anticipation” of some event. See also ex post.

ex post:

Ex post is a Latin term that economists use to mean “after an event has occurred.” See also ex ante.

excess burdens of a tax:

The amounts by which the total burden of a tax exceeds government revenue yielded by the tax.

excess capacity theorem:

The excess capacity theorem refers to the profit-maximizing equilibrium for firms with market power at levels of output less than those which minimize average total costs.

excess demand:

Excess demand is the amount by which the quantity demanded exceeds the quantity supplied when the prevailing market price lies below the market-clearing price; normally associated with shortages.

excess reserves:

Excess reserves (XR) are the amounts of funds by which banks’ legal (total) reserves exceed their required reserves.

excess supply:

Excess supply is the amount by which the quantity supplied exceeds the quantity demanded when the prevailing market price lies above the market-clearing price; normally associated with surpluses.

exchange controls:

Exchange controls are legal limits on the ability to buy or sell foreign currencies; frequently stimulate black markets for foreign money.

exchange rate:

The exchange rate is the value of one currency expressed in terms of another currency, or some combination of other currencies.

exchange rate risk:

Exchange rate risk (sometimes simplified to “exchange risk”) exists because parties in international trade often use different currencies and one party may lose if the exchange rate changes. If, for example, an American importer must pay in euros (€) for German cameras that will be delivered 90 days after a contract is signed, then the American importer must pay more dollars ($) than expected if the euro appreciates relative to the dollar. If, on the other hand, the contract specified payment in dollars, the camera manufacturer would receive fewer euros than expected when the German firm exchanged the depreciated dollars received for appreciated euros. Exchange rate risk can be reduced by buying or selling foreign currency options in futures markets. See also flexible exchange rates, appreciation of a currency and depreciation of a currency.

exchange traded fund:

Exchange traded funds (ETFs) are variants of mutual funds that issue shares that are traded on exchanges dealing with stocks or bonds.

excise tax:

An excise tax is a tax levied on a specific good or service. Per pack taxes on tobacco, liquor taxes, and taxes on certain “luxuries” (e.g., cable TV) are examples of excise taxes.

exclusive goods:

A good or resource is exclusive if its owners can, at relatively low cost, deny access to would-be users who do not pay for the good.

exclusive goods:

A good or resource is exclusive if its owners can, at relatively low cost, deny access to would-be users who do not pay for the good.

existence value:

Existence value is a controversial estimate of economic value intended to quantify the benefits people derive in knowing that something exists independently of whther the people directly observe or use the objects or events being valued. For example, people are asserted to value the existence of icecaps in polar regiosns or rain forests or certain species of whales or eagles or other flora or fauna even if they never see these creatures or plants or objects. Existence value is oftentimes measured by contingent valuation surveys.

expansion (recovery):

Expansion or recovery is the phase of the business cycle when economic activity begins to increase; employment rises, and inventories usually fall unexpectedly.

expectations:

Expectations about future market conditions (e.g., price changes, laws, or availability) are important determinants of market supplies and demands. The macroeconomy is affected by expectations about, e.g., depression, inflation, unemployment, the stock market, or international conflict.

expected deflation effect:

The expected deflation effect is the reduction in aggregate demand that occurs when expectations are formed adaptively and decreases in the price level intensify expectations of further deflation. Like the expected inflation effect, this effect is destabilizing and is a manifestation of the “buy low-sell high” maxim, and it suggests that that price declines may cause people to delay spending and precipitate short term shifts towards extremely liquid assets (e.g., money) in anticipation that lower prices will be exploitable at a later time by astute buyers. The Tobin-Mundell effect is a special form of this more general expected deflation effect. See also real balance (Pigou) effect, debt-deflation effect, debt-burden effect, income redistribution effect, Mundell-Tobin effect, and expected inflation effect.

expected inflation effect:

The expected inflation effect is the increase in aggregate demand that occurs when expectations are formed adaptively and increases in the price level intensify expectations of further inflation, fomenting current purchases intended to avoid higher prices later. Like the expected deflation effect, this effect is destabilizing and is a manifestation of the “buy low-sell high” maxim, and it suggests that price increases that hasten spending tend to precipitate short term shifts away from money holdings in a portfolio. These portfolio adjustments tend to cause the velocity of money to accelerate. See also real balance (Pigou) effect, debt-deflation effect, debt-burden effect, income redistribution effect, Mundell-Tobin effect, expected inflation effect, and expected deflation effect.

expected rate of inflation:

The expected rate of inflation is the percentage annual rate at which economic transactors expect the general price level to rise.

expected rate of return:

The expected rate of return is the annualized average size of the income stream per time period that investors expect, expressed as a percentage of the dollar outlay for an investment.

expected utility theory:

Most cognitive psychologists who assert that human behavior is frequently inconsistent with standard economic theories that human behavior is unfailingly rational and self interested follow the lead of Daniel Kahneman [1934- ]and Amos Tversky [1937-1996] by labeling these standard assumptions “expected utility theory.” In Economicae, these and related assumptions are summarized under the term standard economic theory. See also behavioral economics, salience, prospect theory, bounded rationality, bounded self interest, and bounded willpower.

expenditure approach to estimating GDP:

GDP equals the sum of personal consumption, investment, government purchases of commodities and services, and net exports: GDP = C + I + G + (X ‑ M). See Expenditure Approach

expenditure tax:

An expenditure tax is a tax on consumption instead of income or wealth. See consumption tax.

experience good:

An experience good is a good that is initially unfamiliar to a consumer, and which must be tried by the consumer before the consumer can ascertain subjective enjoyment from the good. Firms often provide “free” samples or sell products at prices below costs to induce buyers to try new products.

explicit contract:

An explicit contract is a written agreement detailing transactions between individual economic agents or groups. Contrast with implicit contract.

explicit costs:

Also known as accounting costs, explicit costs are outlays of funds to parties external to the firm’s owners. These include payments for employees’ wages, rent, utility bills, and purchases of intermediate goods. See also implicit costs. Click on the link on profits to see explicit costs at work.

exploitation:

The rate of exploitation is the difference between the value of the marginal product of a resource (e.g., labor) and the resource payment (e.g., wage rate). Exploitation may result from a firm’s monopsony power as a hirer of labor, or because a firm has monopoly power.

exploitation doctrine:

Exploitation doctrine is the allegation, usually false, that one side of a transaction gains at the expense of the other. For example, critics frequently charge that wealthy people in large developed nations gain at the expense of low-wage workers in small developing countries when international trade is expanded. Only in extraordinary circumstances are the gains from trade not shared between the parties engaged in trade.

export credit:

Loans made to foreign buyers so that they can purchase a country’s exports are called export credit.  Most export credit is financed by the government of the exporting country, and is intended to bolster exports.

export-led growth:

A development strategy of export-led growth by government is the subsidization of exports of the goods in which a country has a comparative advantage, and the imposition of barriers on imports. This strategy may include the use of policies that keep the exchange rate of the country’s currency artificially low, because a low exchange rate makes imports more costly domestically, while lowering the prices paid by foreigners for the country’s exports. See also trade barriers, exchange rates, and infant industry argument for protection.

exports:

Exports are goods or services produced in the domestic country and purchased by buyers located in foreign countries.

external benefits:

See positive externalities.

external costs:

See negative externalities.

external debt:

External debt is the amount of national debt held by foreigners.

external increasing returns:

External increasing returns exist when the average costs incurred by all firms in an industry are negatively related to total industry output. Positive externalities in production that yield external increasing cosys occur if, for example, one firm enables workers to acquire such general human capital as literacy, and other firms are thus, enabled to hire workers with better skills. Individual firms tend to view average costs as given, and believe that their own output does not affect average costs in the industry.

external supply shocks:

External supply shocks such as unusually bad weather or wars involving oil exporting countries originate outside an economy and shift the Aggregate Supply curve to the left; raising production costs and creating pressures for supply-side (cost-push) inflation and rising unemployment rates.

externalities:

Externalities (or “spillovers”) are market failures caused when private calculations of costs or benefits differ from the costs or benefits to society and exist when benefits or costs from an activity are incurred by third parties who do not have input into the decision process that yields the activity. Negative externalities include pollution. Flu shots yield positive externalities to the extent that other people gain through less exposure to the disease. Only uncompensated externalities create inefficiency. External costs and benefits are largely ignored by individual decision-makers. Click on the link on externalities to explore external bads, goods, and the concept of internalization as a solution to externalities.

extrapolation:

Extrapolation is the estimation of the values of a variable forward, to times not yet observed. Extrapolations may be reasonably reliable for short term forecasts of variables that exhibit a trend, but long term extrapolation tends to be very inaccurate. Extrapolation yields accurate forecasts only by accident for variables that follow a random walk, such as stock market prices. See also interpolation.

extraneous analogy:

An extraneous analogy likens two events thereby encouraging people to conclude that a superficial similarity will extend to other situations. For example, an argument that socialism is inefficient in organizing heavy industry might be extended to an assertion that government payments for medical care are socialistic, and therefore, are unavoidably less efficient that would be private health insurance, and that, therefore, socialized health care should be avoided.