Economicae^©

an illustrated encyclopedia of economics

Famous Economists

Mathematics of Economics

tacit collusion	Tacit collusion is a synonym for conscious parallelism of action.
Taft-Hartley Act:	The Taft-Hartley Act (1947) amended the Wagner Act and classified certain labor union practices as illegally unfair, outlawed the closed shop, and permitted individual states to pass “right-to-work” laws that ban union shops.
takeoff:	In Walt W. Rostow’s theory of economic development, the third stage of development is the takeoff, and this is a period in which high rates of saving and investment result in an accelerating rate of industrialization.
takeover:	A takeover is the acquisition of one corporation by another via either a straight cash offer for the stock of the acquired firm or a swap of the acquiring firm’s stock to retire the stock of the acquired firm. See also hostile takeover.
tangent:	For relatively simple purposes, a tangent is roughly a straight line that is parallel to and “barely touches” a point on the graph of function. The slopes of tangents are often critical in economic analysis. See also margin and marginalism.
tangible assets:	Tangible assets are physical assets, such as houses, jewelry, cars, land, etc. Contrast with intangible assets, such as the “goodwill” on some corporate balance sheets, or various forms of financial capital.
tariff:	A tariff is a special tax on internationally traded goods, primarily imports. The imposition of tariffs raises the prices of imported goods and prevents full realization of potential gains from international trade. The Constitution forbids tariffs on exports from the United States.
tátonnemènt:	The pioneering marginalist and general equilibrium theorist Leon Walras [1834-1910] proposed the word tátonnemènt [French, for “groping towards’] to describe the trial-and-error process by which equilibria are established in markets. See also Walrasian auctioneer.
tax avoidance:	Tax avoidance is the use of legal tax loopholes to avoid taxation, in contrast to tax evasion, which is any illegal strategy agents use not to pay taxes.
tax base:	The sum of the assessed values of all taxable assets, property, and income.
tax brackets:	Tax brackets are the ranges across which particular tax rates apply.
tax break:	A tax break is either a tax deduction – a reduction in the tax base upon which a taxpayer must pay taxes – or a tax credit – a fixed percentage (sometimes dollar-for-dollar) reduction in taxes payable because the taxpayer is engaged in an activity favored by government. Credits for child care expenses and deductions for charitable contributions are examples. See also tax loopholes.
tax burden:	The tax burden is the reduction in purchasing power that occurs when a tax is levied. A tax may not be borne by the entity legally responsible for writing the check to the tax collector. The burden of a tax may be “backward shifted” to resource suppliers, or “forward shifted” to the ultimate consumer.
tax competition:	Governments engage in tax competition when they try to attract firms to operate in their jurisdictions by offering favorable tax treatment. A standard rationale for these tax breaks by state and local governments, or in some cases, by national governments, is that production facilities enhance the employment prospects of their citizens, or that other aspects of a firm’s operations will enhance the local or domestic economy. A negative aspect of tax competition is that favorable tax treatments for one set of firms may shift the burden of paying for government to other firms, thereby reducing the productive impact of the burdened entities in unintended or unexpected ways.
tax credit:	A tax credit is either a dollar-for-dollar or fixed percentage reduction of a tax because a taxpayer is engaged in an activity favored by government.
tax deduction:	A tax deduction is an amount subtracted from a tax base (e.g., taxable income) because taxpayer is engaged in an activity favored by government. For example, the interest paid on home mortgages is a tax deduction because the government seeks to encourage home ownership.
tax evasion:	Tax evasion occurs when the entities (economic agents) intended by government use illegal strategies to avoid paying taxes, and is in contrast to tax avoidance, which is the use of legal tax loopholes to avoid taxation.
tax haven:	A tax haven is a country that attracts economic activity by charging few if any taxes to foreign individuals or enterprises, and usually offers extensive offshore banking. The Cayman Islands are an example.
tax incidence:	Tax incidence refers to the economic entity that pays taxes. The legal incidence of a tax may differ from the economic incidence or tax burden of the tax. For example, the legal incidence of a sales tax falls on retailers who sell taxed items, but the burden of the sales tax falls on the retailers’ customers.
tax loopholes:	See loopholes.
tax multiplier:	The tax multiplier is the coefficient by which aggregate spending is reduced when taxes are increased. Open the link Keynesian multipliers for more discussion.
tax neutrality:	A tax is neutral when it induces only income effects, not substitution effects. Any change in the behavior of a taxed entity (an individual or firm) in response to a neutral tax can be traced to a reduction in the purchasing power of the taxed entity. Thus, a neutral tax will not directly change the relative prices of goods, nor will the supplies of resources be affected by a neutral tax (e.g., labor-leisure trade-offs are not affected, nor are decisions about saving and investment altered because of changes in interest rates).
tax rate:	Tax rates are the percentages of taxes collected on the tax base, or the per unit tax collected on a good or activity.
tax shifting:	Tax burdens can be avoided by the party bearing the legal incidence through tax shifting: A tax passed on to the consumer in the form of higher prices is forward shifted; taxes are backward shifted if tax burdens are transferred to workers in the form of lower take-home wages or to other resource suppliers in the form of lower factory payments.
tax smoothing:	Tax smoothing refers to tax policies that help stabilize tax payments or revenues across time, and consequently, equilibrium aggregate income and output. For example, a state or local government might run small tax surpluses during prosperous periods so that it could avoid being forced to raise taxes or cut spending during economic downturns.
tax subsidies:	A tax subsidy is the reduction in tax burden that occurs when a provision of the tax law permits an economic agent (an individual or firm) to reduce or completely avoid a tax. Tax subsidies are often intended to promote certain behavior. For example, many communities offer tax subsidies to large firms as incentives to locate in the community, in the hope that this will promote local employment and economic growth.
tax wedge:	1. A tax wedge is the amount by which the price charged to the buyer of a unit of good exceeds the after-tax revenue received by the seller. 2. A tax wedge is sometimes used to refer to the sum of the consumer and producer surpluses lost as a consequence of a tax. See also wedge and welfare loss triangle.
taxable income:	Taxable income is personal income subject to income taxes after subtracting all exemptions and deductions.
taxes:	Taxes are funds collected by the government. Taxes may be imposed, for example, on transactions, consumer goods, resource supplies, income, and real or financial assets. Click on the link for an exploration on taxation.
T-bill:	A T-bill (or treasury bill) is a short term bond issued by the U.S. Treasury. T-bills are very liquid assets that mature in less than 271 days from issue, are sold at a discount, and reach their full face value at maturity.
team production:	Team production refers to the division of labor used when complex forms of production cannot be accomplished efficiently (or at all) by lone individuals or families. Firms coordinate team production to (a) reduce transaction costs, and (b) exploit economies of scale or scope.
tech bubble:	The “tech bubble” was the speculative increase during 1993 to 2000 in the prices of stocks issued by firms engaged, however peripherally, in computing or software or marketing via the internet. The tech bubble burst in 2000. Numerous “high0tech” firms were listed through NASDAQ, and the NASDAQ index dropped by more than half in the next two years.
technical analysis:	Technical analysis is the process of trying to predict changes in the prices of stocks by carefully examining their past price movements. See also efficient markets, chartists, castle-in-the-air theory, and fundamental analysis.
technical efficiency:	See productive efficiency.
technical inefficiency:	Technical inefficiency exists whenever production costs are unnecessarily high or if more output could be produced without raising costs or using more resources.
technological change:	Technological change occurs when a given stock of productive inputs becomes capable of producing more output, or when a given amount of output can be produced with fewer productive inputs; or previously unknown products become feasible. Technological progress refers to greater efficiency in market processes, improved knowledge concerning the use of productive inputs in production, the advent of completely new production processes, improvements in the quality of human and nonhuman resources, and new inventions and innovations. The idea of progress is tightly bound up in the process of technological change.
technological presbyopia:	Long delays that economic historians call technological presbyopia seem to exist between the initial introduction of sweeping advances like steam power or electrification, or the more recent innovations in information technologies and computerization and the resulting increases in prosperity and economic growth rates. See also productivity paradox.
technological risk:	Technological risk is borne by a firm when it adopts a new technology because it is never absolutely certain that the technology will reliably perform as expected or prove profitable.
technology:	Technology is a term encompassing the alternative ways that resources can be combined to produce goods or services. The overall technology of a society comprises all known possible “recipes” for production. The specific technology used by a particular producer is the recipe that producer is using at that point in time.
technostructure:	“Technostructure” is a term coined by John Kenneth Galbraith to identify the class interests and the interdependent behavior, including collaboration, that exists within and between the networks of highly educated and skilled professionals and administrators who control most large bureaucracies, including corporations, government agencies, and non-government organizations.
tenure:	Tenure is a formal assurance that, unless something extraordinary happens, an individual has job security. Formal tenure is most common for instructors employed by educational institutions, but career employees of many large organizations have such job security that they effectively have tenure.
term structure of interest rates:	The term structure of interest rates, also called the yield curve, is a depiction of how interest rates on debt instruments vary with the time until the instruments mature. All else equal, interest rates are usually positively related to the time to maturity so that the yield curve has positive slope. See also yield curve.
terms of trade:	The terms of trade are the prices of exported goods relative to imported goods after international trade has commenced.
tertiary sector:	Specialists in economic development sometimes describe the service sector of an economy as the tertiary sector. Developed economies tend to have tertiary sectors that are relatively larger than the tertiary sectors of less developed economies.
theorem:	A theorem is, at least theoretically, a scientifically testable proposition that follows logically from basic definitions and assumptions. Theorems are usually expressed mathematically.
theory:	A theory is a conjecture about some aspect of a phenomenon, and usually entails an explanation of causation. See also model.
thin market:	A thin market is a market in which there are few buyers or sellers, or one in which transactions are infrequent or the total volume of transactions is relatively small.
third-degree price discrimination:	Third-degree price discrimination is the most common form of price discrimination, and occurs when a seller charges different prices to groups easily segmented by such varying characteristics as income, age, gender, memberships in organizations, or willingness to sort out grocery store coupons. Discounts for students or seniors on meals or movie tickets are examples.
third-party payer problem:	The third party payer problem is the potentially excessive consumption of items or activities paid for at least partially by external parties. Abuse of expense accounts by corporate employees would be one example. Another example: Medical insurance pays the bulk of health care expenses, artificially boosting effective demand by reducing the price paid by consumers while raising the price received by providers.
third world:	The “third world” is a reference to all less-developed countries that originated during the Cold War, when the "first world" comprised the developed capitalist countries and the "second world" comprised the communist countries. “Third world countries” sometimes denotes nations with a low UN Human Development Index (HDI), independent of their political status.
thrift institutions:	Thrift institutions are bank-like institutions, such as saving and loan associations, mutual savings banks, and credit unions.
tick:	A tick is the smallest possible change in the market price of a stock or bond.
ticker symbol:	A ticker symbol is an abbreviation of the name of a traded security.
tie-in sales:	Firms with significant market power sometimes try to mandate a tie-in sales agreement that requires customers to buy another product as a condition for buying the good over which the firm has market power. The courts have found many tie-in sales contracts to be violations of antitrust laws.
tiger economies:	Rapidly developing Asian economies along the Pacific Rim such as Indonesia, Singapore, Malaysia, Thailand, South Korea, and China are sometimes described as the tiger economies.
Tiger Woods effect:	The Tiger Woods effect is the reduction in the effort a competitor exerts when simultaneously confronting significant incentives in the form of pay differentials and overwhelming expected superiority by a rival, thereby significantly reducing the expected payoff from exertion. Even if the payoff for first place is enormous relative to the payoff for second place in a golf tournament, the greater the probability that a dominating player will win first place, the lower is the expected payoff for exertion by second tier players and the lower will be their performance. Contrast the Tiger Woods effect with tournament theory, which suggests that the incentive effect of increased pay differentials is to increase the average level of effort among rivals.
tight money policies:	Contractionary monetary policies are sometimes characterized as “tight money” if a central bank follows policies that raise nominal interest rates and significant reduce the availability of credit. Contrast with “easy money” policies, and see also credit rationing.
time consistent:	See dynamic consistency for a synonym, and contrast with dynamic inconsistency.
time constraint:	Time constraints limit the amounts of consumption or production because a day has only twenty-four hours. Thus, time constraints are a limit on opportunity sets.
time deposits:	Time deposits are savings accounts in depository institutions (e.g., banks or credit unions) that draw interest but which, by law, may not be accessible immediately to the depositor. However, most institutions do permit instantaneous withdrawals, primarily to accommodate customers.
time preference:	An individual’s willingness to postpone consumption today so that greater consumption can be enjoyed in the future is called time preference. Interest rates and time preference determines whether an individual invests, or saves, or borrows. See also instant gratification and delayed gratification.
time lags:	Differences between the point in time of some precipitating event and the economic changes that result from that event are called time lags. For example, if the economy begins to slip into a recession, there is a recognition lag that lasts as long as policymakers remain unaware of the slump, an administrative or implementation lag until the policy is adjusted in attempts to deal with the slump, and an impact lag that lasts until the change in policy actually affects the economy.
time series data:	Time series data is the ordered values of an economic variable across numerous periods.
tit-for-tat:	In game theory, tit-for-tat is a strategy that begins cooperatively. Thereafter, in any period, tit-for-tat entails echoing what the opponent did in the previous period.
Tobin-Mundell effect:	The Tobin-Mundell effect is the reduction in aggregate demand caused when deflation intensifies expectations of future deflation, with a resulting reallocation of investment portfolios towards more liquid assets and away from expenditures on real capital. Consequently, expected deflation increases the demand for money and reduces aggregate demand, thus reducing output and exacerbating unemployment rates. See also real balance (Pigou) effect, debt-deflation effect, debt burden effect, Mundell-Tobin effect, expected inflation effect, and expected deflation effect, and income redistribution effect.
tombstone:	A tombstone is a legal notice usually placed in a financial newspaper that outlines the conditions under which a certain new issue of a stock or a bond was completed.
tort:	A tort is noncriminal damage done to the property or person of another. The amount of compensation paid by the party that has inflicted the tort to the victim of the tort is usually resolved through out-of-court settlements or in the civil courts, not the criminal courts.
total burden of a tax:	The total burden of a tax is the amount of money that taxed individuals would have to be paid to make them just as well off with the tax as without. See also compensating variation.
total cost:	Total cost is the sum of all costs to the firm of producing a particular rate of output, and equals the quantity of a good produced multiplied by the per unit cost of producing the good.
total output:	Total output or total product is the amount of a good produced during a period.
total product curve:	The total product curve illustrates the technical relationship that exists between production and various levels of one input, assuming that other resources are held constant.
total revenue – total cost	Total revenue minus total cost equals profit. The total revenue minus total cost (TR ‑ TC) approach to profit maximization occurs when a firm identifies the rate of output at which total revenue most greatly exceeds total cost.
total revenue:	Total revenue is the monetary value of a firm’s sales. If it charges a constant price (as is true of firms in pure competition) the firm’s total revenue from a given product is computed by multiplying the quantity of a good sold by its per unit price: P x Q.
total revenue curve:	The total revenue curve is a curve showing the relationship between a firm's total output and its revenue. This curve may be strictly convex from below if it does not charge a uniform price, but instead price discriminates,
total utility:	Total utility is the level of satisfaction associated with some total quantity of a good, service, or activity. See also utility, ophelimité, and utilitarianism. Click on the paradox of value link to read about a comparison between total and marginal utilities.
total variable cost:	Total variable cost is the sum of all variable costs incurred in producing a specific amount of a good.
tournament theory:	Tournament theory is an explanation for tremendous disparities in incomes within a hierarchy. According to this theory, the huge compensation associated with being at or near the top of the hierarchy provides enormous incentives for subordinates to strive harder to be promoted so that they can capture these economic rents for themselves.
tradable rights to pollute:	Tradable rights to pollute are created when the government specifies an overall tolerable level of pollution, then conveys (through auction or license) “permits” for shares of the total pollution allowed. Firms that keep emissions below the levels for which they have permits may sell or lease their surpluses so that other firms can exceed their allotments. [Note: The Wall Street Journal is among many business publications that now carry advertisements for tradable pollution rights.] Click on the link to pollution rights for a look at how the European Union deals with tradable rights to pollute for their member nations.
trade adjustment assistance: