Economicae^©

an illustrated encyclopedia of economics

Famous Economists

Mathematics of Economics

unanimity:	Unanimity is a requirement that all voters (e.g., jurors) agree before any change from the status quo (e.g., new government policies or findings by courts) are implemented.
uncertainty:	Uncertainty exists when the current or future values of an economic variable or set of economic variables (e.g., market conditions) are not known with precision. Frank Knight (1885-1972) elaborated the distinction between risk (when the probability functions for uncertain future events for possible outcomes are reasonably well known) and what is now called Knightian uncertainty, which exists when the probability functions for certain broad classes of rare or exceedingly speculative events are a matter of relatively uninformed guesswork. See the link for risk and uncertainty for more discussion. Contrast with certainty, and see also risk.
uncompensated externalities:	Uncompensated externalities are positive or negative spillovers from economic activities that create economic inefficiency. External costs are not considered by decisionmakers, in cases of negative externalities, and external benefits are not considered by decisionmakers, in cases of positive externalities. Consequently, output is excessive and the market price is too low, relative to optimal pricing, when external costs are generated, and output is too low and the market price is too high, in cases of positive externalities.
uncontrollable outlays of government:	Relatively uncontrollable outlays can be thought of as uncontrollable government spending. These outlays cannot be changed without changes in federal laws, are often beyond administrative control, and involve contractual obligations.
uncovered position:	An economic agent has taken an uncovered (open) position if it promises to deliver a specific amount of a specific financial asset (e.g., foreign exchange) on a specific date, but does not currently own the asset, i.e., the position is not “covered.” See also cover, short sell, and naked short sell.
underconsumption:	Underconsumption is the primary concept underpinning an early theory that Aggregate Demand may be persistently inadequate to ensure full employment. Thomas Malthus, for example, argued that rapid growth distributes income very unequally, and that workers lack sufficient income to buy all the goods they produce. (This was identified as one of the flaws of capitalism by a minor Ricardian theorist named Karl Marx.)
underdeveloped countries:	See less developed countries.
underemployment:	Underemployment occurs when workers have jobs that do not employ the individuals for all the hours they are willing and able to work (part-time work) or that do pay fully for the potential productivity of the workers because the jobs do not fully utilize the workers’ productive skills. See also contingent labor force.
underground economy:	The underground economy encompasses productive activity concealed from government by participants, either because the activity is illegal or the participants are trying to evade taxes or certain laws. Examples of this are food servers who report less than all their tips, successful gamblers, or other “off-the-books” cash payments. Many aspects of the underground economy derive from such illegal activities as loan sharking, illicit drug dealing, or prostitution.
underwater:	The owner of an asset or the asset itself is described as “underwater” or “upside-down” if the market value of the asset is less than the amount owed on instrument for which the asset is collateral. Many homeowners were underwater because their mortgages exceeded the value of their homes following the collapse of the housing market during 2007-2009.
underwater loan:	An underwater loan is a loan for which the value of collateral is less than the balance owed on the loan.
underwriter:	An underwriter is a firm that guarantees the sale of new issues of corporate or municipal government bonds or corporate stock, and then sells these securities to the public. Most underwriters are investment bankers. See also syndicate.
undistributed corporate income:	Undistributed corporate income (also termed undistributed corporate profit or retained earnings) is the excess of corporate income after a corporation pays corporate income taxes and dividends to its stockholders.
unearned surplus:	The term “unearned surplus” is commonly applied to income received without effort or sacrifice by the recipient. See also rent, quasi-rent, and the Marxist term surplus value.
unemployment:	Unemployment occurs when an individual wants to work but lacks a job. The classical theory of unemployment, based on a questionable perception that labor markets are spot markets, is that unemployed workers can always find a job if they are willing to be flexible about the wage rate. Ergo, the unemployment is perceived as a voluntary choice. However, individual workers often have little or no control over wages, and a bidding process wherein unemployed workers are assumed to compete for jobs by offering to work for less is seldom realistic. Firms concerned about the morale and diligence of their employees seldom negotiate cuts in rates of pay. Although sales commissions or piece rate compensation may approximate the operations of a spot market, most labor contracts are long term arrangements. See asymmetric wage-price reaction functions and efficiency wages for more discussion.
unemployment compensation:	Unemployment compensation is a subsidy (transfer payment) to unemployed workers intended to help cover their living expenses while they are seeking employment or are waiting to be recalled to a job from which they have been laid-off temporarily. This compensation can result in moral hazard in that recipients have less incentive to find work quickly, and adverse selection, in that they may misrepresent their availability for work.
unemployment trap:	An unemployment trap is the dilemma of an unemployed welfare recipient who is reluctant or unwilling to take a job because he or she can make an easier or better living by remaining unemployed and on welfare. See also induced unemployment.
unintended consequences:	The law of unintended consequences states that almost all, if not all, actions result in at least one unintended consequence. Hence, all actions cause more than one consequence with some being intended and some unintended. Unintended consequences can be either positive or negative. For example, people may take aspirin to rid themselves of persistent headaches, and it may simultaneously prevent heart disease, or they might take acetaminophen (Tylenol) and accidentally but seriously overdose, resulting in kidney failure. This principle is often invoked to describe the unexpected and unfavorable side-effects of certain economic laws and regulations.
unintended inventory changes:	Unintended inventory changes are a balancing item for the economy. These changes in inventories resolve any differences between the planned saving and planned investment functions and assure that actual saving and actual investment are equal at all times.
union shop:	A union shop is a firm that will hire nonunion workers, but joining the union is a requirement for continued employment. Union shop arrangements are illegal in states that have passed right-to-work laws.
uniqueness gains from trade:	Uniqueness gains from trade arise because exchange allows traders to secure goods not available from local sources at all, or in reasonable quantities at reasonable prices. See also gains from trade, dynamic gains, and political gains.
unit of account	Money serves as a unit of account ( or measure of value) by functioning as a common denominator through which the relative prices of goods are stated. This function of money substantially reduces the information costs associated with exchange.
unit tax:	A unit tax is an excise tax per unit of a good, e.g., a tax per pack of cigarettes.
unitary price elasticity:	The demand (or supply) of a good has unitary price elasticity if the elasticity coefficient is exactly 1.
unlimited liability:	Unlimited liability means that the owner(s) of a non-incorporated firm have a legal obligation to pay for all debts of the firm, and all damages by the firm, including damages caused by its agents (employees). Unlimited liability is potentially the greatest disadvantage of sole proprietorships and partnerships. The personal assets of owners may be sold to pay the firm’s debts.
unplanned inventory changes:	Unplanned (unintended) inventory changes are unexpected changes in a firm’s inventories. Inventories increase unexpectedly when sales are less than predicted, and decrease unexpectedly when sales exceed forecasts. See also inventory.
unskilled labor:	Unskilled labor is provided by workers whose primary qualifications are certain amounts of strength or dexterity, and the jobs they do require following only rudimentary instructions. Such workers usually lack specific skills or education, and sell their labor time at relatively low wage rates. Examples include most migrant farm workers, construction laborers, janitors, and relatively untrained assembly line workers. Contrast with human capital.
unstable equilibrium:	A system generates an unstable equilibrium if, following a disturbance that disrupts an equilibrium, automatic forces do not restore the system to its original state. Contrast with stable equilibrium.
upside-down:	Upside down is a synonym for underwater.
upside risk:	Upside risk is the potential but unexpected gain that would be realized if the outcome of a venture proved significantly better than expected. Contrast with downside risk.
user charges:	User chargers are fees a government collects when benefits can be approximated for a governmentally-provided good or service and exclusion is possible, in that provision of the good can be denied. Examples include the fees collected for camping in a national park, and tolls that must be paid for access to toll roads and highways.
usury:	[1] Usury is the charging of an interest rate that exceeds the legal maximum. [2] In medieval times, all interest was called usury, and was considered a sin by, e.g., the Catholic church. Orthodox Islamic theology also views interest as usury, and views interest payments as a sin.
usury law:	A usury law is a legal ceiling on the maximum interest rates that lenders may charge borrowers.
util:	A util is an imaginary unit that is assumed to measure satisfaction.
utilitarianism:	Utilitarianism is philosophy formally developed in England during the 1800s by Jeremy Bentham, an eccentric English philosopher and social reformer, although the roots of utilitarianism date back to the Greek philosopher Epicurus. Early utilitarians embraced the notion that satisfactions or utilities of individuals could be measured, and they sought “the greatest happiness for the greatest number.” Click on the link for a look into utilitarianism
utility:	Utility is a term economists commonly use to mean happiness, or satisfaction.
utility function:	A utility function expresses an individual’s utility as a function of consumption. Traditionally, utility functions could be summarized as U = U(X1, X2, X3, …, Xn) where X = the quantity of a specific good the individual consumes, and the subscripts 1, …, n identify various goods, e.g., apples, brownies, gasoline, … . However, economists increasingly recognize that happiness depends on more than goods alone. Love, respect, self image, health, weather, and the performance of one’s favorite sports team may affect an individual’s happiness. Thus, a more comprehensive utility function is written U = U(X, Y), where X is a vector reflecting the quantities of various goods consumed, and Y is a vector of other influences on one’s happiness. See also preference function.
utopian socialism:	In a system of utopian socialism, all property would be collectively owned and all decisions would be democratic.