Economicae^©

an illustrated encyclopedia of economics

Famous Economists

Mathematics of Economics

wage differentials:	Wage differentials are the differences in wages that may reflect differences in such factors as risks to life or health, or to differences in diligence, productivity, training, human capital, personalities, or economic discrimination.
wage discrimination:	Wage discrimination occurs when some employees are paid less than other employees for doing the same kinds and amounts of work.
wage drift:	Wage drift is the difference between the basic level of pay and total earnings, and includes such payments as overtime pay and incentive-based pay (i.e., bonuses and commissions). Wage drift is relatively more pronounced during economic prosperity and less pronounced during economic slumps.
wage gaps:	Wage gaps are the percentage differences in average wages of different segments of the population, and are often cited as evidence of discrimination against women or members of minority groups vis-à-vis Caucasian male workers.
wage-price controls:	Wage-price controls: are the legal restrictions most often used to keep prices from coinciding with their equilibrium levels.
wage-price reaction functions:	See asymmetric wage-price reaction functions.
wages:	Wages are payments per time period for labor services, and include all fringe benefits.
wage stickiness:	See sticky wages, efficiency wages. Open asymmetric wage-price reactions for a graph and more discussion.
Wagner Act:	The Wagner Act (1935) guaranteed labor the right to organize independent unions and made a company’s refusal to negotiate with an elected union an unfair labor practice.
Walras, Leon	Leon Walras [1834-1910] is usually considered one of the most original and influential economic thinkers of all time. He is remembered for his work in helping introduce calculus into economics, as a pioneering advocate of marginalism, and especially, for insisting that economic analysis should emphasize general equilibrium theory.
Walrasian adjustment mechanism:	Leon Walras theorized that economic agents adjust prices (rather than quantities, per Alfred Marshall) to clear competitive markets that are out of equilibrium. Disequilibrium exists if, at the current price, the quantity demanded differs from the quantity supplied so that a market experiences a surplus or a shortage. In a Walrasian adjustment, the price will adjust until the quantity supplied and the quantity demanded are equal. Prices rise in response to a shortage, and fall in response to surpluses. Contrast with the Marshallian adjustment mechanism, which posits that the quantity supplied falls to cure a surplus, and the quantity supplied increases to cure shortages.
Walrasian auctioneer:	Leon Walras assumed that bidding processes would cause prices to adjust to eliminate market surpluses or shortages, but a bidding process requires some entity (an auctioneer?) to weigh the respective offers of buyers and sellers, thereby ascertaining the market-clearing price. Walrasian adjustment mechanisms implicitly assume the existence of an auctioneer, but the vast majority of transactions in market economies are consummated through acceptances of offers or negotiations between buyers and sellers, not auctions per se. Thus, a Walrasian auctioneer is not present in most markets, and is largely imaginary.
Walras’ law of markets:	Walras’ law of markets states that the summation of excess supplies in all markets experiencing surpluses must equal the summation of the excess demands in at least some other markets, which will necessarily experience excess demand [∑XS = ∑XD]. Alternatively, excess demands and supplies must sum to zero in the economy as a whole. Thus, a “glut” in any market implies a shortage in some other market. Some neoclassically-oriented economists argue that Walras law refutes the possibility of involuntary unemployment [surplus labor] as a short run equilibrium condition, as suggested by John Maynard Keynes. The Keynesian rebuttal is that excess supply in the labor market (unemployment) may be balanced by excess demand in the money market, per Keynesian liquidity preference theory. See also Say’s law of markets.
War on Poverty:	President Lyndon Johnson declared a War on Poverty in his 1964 State of the Union address. The Office of Economic Opportunity (OEO) then created such programs as Head Start, Job Corps, Legal Services, and the Community Action Program, with the intention of providing all Americans a fair opportunity to obtain a good job and education. Although the War on Poverty enjoyed only mixed success, Johnson’s initiative did help generate a lasting awareness on the conditions of the poor in America.
warm glow effect:	A warm glow effect is the enjoyment derived by contributors to charities or other good works when they consider the benefits realized by the beneficiaries. See also caring externality.
wealth:	Wealth is closely related to net worth – the difference between assets and liabilities, although assets in the form of human capital are usually especially difficult to calculate. Wealth is roughly calculable as the present values of the net income streams expected to be paid to an individual. Owners of significant net assets are deemed “wealthy.” Wealth is a stock variable, while income is a flow variable. See also income, stock variable, and flow variable.
wealth effect:	The wealth effect is among the reasons that the Aggregate Demand curve slopes down, in part, because higher price levels reduce the purchasing power of such financial assets as money or bonds, and vice versa. Also known as the Pigou effect or the real balance effect.
Wealth of Nations:	Published in the same year as the American Declaration of Independence (1776), Adam Smith’s “An Inquiry into the Nature and Causes of the Wealth of Nations” spanned the spectrum of the then current knowledge of economics and was a starting point for virtually every major economic treatise until 1850. The complete text of the Wealth of Nations is available at this link.
Webb-Pomerene Act:	The Webb-Pomerene Act (1918) largely exempts export trade associations from antitrust litigation.
wedge:	A wedge is the difference between the cost incurred by a buyer and the revenue to the seller. Wedge is sometimes used to refer to the sum of the consumer and producer surpluses lost as a consequence of a government policy, such as a tax. See also transaction costs, welfare loss triangle, and tax wedge.
welfare:	One somewhat controversial but at least theoretically measurable definition of welfare identifies as a welfare recipient anyone who pays less in taxes as a portion of total government revenues than the proportion of benefits that individual receives relative to the sum of all benefits disbursed by government. Thus, if T = taxes and B = Benefits, then person “i” is on welfare if Bi / ΣB > Ti / ΣT. By this criterion, whether an individual is on welfare or not is independent of income. Thus, a high-income individual who mines tax loopholes to avoid (or evade) taxes may be on welfare, as might be a farmer receiving crop subsidies, or the owner of a television station. See also benefit principle of taxation, ability to pay, and transfer payments.
welfare economics:	Welfare economics is a subdiscipline of microeconomics intended to evaluate how alternative economic arrangements and policies affect: (a) allocative, productive, and distributive efficiency, and (b) the distributions of income and wealth.
welfare loss triangle:	A welfare loss triangle is a geometric area that crudely depicts unrealized gains to firms or individuals from potential transactions. Welfare loss triangles are often used to illustrate uncompensated losses of potential consumer surplus and producer surplus that arise due to market imperfections or inefficient government policies, e.g., monopoly power, externalities, and tax structures or other laws and regulations. See also wedge and tax wedge.
what?:	The basic economic question “What?” addresses which single combination of goods will be produced from the myriad feasible combinations that might be produced, given the resources and technologies available.
white collar worker:	A white collar worker is an employee not engaged in direct manual labor. Most white collar workers engaged in planning, or perform administrative or managerial tasks, or they are “professionals,” such as engineers or computer programmers.
wholesale price index:	The wholesale price index (WPI) is an archaic label for an index of the costs of goods when transferred from the original producers to retailers. This concept is now known as the producer price index. (PPI).
wild cards:	“Wild cards” are products with small but rapidly growing market shares.
windfall gains:	The term “windfall” has been used in popular culture to refer to income that exceeds expectations, and is sometimes called windfall gains. You would experience a windfall gain if you found a lottery ticket blowing down the a windy street and it was the winner in the PowerBall lottery. Critics sometimes propose special taxes on the “windfall profits” of oil companies generated during violent conflicts in the Middle East.
winners’ curse:	The winners’ curse is a theory that vigorously competitive auctions are likely to impose losses on the winning bidder because the winning bidder is probably ignorant of information possessed by other bidders.
wisdom of crowds:	A 2004 book titled The Wisdom of Crowds by James Surowiecki popularized the phrase “wisdom of crowds,” which is the notion that the average estimates about an event tend to improve as the number of diverse but independently-minded interested people providing such estimates increases, and that such estimates are likely, on average, to be more accurate than the estimates of lone individuals or even supposed experts. This notion ultimately depends on variants of the central limit theorem or the law of large numbers. Individuals’ estimates about a probability function are assumed to be unbiased estimates of the mean value of the function being contemplated. As the number of such estimates increases, the probability that the estimate differs from the true mean of the function approaches zero. See also prediction markets.
withdrawals:	Withdrawals (sometimes called leakages) from a spending stream occur when income is not spent on domestic output. Examples of withdrawals include taxes (income paid to government), imports (most foreign income is spent in the recipients’ own countries), and savings (because income saved is money not spent). Contrast with injections.
withholding tax:	A withholding tax is any tax subtracted from a payment) before the payment reaches its recipient. For example, employers withhold amounts equal to expected taxes on employee incomes, and send these withholdings to the government soon after withholding these funds from employee paychecks. A withholding tax makes tax evasion more difficult.
windfall gains:	So-called Windfall gains are unexpected gains, as when world petroleum prices soar unexpectedly, or when an individual wins a lottery or is surprised by a huge inheritance.
womb lottery:	The “womb lottery” (sometimes called the gene lottery) refers to the idea that people are born with different natural abilities and opportunities. The fact that these characteristics seem to be distributed by luck of the draw causes comparison of this inheritance / biological phenomenon to a lottery. Attractive people who are healthy and intelligent, or who were born with a silver spoon in their mouths” or extraordinarily supportive parents have “won” this lottery.
workfare:	Workfare programs require able-bodied people who seek unemployment compensation or other public assistance to do jobs for the local government units that dole such benefits.
working poor:	The working poor is a broad label applied to families in which employed family members do not earn sufficient income to lift the family’s standard of living above the poverty line.
work sharing:	Work sharing is an arrangement that allows two or more individuals to each work part time to fulfill a firm’s needs for labor instead of having a single full-time worker fill a position. This can allow parents to spend more time with their children, or permit students to attend classes. Work sharing is also implemented in some firms experiencing declines in sales, with each employee working fewer hours, enabling the firm to retain more employees. Work sharing is sometimes advocated as a way to spread the costs of cyclical unemployment and to lower the unemployment rate.
World Bank:	The World Bank is an international organization funded in part by donations from the governments of various developed countries. The bank provides “loans, advice, and an array of customized resources to more than 100 developing countries” and other troubled nations. See also International Monetary Fund.
World Trade Organization:	The World Trade Organization (WTO) replaced the General Agreement on Trade and tariffs (GATT) in 1995, and facilitates negotiations to reduce trade barriers and provides help in settling disputes between trading nations.