UOE Glossary

absolute advantage

A person or a country has an absolute advantage in the production of a particular good if, given a set of available inputs, they can produce more of it than another person or country. A person or country has this in the production of a good if the inputs it uses to produce this good are less than in some other person or country (Micro, Macro, TE1, TESA, UOE). Introduced in 4.6 Specialization, comparative advantage, and markets, Micro, TE1, TE1. See also: comparative advantage.

asymmetric information

Information that is relevant to the parties in an economic interaction, but is known by some but not by others (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in TE1, TE1, TE1, TE1, TESA, TESA, TESA, ESPP, ESPP, Micro, Micro, Micro, Macro. See also: adverse selection, moral hazard., asymmetry of information, asymmetric information, asymmetry of information

audit study

A type of experiment in which trained individuals called auditors pretend to apply for a service or enter a marketplace to test for discrimination. To do this they pretend to have matching characteristics, except for the one being tested (UOE).

autocracy

A form of government in which a single ruler (or body of rulers) monopolizes governmental powers. A political system in which one person, typically together with a small inner circle of elites, makes governmental decisions with few or no limitations. A dictatorship is a form of autocracy (Macro, UOE). Introduced in 3.5 Varieties of capitalism: Institutions, government, and politics, Macro.

average product of labor

The total amount produced divided by the units of labor (UOE). Introduced in 4.2 Types of technology.

average total cost

Average total costs are the total cost of producing the firm’s output divided by the total number of units of output produced (UOE).

bargaining power

The extent of a person or firm’s advantage in securing a larger share of the economic rents made possible by an interaction. The extent of a person’s advantage in securing a larger share of the economic rents made possible by an interaction (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in Micro, Micro, TE1, TE1, TE1, TESA, ESPP.

best response

In game theory, a player’s best response is the strategy that will bring about the player’s most-preferred outcome, given the strategies adopted by the other players. In game theory, the strategy that will give a player the highest payoff, given the strategies that the other players select. Given an action by another person, the action selected by doing the best you can is called the best response to the other’s action (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in 1.7 People doing the best they can, Micro, TE1, TESA, ESPP.

capital goods

Capital goods (sometimes shortened to ‘capital’) are the durable and costly non-labour inputs used in production (e.g. machinery, equipment, buildings). They do not include some essential inputs (e.g. air, water, knowledge) that are used in production at zero cost to the user. Capital goods (sometimes shortened to “capital”) are the durable and costly non-labor inputs used in production, such as machinery, equipment, and buildings. Capital does not include some essential inputs (such as air, water, and knowledge) that are used in production at zero cost to the user (Micro, Macro, UOE, ESPP, TE1, TESA). Introduced in 3.3 The institutions of capitalism, 3.4 Capitalist institutions and living standards, TE1, TE1, TESA, ESPP, Micro, Micro, Macro, Macro., capital, capital goods, capital

capital-intensive technology

A technology that requires a comparatively large amount of capital goods, such as equipment, machinery, and buildings (UOE). Introduced in 4.2 Types of technology.

capitalism

An economic system in which the main form of economic organization is the firm, where the private owners of capital goods hire labour to produce goods and services to be sold in markets with the intent of making a profit. The main economic institutions in a capitalist economic system are private property, markets, and firms. An economic system in which the main form of economic organization is the firm, in which the private owners of capital goods hire labour to produce goods and services for sale on markets with the intent of making a profit. The main economic institutions in a capitalist economic system, then, are private property, markets, and firms. An economic system in which private property, markets, and firms play an important role. An economic system in which the main form of economic organization is the firm, where the private owners of capital goods hire labor to produce goods and services to be sold in markets with the intent of making a profit. The main economic institutions in a capitalist economic system are private property, markets, and firms (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in 3.3 The institutions of capitalism, Micro, Macro, TE1, TESA, ESPP.

causal

We can say that a relationship between two variables is causal if we can establish that a change in one variable produces a change in the other. While a correlation is simply an assessment that two things have moved together, causation implies a mechanism accounting for the association, and is therefore a more restrictive concept. We say that a relationship between two variables is causal if we can establish that a change in one variable produces a change in the other. While a correlation is simply an assessment that two variables have moved together, causation implies a mechanism accounting for the association (Micro, Macro, UOE). Introduced in 3.4 Capitalist institutions and living standards, TE1, TESA, ESPP, DE, DE, DE, DE, Micro, Macro. See also: natural experiment, correlation., causality, causation, causal, causality, causation

centrally planned economic system

In a centrally planned economy, decisions about what and how to produce are made by the government, rather than by firms responding to market prices (UOE). Introduced in 3.3 The institutions of capitalism.

comparative advantage

A person or a country has a comparative advantage in the production of a particular good if the cost to them of producing it, relative to the cost of another good, is lower than for another person or a country. A person or country has comparative advantage in the production of a particular good, if the cost of producing an additional unit of that good relative to the cost of producing another good is lower than another person or country’s cost to produce the same two goods. A person or a country has a comparative advantage in the production of a particular good if their cost of producing it, relative to the cost of another good, is lower than for another person or a country (Micro, Macro, TE1, TESA, UOE). Introduced in 4.6 Specialization, comparative advantage, and markets, Micro, TE1, TE1. See also: absolute advantage.

complete contract

A contract is complete if it a) covers all of the aspects of the exchange in which any party to the exchange has an interest, and b) is enforceable (by the courts) at close to zero cost to the parties. A contract is complete if it (a) covers all aspects of the exchange in which any party to the exchange has an interest, and (b) is enforceable (by the courts) at close to zero cost to the parties (Micro, Macro, UOE). Introduced in Micro.

conflict of interest

The situation that arises in an interaction if, in order for one party to gain more, another party must do less well. The situation which arises if in order for one party to gain more from the interaction, another party must do less well. People have a conflict of interest when they disagree about the outcome of a decision or an allocation. Conflicts of interest over gains from cooperation exist because people disagree about who should get a larger share of the gains (Micro, Macro, ESPP, UOE). Introduced in 1.5 The importance of options outside of the game and how they affect the players, 1.6 People in conflict over possible benefits, Micro, Micro, Micro, Macro, ESPP.

constant returns to scale

When production exhibits constant returns to scale, increasing all of the inputs to a production process by the same proportion increases output by the same proportion. The shape of a firm’s long-run average cost curve depends both on returns to scale in production and the effect of scale on the prices it pays for its inputs. These occur when doubling all of the inputs to a production process doubles the output. The shape of a firm’s long-run average cost curve depends both on returns to scale in production and the effect of scale on the prices it pays for its inputs (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in 4.5 Production functions: Turning inputs into outputs, Micro, Micro, Macro, TE1, TESA, ESPP. See also: increasing returns to scale, decreasing returns to scale.

consumer surplus

Each consumer who buys a good receives a surplus equal to their willingness to pay minus the price. The term ‘consumer surplus’ normally refers to the sum of these surpluses across all consumers. The consumer’s willingness to pay for a good minus the price at which the consumer bought the good, summed across all units sold. Each consumer who buys a good receives a surplus equal to their willingness to pay minus the price. The term “consumer surplus” normally refers to the sum of these surpluses across all consumers (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in Micro, Micro, TE1, TESA, ESPP.

cooperation

Participating in a common project that is intended to produce mutual benefits. Cooperation means participating in a common project that is intended to produce mutual benefits (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in 1.2 What is economics and why do people cooperate?, Micro, TE1, TESA, ESPP.

correlation

Two variables in a sample of data are said to be correlated if we observe that they tend to change together. If high values of one variable (e.g. people’s earnings) commonly occur along with high values of another variable (e.g. years of education) the variables are positively correlated. When high values of one variable (e.g. ice cream sales) are associated with low values of the other variable (e.g. number of people wearing winter coats) there is a negative correlation. If variables are correlated, it doesn’t mean that there is a causal relationship between them: higher ice cream sales might not have caused fewer people to wear winter coats. A statistical association in which knowing the value of one variable provides information on the likely value of the other, for example high values of one variable being commonly observed along with high values of the other variable. It can be positive or negative (it is negative when high values of one variable are observed with low values of the other). It does not mean that there is a causal relationship between the variables. A measure of how closely related two variables are. Two variables are correlated if knowing the value of one variable provides information on the likely value of the other, for example high values of one variable being commonly observed along with high values of the other variable. Correlation can be positive or negative. It is negative when high values of one variable are observed with low values of the other. Correlation does not mean that there is a causal relationship between the variables. Example: When the weather is hotter, purchases of ice cream are higher. Temperature and ice cream sales are positively correlated. On the other hand, if purchases of hot beverages decrease when the weather is hotter, we say that temperature and hot beverage sales are negatively correlated. A statistical association observed between two variables in a sample of data. If high values of one variable (such as people’s earnings) commonly occur along with high values of another variable (such as years of education), then the variables are positively correlated. When high values of one variable (such as air pollution) are associated with low values of the other variable (such as life expectancy), then the variables are negatively correlated. Correlation doesn’t mean that there is a causal relationship between the variables. For example, air pollution may not have caused the lower life expectancy we observed (Micro, Macro, ESPP, DE, TE1, TESA, UOE). Introduced in 3.2 History’s income hockey sticks, Micro, Macro, Macro, TE1, TESA, DE, DE, DE, DE. See also: causality, correlation coefficient.

correspondence study

A type of experiment in which experimenters send out fictitious applications submitted online or via the mail. The experimenters randomly vary the specific characteristics they are interested in studying (UOE).

deadweight loss

A measure of the total loss of surplus (that is, potential gains from trade) relative to the maximum available in the market. A loss of total surplus relative to a Pareto-efficient allocation. Deadweight loss is a measure of the total loss of surplus (that is, potential gains from trade) relative to the maximum available in the market (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in Micro, Micro, TE1, TE1, TESA, ESPP.

decile

Deciles split a set of observations into ten equally-sized groups. The full set of observations is ordered according to a particular variable (e.g. income). The first decile group is the observations in the bottom 1% (e.g. the 1% with the lowest incomes), the second is the next lowest 1%, and the tenth or top decile group is the highest 1%. The deciles are the cutoff values that separate the groups; the first decile is the cutoff between the first and second decile groups, and so on (Micro, Macro, ESPP, DE, UOE, Micro). Introduced in 3.7 Global poverty and inequality, Macro, Macro, ESPP, ESPP, Micro., decile groups, decile, decile groups

decreasing returns to scale

When production exhibits decreasing returns to scale, increasing all of the inputs to a production process by the same proportion increases output by a lower proportion. The shape of a firm’s long-run average cost curve depends both on returns to scale in production and the effect of scale on the prices it pays for its inputs (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in 4.5 Production functions: Turning inputs into outputs, ESPP, TE1, TESA, Micro. See also: increasing returns to scale, constant returns to scale., diseconomies of scale, decreasing returns, decreasing returns to scale, diseconomies of scale, decreasing returns

demand

Demand refers to the relationship between a product’s price and how much buyers are willing and able to buy at each possible price (UOE). See also demand curve (firm) and quantity demanded.

demand curve (firm)

A firm’s demand curve is a graph that shows how much of the firm’s product people want to buy at different prices (UOE). Introduced in Micro, TE1, TESA, ESPP. See also demand and quantity demanded., demand curve

democracy

A political system that ideally gives equal political power to all citizens, and which is defined by individual rights such as freedom of speech, assembly, and the press; and fair elections in which virtually all adults are eligible to vote, and the government leaves office if it loses. A political system, that ideally gives equal political power to all citizens, defined by individual rights such as freedom of speech, assembly, and the press; fair elections in which virtually all adults are eligible to vote; and in which the government leaves office if it loses. A political system that ideally gives equal political power to all citizens; it is defined by individual rights such as freedom of speech, assembly, and the press, and by fair elections in which virtually all adults are eligible to vote and the government leaves office if it loses (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in 3.5 Varieties of capitalism: Institutions, government, and politics, Micro, Macro, TE1, TE1, TESA, ESPP, ESPP.

developmental state

A government that takes a leading role in promoting the process of economic development through its public investments, subsidies of particular industries, education, and other public policies. A government that takes a leading role in promoting the process of economic development through its public investments, subsidies of particular industries, education and other public policies (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in 3.5 Varieties of capitalism: Institutions, government, and politics, Micro, Macro, TE1, TESA, ESPP.

differentiated product

A product produced by a single firm that has some unique characteristics compared to similar products of other firms. A differentiated product is a product with some unique characteristics compared to similar products produced by other firms (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in Micro, TE1, TESA, ESPP.

disaggregated data

Data that have been broken down or separated into smaller groups or categories, such as region, age, income, education, gender, or race (UOE).

discrimination

The practice of treating people differently based on their membership, or perceived membership, in a group or category, such as race, gender, class, age, disability, religion, or national origin (UOE).

division of labor

The specialization of producers to carry out different tasks in the production process (UOE). Introduced in 4.6 Specialization, comparative advantage, and markets.

doing the best you can

Doing the best you can means that, from the set of actions available to them, people will choose the action that they believe will result in the outcome that they value the most, taking into account what they believe the other player will do in response to their choice (UOE). Introduced in 1.7 People doing the best they can.

economic rent

Economic rent is the difference between the net benefit (monetary or otherwise) that an individual receives from a chosen action, and the net benefit from the next best alternative (or reservation option). A payment or other benefit received above and beyond what the individual would have received in his or her next best alternative (or reservation option). Economic rent is the difference between the net benefit (monetary or otherwise) that an individual receives from a chosen action, and the net benefit from the next-best alternative (or reservation option) (Micro, Macro, ESPP, TE1, TESA, UOE, UOE, UOE, UOE). Introduced in 1.6 People in conflict over possible benefits, 4.4 Technology, innovation, and costs, Micro, Micro, Micro, Micro, Micro, Macro, TE1, TE1, TE1, TE1, TE1, TESA, TESA, TESA, TESA, TESA, ESPP, ESPP, ESPP. See also: reservation option.

economic system

A way of organizing the economy that is distinctive in its basic institutions. Economic systems of the past and present include: central economic planning (e.g. the Soviet Union in the twentieth century), feudalism (e.g. much of Europe in the early Middle Ages), slave economy (e.g. the US South and the Caribbean plantation economies prior to the abolition of slavery in the nineteenth century), and capitalism (most of the world’s economies today). A way of organizing the economy that is distinctive in its basic institutions. Economic systems of the past and present include: central economic planning (e.g. the Soviet Union in the 2th century), feudalism (e.g. much of Europe in the early Middle Ages), slave economy (e.g. the US South and the Caribbean plantation economies prior to the abolition of slavery in the 19th century), and capitalism (most of the world’s economies today). The institutions that organize the production and distribution of goods and services in an entire economy. A way of organizing the economy that is distinctive in its basic institutions. Economic systems of the past and present include central economic planning (the Soviet Union in the twentieth century), feudalism (much of Europe in the early Middle Ages), slave economy (the U.S. South and the Caribbean plantation economies prior to the abolition of slavery in the nineteenth century), and capitalism (most of the world’s economies today) (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in 3.3 The institutions of capitalism, Micro, TE1, TESA, ESPP.

economics

Economics is the study of how people interact with each other and with their natural environment in producing and acquiring their livelihoods, and how this changes over time and differs across societies. The study of how people interact with each other and with their natural surroundings in providing their livelihoods, and how this changes over time (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in 1.2 What is economics and why do people cooperate?, Micro, Micro, TE1, TESA, ESPP, ESPP.

economies of scale

These occur when doubling all of the inputs to a production process more than doubles the output. The shape of a firm’s long-run average cost curve depends both on returns to scale in production and the effect of scale on the prices it pays for its inputs. Also known as: increasing returns to scale. When production exhibits increasing returns to scale, increasing all of the inputs to a production process by the same proportion increases the output by a higher proportion (ESPP, TE1, TESA, UOE). Introduced in 4.5 Production functions: Turning inputs into outputs, 4.6 Specialization, comparative advantage, and markets, TE1, TE1, TE1, TE1, TESA, ESPP, ESPP. See also: diseconomies of scale.

elastic demand

Demand is relatively elastic when buyers are very responsive to price changes (UOE).

employer

A person who, alone or with others, employs people. The employer is either the firm’s owner(s) or a corporation’s board of directors (UOE).

employment contract

A system in which producers are paid for the time they work for their employers (Micro, Macro, UOE). Introduced in Micro.

employment rent

The economic rent a worker receives when the net value of their job exceeds the net value of their next best alternative (that is, being unemployed). The economic rent a worker receives when the net value of their job exceeds the net value of their next best alternative (that is, being unemployed). Also known as: cost of job loss. The economic rent a worker receives when the net value of her job exceeds the net value of her next best alternative (that is, being unemployed). Also known as: cost of job loss. The economic rent a worker receives when the net value of their job exceeds the net value of their next-best alternative (that is, being unemployed or their next-best alternative job). Also known as the cost of job loss (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in Micro, Micro, Macro, Macro, TE1, TE1, TESA, TESA, ESPP, ESPP. See also: economic rent.

endowment

A person’s endowments are the things they have that enable them to receive income. They include physical wealth (for example: land, housing, machinery); financial wealth (for example: savings, stocks/shares, bonds); intellectual property (for example: patents, copyrights); knowledge, skills, abilities, and experience that affect labour income; citizenship and rights to work. They can include characteristics such as nationality, gender, race, and social class, if these affect their income. The facts about an individual that may affect his or her income, such as the physical wealth a person has, either land, housing, or a portfolio of shares (stocks). Also includes level and quality of schooling, special training, the computer languages in which the individual can work, work experience in internships, citizenship, whether the individual has a visa (or green card) allowing employment in a particular labour market, the nationality and gender of the individual, and even the person’s race or social class background. A person’s endowments are the things they have that enable them to receive income. They include physical wealth (for example: land, housing, machinery); financial wealth (for example: savings, stocks/shares, bonds); intellectual property (for example: patents, copyrights); knowledge, skills, abilities, and experience that affect labor income; citizenship and rights to work. They can include characteristics such as nationality, gender, race, and social class, if these affect their income (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in Micro, TE1, ESPP, ESPP. See also: human capital.

entrepreneur

A person who creates or is an early adopter of new technologies, organizational forms, and other opportunities. A person or firm who creates or is an early adopter of new technologies, organizational forms, and other opportunities (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in 4.4 Technology, innovation, and costs, Micro, TE1, TESA, ESPP.

extreme poverty

Extreme poverty is defined as living below the International Poverty Line of $3 per day in 221 international dollars. The World Bank defines the International Poverty Line (IPL) (UOE). Introduced in 3.7 Global poverty and inequality.

factors of production

The labour, machinery and equipment (usually referred to as capital), land, and other inputs to a production process. Any input into a production process is called a factor of production. Factors of production may include labor, machinery, and equipment (usually referred to as capital), land, energy, and raw materials (TE1, TESA, UOE, Micro, Macro). Introduced in 4.2 Types of technology, TE1, TESA, Micro, Micro, Macro., factor of production

firm

An economic organization in which private owners of capital goods hire and direct labour to produce goods and services for sale on markets to make a profit. Economic organization in which private owners of capital goods hire and direct labour to produce goods and services for sale on markets to make a profit. An economic organization in which private owners of capital goods hire and direct labor to produce goods and services for sale on markets to make a profit (Micro, Macro, TE1, TESA, UOE, ESPP). Introduced in 3.3 The institutions of capitalism, Micro, TE1, ESPP, ESPP., firms

firm-specific asset

An asset is something that is owned and has value. It is firm-specific if it is only of value within a particular firm. Firm-specific assets include any knowledge or skills that are only valuable while a person remains employed in a particular firm. Something that a person owns or can do that has more value in the individual’s current firm than in their next best alternative (Micro, Macro, TE1, TESA, UOE). Introduced in Micro, TE1, TESA. See also: relationship-specific asset., firm-specific assets

fixed costs

Costs of production that do not vary with the number of units produced (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in Micro, TE1, TESA, ESPP., fixed cost

gains to cooperation

In a strategic interaction, payoffs in excess of outside options are called the gains to cooperation. Gains to cooperation are also sometimes called rents (UOE). Introduced in 1.6 People in conflict over possible benefits.

game

A model of strategic interaction that describes the players, the feasible strategies, the order of play, the information that the players have, and their pay-offs. A model of strategic interaction that describes the players, the feasible strategies, the information that the players have, and their payoffs. A game (in game theory) is a model of a strategic interaction including a list of players, the order of play, the actions (or strategies) available to each player, and the payoffs resulting from each possible combination of players’ payoffs (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in 1.4 How do people interact strategically?, Micro, TE1, TESA, ESPP, ESPP. See also: game theory.

game tree

A game tree shows the players, the actions, the sequence of moves, and the payoffs resulting from each possible pathway through the game that results from the actions the players take (UOE). Introduced in 1.8 Predicting what people will do.

gross domestic product (GDP)

A measure of the market value of the output of final goods and services in the economy in a given period. GDP combines in a single number all the output (or production) carried out by the firms, non-profit institutions, and government bodies within a government’s territory. Output of intermediate goods that are inputs to final production is excluded to prevent double counting. Household production is part of GDP if it is sold. GDP is measured monthly, quarterly, and annually. A measure of the market value of the output of final goods and services in the economy in a given period. Output of intermediate goods that are inputs to final production is excluded to prevent double counting. A measure of the market value of the output of the economy in a given period. A measure of the total output of goods and services produced in an economy in a given period. GDP combines in a single number all the output (or production) carried out by the firms, nonprofit institutions, and government bodies within a country. Household production is part of GDP if it is sold (Micro, Macro, ESPP, TE1, TESA, UOE, UOE). Introduced in 3.2 History’s income hockey sticks, 4.5 Production functions: Turning inputs into outputs, Micro, Macro, Macro, TE1, TE1, TESA, TESA., gross domestic product, Gross Domestic Product (GDP), Gross Domestic Product

gross domestic product (GDP) per capita

A measure of the market value of the output of the economy in a given period (GDP) divided by the population (ESPP, UOE). Introduced in 3.2 History’s income hockey sticks, ESPP., gross domestic product per capita

group or categorical inequality

Inequality between particular social groups (identified, for instance, by a category such as race, nation, caste, gender, or religion). Also known as group inequality (UOE).

growth

We say that a country’s economy grows when its GDP per capita increases over time (positive growth rate). If the GDP per capita decreases over time, then the economy shrinks (negative growth rate). A growth rate is a percentage change. The formula to calculate a percentage change is: \(\frac{(\text{new number} ‐ \text{old number})}{\text{old number}}\). For example, if Country A had GDP per capita of 1, in Year 1 and GDP per capita of 1,2 in Year 2, then Country A experienced economic growth of 2% \(\frac{(1,2 ‐ 1,)}{1,} = .2\), or 2% growth in per capita GDP (UOE). Introduced in 3.2 History’s income hockey sticks.

hidden action problem or moral hazards

If there is a conflict of interest between a principal and an agent over the agent taking some action that cannot be observed or cannot be verified by a court, then the principal faces a problem of hidden actions. Because the agent’s behavior is hidden, the agent might act in their own interest instead of doing what’s best for the principal, a situation also known as moral hazard (UOE).

incentive-compatibility constraint

The incentive-compatibility constraint (ICC) describes the limits on the outcomes that a first mover in a sequential game may achieve by showing how a second mover will respond to each of the choices that the first mover might make (UOE).

Industrial Revolution

A wave of technological advances and organizational changes that began in Britain in the eighteenth century; it transformed an agricultural and craft-based economy into a commercial and industrial economy. A wave of technological advances and organizational changes starting in Britain in the eighteenth century, which transformed an agrarian and craft-based economy into a commercial and industrial economy (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in 3.3 The institutions of capitalism, Micro, Micro, TE1, TE1, TESA, TESA, ESPP.

inefficient

Consider two technologies: A and B. If A uses at least the same amount of one or more input(s) and more of another input to produce the same amount of output compared to B, then A is inefficient (UOE). Introduced in 4.3 Inefficient technologies.

inelastic demand

Demand is relatively inelastic when buyers are not very responsive to price changes (UOE).

inequality

Inequality refers to the degree to which income, wealth, or other economic resources are distributed unevenly among people or groups in a society. It can be measured using statistical tools such as income percentiles, the Gini coefficient, or income shares held by different segments of the population (for example, the top 1% vs. the bottom 1%, called the Rich/Poor ratio) (UOE). Introduced in 3.7 Global poverty and inequality.

infeasible outcome

An infeasible outcome is one that will not occur, either because it is technically impossible or because one of the two players would never agree to it (UOE). Introduced in 1.6 People in conflict over possible benefits.

innovation rent

Profits in excess of the opportunity cost of capital that an innovator gets by introducing a new technology, organizational form, or marketing strategy (Micro, Macro, UOE, TE1, TESA). Introduced in 4.4 Technology, innovation, and costs, Micro, Macro, Macro, TE1, TE1, TE1, TESA., innovation rents

institution

An institution is a set of laws and informal rules that regulate social interactions among people, and between people and the biosphere; sometimes also termed ‘the rules of the game’. The laws and informal rules that regulate social interactions among people and between people and the biosphere, sometimes also termed the rules of the game. The laws and social customs governing the way people interact in society. An institution is a set of laws and informal rules that regulate social interactions among people, and between people and the biosphere; sometimes also termed ‘the rules of the game.’ (Micro, Macro, ESPP, TE1, TESA, UOE, UOE). Introduced in 1.3 How laws and rules of behavior affect what people do, 3.3 The institutions of capitalism, Micro, Micro, Macro, TE1, TESA, ESPP, ESPP., institutions

interdependence principle

The outcomes people obtain in economic interactions depend on the actions that they and others take in response to each other and on what they believe about the future (UOE). Introduced in 2.6 The economy: Government, firms, households, and the environment., principle of interdepence, interdependence principle, principle of interdepence

interdependence principle

The outcomes people obtain in economic interactions depend on the actions that they and others take in response to each other and on what they believe about the future (UOE). Introduced in 4.6 Specialization, comparative advantage, and markets., principle of interdependence, interdependence principle, principle of interdependence

involuntary unemployment

A person is involuntarily unemployed if they are seeking work, and willing to accept a job at the going wage for people of their level of skill and experience, but unable to secure employment. A person who is seeking work, and willing to accept a job at the going wage for people of their level of skill and experience, but unable to secure employment is involuntarily unemployed (Micro, Macro, ESPP, UOE). Introduced in Micro, Macro, ESPP, ESPP., unemployment, involuntary

isocost line

A line that represents all combinations of inputs that cost a given total amount. A line that represents all combinations that cost a given total amount (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in 4.4 Technology, innovation, and costs, Micro, TE1, TESA, ESPP.

labor discipline model

Employers face a labor discipline problem when they need to give workers an incentive to ensure that they work hard and well. In the labor discipline model, they do this by setting wages that include an economic rent (employment rent), which will be lost if the job is terminated (UOE).

labor force

The number of people in the working-age population who are, or wish to be, working outside the household. They are either employed (including self-employed) or unemployed (UOE).

labor force participation rate

The ratio of the number of people in the labor force to the population of working age (UOE).

labor-intensive technology

A technology that requires a comparatively large amount of human labor (UOE). Introduced in 4.2 Types of technology.

labor market

The market in which employers offer wages to individuals who may agree to work under their direction. Employers are on the demand side of this market, while workers are on the supply side. The market in which employers offer wages to individuals who may agree to work under their direction. Employers are on the demand side of this market, while employees are on the supply side (UOE, UOE, UOE, UOE). Introduced in 3.3 The institutions of capitalism.

law of demand

According to the law of demand, a decrease in the price of a good will result in an increase in the quantity of the good demanded (UOE).

learning by doing

This occurs when the output per unit of inputs increases with greater experience in producing a good or service. People learn better (less costly) ways of working by developing individual skills and discovering better ways to organize production among members of a team (TE1, TESA, UOE). Introduced in 4.6 Specialization, comparative advantage, and markets, TE1, TE1.

long run

The term does not refer to a specific length of time, but instead to what is held constant and what can vary within a model. The short run refers to what happens while some variables (such as prices, wages, or capital stock) are held constant (taken to be exogenous). The long run refers to what happens when these variables are allowed to vary and be determined by the model (they become endogenous). A long-run cost curve, for example, refers to costs when the firm can fully adjust all of the inputs including its capital goods (Micro, Macro, UOE, TE1, TESA). Introduced in Micro, Micro, TE1, TE1, TESA., long run (model)

marginal cost

The increase in total cost when one additional unit of output is produced. It corresponds to the slope of the total cost function at each point. The addition to total costs associated with producing one additional unit of output. The effect on total cost of producing one additional unit of output. It corresponds to the slope of the total cost function at each point. A firm’s marginal costs are the increase in total costs when one additional unit of output is produced (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in Micro, Micro, Macro, TE1, TE1, TE1, TESA, TESA, TESA, ESPP, ESPP.

marginal product of labor

The marginal product of an input to production (for example, the marginal product of labor) is the additional amount of output produced in response to a 1-unit increase in the input (UOE). Introduced in 4.5 Production functions: Turning inputs into outputs.

marginal revenue

The change in revenue obtained by increasing the quantity sold by one unit. The change in revenue obtained by increasing the quantity from Q to Q + 1. The increase in revenue obtained by increasing the quantity from Q to Q + 1. Marginal revenue is the change in revenue obtained by increasing the quantity sold by one unit (Micro, Macro, TE1, TESA, UOE). Introduced in Micro, TE1, TE1, TESA, TESA.

market

A market enables people to exchange goods and services by means of directly reciprocated transfers (unlike gifts), voluntarily entered into for mutual benefit (unlike theft, taxation), in a way that is often impersonal (unlike transfers among friends, family). A way that people exchange goods and services by means of directly reciprocated transfers (unlike gifts), voluntarily entered into for mutual benefit (unlike theft, taxation), that is often impersonal (unlike transfers among friends, family). A market is a way of connecting people who may mutually benefit by exchanging goods or services through a process of buying and selling (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in 3.3 The institutions of capitalism, Micro, ESPP.

market power

A firm has market power if it can sell its product at a range of feasible prices, so that it can benefit by acting as a price-setter (rather than a price-taker). An attribute of a firm that can sell its product at a range of feasible prices, so that it can benefit by acting as a price-setter (rather than a price-taker). A firm has market power if it can sell its product at a range of feasible prices without losing many potential buyers to competing firms (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in Micro, Micro, TE1, TESA, ESPP.

market share

A firm’s proportion of the market in which its product is sold. It may be measured as its share of the total revenue in the market, or of the total quantity sold in the market. Market share is a firm’s proportion of the market in which its product is sold. It can be measured as its share of the total revenue in the market, or of the total quantity sold in the market (Micro, Macro, UOE). Introduced in Micro, Micro.

matching market

A market for interactions between two distinct groups, in which the members have different characteristics from other members of their own group, and would benefit from matching with particular members of the other group. For example, firms and workers in the labour market, men and women in what is sometimes called the marriage market. Also known as a two-sided market. A market that matches members of two distinct groups of people. Each person in the market would benefit from being connected to the right member of the other group. Also known as: two-sided market. A market for interactions in which participants in the market have different characteristics from others and will benefit from matching with particular participants in the market. Two examples are: (1) firms and workers in the labor market, and (2) people in what is sometimes called the marriage market (Micro, Macro, TE1, TESA, UOE). Introduced in Micro, Macro, TE1.

model

An economic model is a simplified representation of reality used to explain and predict behavior or outcomes (UOE). Introduced in 1.4 How do people interact strategically?.

moral hazard

If there is a conflict of interest between a principal and an agent over the agent taking some action that cannot be observed or cannot be verified by a court, then the principal faces a problem of hidden actions; also known as moral hazard (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in TE1, TE1, TESA, TESA, ESPP, Micro, Micro, Macro, Macro., hidden actions, moral hazard, hidden actions

natural experiment

An empirical study that exploits a difference in the conditions affecting two populations (or two economies), that has occurred for external reasons: for example, differences in laws, policies, or weather. Comparing outcomes for the two populations gives us useful information about the effect of the conditions, provided that the difference in conditions was caused by a random event. But it would not help, for example, in the case of a difference in policy that occurred as a response to something else that might affect the outcome. An empirical study exploiting naturally occurring statistical controls in which researchers do not have the ability to assign participants to treatment and control groups, as is the case in conventional experiments. Instead, differences in law, policy, weather, or other events can offer the opportunity to analyse populations as if they had been part of an experiment. The validity of such studies depends on the premise that the assignment of subjects to the naturally occurring treatment and control groups can be plausibly argued to be random (Micro, Macro, ESPP, DE, TE1, TESA, UOE). Introduced in 3.4 Capitalist institutions and living standards, Micro, Micro, Macro, Macro, Macro, TE1, TE1, TE1, TESA, TESA, TESA, ESPP, ESPP, ESPP, ESPP, DE, DE, DE, DE, DE., natural experiments

network

A network is a structure composed of interconnected people (or objects) and the connections among them (UOE).

network economies of scale

A firm experiences network economies of scale when an increase in the number of users of an output of the firm implies an increase in the value of the output to each of them, because they are connected to each other. These exist when an increase in the number of users of an output of a firm implies an increase in the value of the output to each of them, because they are connected to each other (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in Micro, TE1, TESA, ESPP.

no-shirking wage

The wage that is just sufficient to motivate a worker to provide effort at the level specified by their employer (Micro, Macro, UOE). Introduced in Micro, Micro, Macro. See also: no-shirking condition

non-verifiable information

Information is verifiable if it can be verified by a court and hence used to enforce a contract (Micro, Macro, UOE). Introduced in Micro., unverifiable information, non-verifiable information, unverifiable information

occupational segregation

The uneven distribution of workers across jobs based on characteristics such as gender, race, or ethnicity. It includes both horizontal segregation (different groups in different types of jobs) and vertical segregation (some groups more likely to be in lower-paid or lower-status positions within the same field) (UOE).

opportunity cost

What you lose when you choose one action rather than the next best alternative. Example: ‘I decided to go on vacation rather than take a summer job. The job was boring and badly paid, so the opportunity cost of going on vacation was low.’ The opportunity cost of some action A is the foregone benefit that you would have enjoyed if instead you had taken some other action B. This is called an opportunity cost because by choosing A you give up the opportunity of choosing B. It is called a cost because the choice of A costs you the benefit you would have experienced had you chosen B. When taking an action implies forgoing the next best alternative action, this is the net benefit of the foregone alternative. The opportunity cost is the net benefit of the next-best alternative—what you give up when you make a choice (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in 1.5 The importance of options outside of the game and how they affect the players, 4.6 Specialization, comparative advantage, and markets, Micro, Micro, Micro, Micro, Micro, Macro, Macro, TE1, TE1, TE1, TE1, TESA, TESA, TESA, ESPP, ESPP.

outside option

The payoff a player will receive if they do not engage in the particular interaction being modeled. The outside option is also sometimes called the player’s reservation position or reservation option (it is “held in reserve”). Sometimes it is called the next-best alternative because it is the alternative to the agreement that is “next-best” in terms of how good it is (UOE). Introduced in 1.5 The importance of options outside of the game and how they affect the players.

participation constraint

Each member of an interaction must receive at least their outside option in order to participate in the interaction (UOE). Introduced in 1.5 The importance of options outside of the game and how they affect the players, 1.6 People in conflict over possible benefits.

pay-off

The pay-off for an individual player in a game is the benefit that the player receives as a result of the joint actions of all the players (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in 1.4 How do people interact strategically?, Micro, TE1, TESA, ESPP., payoff

personal cost of working

The net physical and psychological costs of doing the work an employer asks of a worker (UOE).

piece rate

Under a piece rate contract, a worker is paid a fixed amount for each unit (‘piece’) of the product made. Under a piece rate contract, a worker is paid a fixed amount (the “rate”) for each unit (“piece”) of the product made (Micro, Macro, UOE). Introduced in Micro.

political system

A political system determines how governments will be selected, and how those governments will make and implement decisions that affect all or most members of a population. A set of principles, laws, and procedures that determine how governments will be selected, and how those governments will make and implement decisions that affect all or most members of a population. A political system determines how governments will be selected and how those governments will make and implement decisions that affect all or most members of a population (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in 3.5 Varieties of capitalism: Institutions, government, and politics, Micro, TE1, TESA, ESPP.

population of working age

A statistical convention, which in many countries is all people aged between 15 and 64 years (Macro, ESPP, TE1, TESA, UOE). Introduced in Macro, TE1, TESA, ESPP.

power

The ability to do (and get) the things one wants in opposition to the intentions of others. The ability to do (and get) the things one wants in opposition to the intentions of others, ordinarily by imposing or threatening sanctions. The ability to do and get the things we want in opposition to the intentions of others (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in 2.2 Changing the rules: The structures of the economy, 2.3 Changing the rules: Democracy and bargaining, 3.5 Varieties of capitalism: Institutions, government, and politics, Micro, TE1, TESA, ESPP.

predatory pricing

Predatory pricing occurs when an incumbent firm charges a price lower than its marginal costs, seeking to drive its competitors out of business (UOE).

price discrimination

A selling strategy in which different prices are set for different buyers or groups of buyers based on the buyers’ differing willingness to pay. A selling strategy in which different prices for the same product are set for different buyers or groups of buyers, or per-unit prices vary depending on the number of units purchased. A selling strategy in which different prices are set for different buyers or groups of buyers, or prices vary depending on the number of units purchased (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in Micro, TE1, TESA, TESA, ESPP.

price elasticity of demand

The percentage change in demand that would occur in response to a 1% increase in price. We express this as a positive number. Demand is elastic if this is greater than 1, and inelastic if less than 1. The price elasticity of demand is a measure of buyers’ responsiveness to a price change (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in Micro, Macro, Macro, TE1, TESA, ESPP, ESPP, ESPP.

price markup

The price minus the marginal cost divided by the price. In other words, the profit margin as a proportion of the price. If the firm sets the price to maximize its profits, the markup is inversely proportional to the elasticity of demand for the good at that price. The price minus the marginal cost, divided by the price. It is inversely proportional to the elasticity of demand for this good. The price minus the marginal cost divided by the price. It is inversely proportional to the elasticity of demand for this good. The price markup is the price a firm charges per unit minus the unit costs (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in Micro, Macro, TE1, TESA, ESPP, ESPP.

principle-agent problem or principle-agent relationship

A principal-agent relationship or principal-agent problem exists when one party (the principal) would like another party (the agent) to act in some way, or have some attribute, that is in the interest of the principal, and that action or attribute cannot be enforced or guaranteed in a binding contract (UOE).

principle of individual and societal interests

Individuals doing the best they can often does not lead to the best outcomes for all people or for the environment (UOE). Introduced in 4.8 Conclusion: How good is the model?.

principle of mutual gains

People mutually benefit by interacting with others, but there are typically conflicts over the distribution of these gains (UOE). Introduced in 1.6 People in conflict over possible benefits.

principle of mutual gains and conflicts from exchange

People mutually benefit by interacting with others but there are typically conflicts over the distribution of these gains (UOE). Introduced in 4.6 Specialization, comparative advantage, and markets.

principle of trade-offs and opportunity cost

The gains you make by choosing some action typically come at the cost of gains that would have been possible had you acted differently (UOE). Introduced in 4.4 Technology, innovation, and costs.

private property

Something is private property if the person possessing it has the right to exclude others from it, to benefit from the use of it, and to exchange it with others. The right and expectation that one can enjoy one’s possessions in ways of one’s own choosing, exclude others from their use, and dispose of them by gift or sale to others who then become their owners (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in 3.3 The institutions of capitalism, Micro, Micro, TE1, TE1, TESA, TESA, ESPP, ESPP.

producer surplus

The producer of a good receives a surplus on each unit, equal to the price minus the marginal cost of producing it. The term ‘producer surplus’ normally refers to the sum of these surpluses across all units sold. The price at which a firm sells a good minus the minimum price at which it would have been willing to sell the good, summed across all units sold. The producer of a good receives a surplus on each unit, equal to the price minus the marginal cost of producing it. The term “producer surplus” normally refers to the sum of these surpluses across all units sold (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in Micro, Micro, TE1, TESA, ESPP.

product market

The markets where goods or services are sold to households, other firms, and governments (UOE).

production function

A production function is a graphical or mathematical description of the relationship between the quantities of the inputs to a production process and the amount of output produced. When used to represent output in the whole economy, it is described as an aggregate production function. A graphical or mathematical expression describing the amount of output that can be produced by any given amount or combination of input(s). The function describes differing technologies capable of producing the same thing (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in 4.5 Production functions: Turning inputs into outputs, Micro, Micro, Micro, Macro, Macro, TE1, TE1, TESA, TESA, TESA, ESPP.

profit claimant

The person or persons who receive a firm’s remaining income after the payment of all contractual costs (for example, the cost of hiring workers and paying taxes). Also known as residual claimant because the profit is “the residual” after contractual costs have been paid (UOE).

profit

A firm’s profit is its revenue minus its total costs. We often refer to profit as ‘economic profit’ to emphasise that costs include the opportunity cost of capital (which is not included in ‘accounting profit’) (Micro, Macro, UOE). Introduced in 3.3 The institutions of capitalism, TE1, ESPP, Micro, Micro, Micro, Macro., economic profit, profit, economic profit, profits

purchasing power parity (PPP)

PPPs are price indices that measure how much it costs to purchase a basket of goods and services compared to how much it costs to purchase the same basket in a reference country in a particular year, such as the United States in 211. A statistical correction allowing comparisons of the amount of goods people can buy in different countries that have different currencies. Purchasing power parity is a price index that measures how much it costs to purchase a basket of goods and services in a specific country compared to how much it costs to purchase the same basket in a reference country in a particular year, such as the United States in 211 (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in 3.2 History’s income hockey sticks, 3.7 Global poverty and inequality, Micro, Macro, TE1, TESA, ESPP. See also: constant prices., purchasing power parity

quantity demanded

Quantity demanded is the amount of a product people are willing to buy at a particular price. It refers to a specific point on the demand curve where price is fixed at a given level (UOE). See also demand and demand curve (firm).

quit rate

The quit rate is the number of quits—people voluntarily leaving their job—during the entire month as a percent of the total level of employment (UOE).

real wage

The wage expressed in terms of the amount of goods and services the worker can buy with it. It is calculated by dividing the nominal wage by the current price level in the same currency. The nominal wage, adjusted to take account of changes in prices between different time periods. It measures the amount of goods and services the worker can buy (Macro, ESPP, DE, TE1, TESA, UOE). Introduced in Macro, Macro, TE1, TE1, TESA, TESA, ESPP. See also: nominal wage., real wages

recession

The US National Bureau of Economic Research defines a recession as a period when output is declining. It is over once the economy begins to grow again. An alternative definition is a period when the level of output is below its normal level, even if the economy is growing. It is not over until output has grown enough to get back to normal. The latter definition has the problem that the ‘normal’ level is subjective. The US National Bureau of Economic Research defines it as a period when output is declining. It is over once the economy begins to grow again. An alternative definition is a period when the level of output is below its normal level, even if the economy is growing. It is not over until output has grown enough to get back to normal. The latter definition has the problem that the ‘normal’ level is subjective (Macro, TE1, TESA, UOE). Introduced in Macro, TE1, TESA.

relative price

The price of one good or service compared to another (usually expressed as a ratio of the two prices). The price of one good or service compared to another (usually expressed as a ratio) (Micro, Macro, TE1, TESA, UOE). Introduced in 4.4 Technology, innovation, and costs, Micro, TE1, TE1, TESA, TESA., relative prices

rent

A player’s rent is the benefit they receive in excess of their outside option (UOE).

reservation wage

The reservation wage is the lowest wage a worker is willing to accept to take up a new job. It is the wage available in the worker’s next best job option (the reservation option). For workers whose next best option is unemployment, the reservation wage takes into account the wages they expect to receive when they find a new job as well as any income received while unemployed. What an employee would get in alternative employment, or from an unemployment benefit or other support, were he or she not employed in his or her current job. The reservation wage is the lowest wage a worker is willing to accept to take up a new job. It is the wage available in the worker’s next-best job option (the outside option). For workers whose next-best option is unemployment, the reservation wage takes into account the wages they expect to receive when they find a new job as well as any income received while unemployed (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in Micro, Micro, Micro, Macro, Macro, TE1, TE1, TESA, TESA, ESPP.

rich/poor ratio

The rich/poor ratio is the ratio of the average income of the richest 1% of the population to the average income of the poorest 1% of the population within a country. It is a measure of inequality in a country (UOE). Introduced in 3.7 Global poverty and inequality.

rule of law

The principle that all members of a society are bound by the same laws, and nobody—however powerful—is ‘above the law’. There is rule of law when all people and institutions in a country are subject to the same laws: “All are equal in the eyes of the law.” (Macro, UOE). Introduced in 3.5 Varieties of capitalism: Institutions, government, and politics, Macro.

rules of the game principle

The rules of the game affect how the players play the game, the size of the gains from cooperation available to the players, and how the gains are divided among the players (UOE, UOE, UOE, UOE). Introduced in 2.5 Application: Environmental inequality, 3.3 The institutions of capitalism, 4.8 Conclusion: How good is the model?.

search unemployment

Since workers differ from each other, and so do jobs, unemployed workers and firms with vacancies spend time searching for an employment match that suits them both. Unemployment caused by the search and matching process is called search unemployment (Micro, Macro, UOE). Introduced in Micro.

separation of ownership and control

The attribute of some firms by which managers are a separate group from the owners. The attribute of some firms by which top managers are a separate group from the profit claimants (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in Micro, TE1, TESA, ESPP.

shares

Shares (also known as stocks) are financial assets that can be bought and sold, giving their owners (the shareholders) shared ownership of the assets of a firm, and therefore a right to receive a corresponding share of the firm’s profit (Micro, Macro, UOE). Introduced in TE1, TE1, TESA, TESA, ESPP, ESPP, Micro, Micro, TE1, TE1, TESA, Micro, Macro., stocks, shares, stocks

shirking

Occurs when a worker does not exert the effort that the employer demands (UOE).

slope

Slope is a measure of a line’s steepness, often represented by the letter ‘m’ and calculated as the ratio of the vertical change (rise) to the horizontal change (run) between any two points, such as \((x_1, y_1)\) and \((x_2, y_2)\), on the line. The formula for slope is \(m = (y_2 ‐ y_1) / (x_2 ‐ x_1)\). A larger slope indicates a steeper line, while a slope of zero means a horizontal line. A line that slopes upwards has a positive slope, whereas a line that slopes downwards has a negative slope (UOE).

social preferences

An individual is said to have social preferences if their individual utility depends on what happens to other people, as well as on their own pay-offs. A person with social preferences cares not only about how her action affects her personally, but also about how it affects other people. Also known as: other-regarding preferences. Preferences that place a value on what happens to other people, even if it results in lower payoffs for the individual. Preferences that place a value on what happens to other people, and on acting morally, even if it results in lower payoffs for the individual. A person is said to have social preferences if their goal depends on what happens to other people, as well as on their own payoffs (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in Micro, TE1, TE1, TESA, ESPP.

specialization

This takes place when a country or some other entity produces a narrower range of goods and services than it consumes, acquiring the goods and services that it does not produce by trade. This takes place when a country or some other entity produces a more narrow range of goods and services than it consumes, acquiring the goods and services that it does not produce by trade. Specialization exists when workers, organizations, or countries concentrate on producing a limited set of goods or performing specific tasks. This often happens through the division of labor—a system where production is broken into smaller tasks and different people or groups take on different parts of production (ESPP, TE1, TESA, UOE). Introduced in 3.4 Capitalist institutions and living standards, 4.6 Specialization, comparative advantage, and markets, TE1, ESPP.

strategic asymmetry

Strategic asymmetry exists when one side of a strategic interaction has more power to make offers, set the rules of the game, or move first in the interaction. Because of this advantage, they can shape the outcome in their favor (UOE).

strategic interaction

A social interaction in which the participants are aware of the ways in which their actions affect others (and the ways in which the actions of others affect them). A social interaction in which the participants are aware of the ways that their actions affect others (and the ways that the actions of others affect them). A strategic interaction is an interaction in which each actor knows that what they get from the interaction depends on what they do and on what other people do, including how others respond to each person’s action (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in 1.4 How do people interact strategically?, Micro, TE1, TESA, ESPP.

structural power

The extent of a person or firm’s advantage in a bargain that is determined by the relative value of their next-best alternative to the bargain (UOE).

substitutes

Two goods (or services) are described as substitutes when consumers would readily replace one with the other if the prices were similar. If the price of one of the goods increased, consumers would be more likely to choose the other (so demand for it would increase). Two goods for which an increase in the price of one leads to an increase in the quantity demanded of the other. Two goods (or services) are substitutes when buyers will readily replace one with the other if the prices are similar. If the price of one of the goods increases, buyers will be more likely to choose the other (so demand for it will increase) (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in Micro, TE1, TE1, TESA, ESPP. See also: complements.

technically feasible and infeasible outcomes

An outcome is technically feasible when the available technologies and resources make it possible to be achieved. An outcome is technically infeasible when the available technologies and resources make it not possible to be achieved (UOE). Introduced in 1.6 People in conflict over possible benefits.

technological innovation

A change in technology that reduces the amount of resources (labor, machines, land, energy, time) required to produce a given amount of the output (UOE). Introduced in 3.4 Capitalist institutions and living standards.

technological progress

A change in technology that reduces the amount of resources (labour, machines, land, energy, time) required to produce a given amount of the output. A change in technology that reduces the amount of resources (labor, machines, land, energy, time) required to produce a given amount of the output (Micro, Macro, ESPP, TE1, TESA, UOE, UOE, UOE, UOE). Introduced in 4.3 Inefficient technologies, Micro, TE1, TESA, ESPP, ESPP.

technology

The description of a process that uses a set of materials and other inputs, including the work of people and machines, to produce an output. A process taking a set of materials and other inputs, including the work of people and capital goods (such as machines), to produce an output. The description of a process using a set of materials and other inputs, including the work of people and machines, to produce an output. A process taking a set of materials and other inputs, including the work of people and machines, to produce an output. A process that uses a set of materials and other inputs, including the work of people and machines, to produce an output (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in 4.2 Types of technology, Micro, Micro, Micro, TE1, TESA, ESPP.

the distribution of income

The distribution of income describes how income in a society is divided among its people or groups, such as between individuals, households, or social classes (UOE). Introduced in 3.7 Global poverty and inequality.

the principle of doing the best you can

Doing the best you can means that, from the set of actions available to them, people will choose the action that they believe will result in the outcome that they value the most, taking into account what they believe the other player will do in response to their choice (UOE). Introduced in 4.3 Inefficient technologies.

total costs

The sum of all the costs a firm incurs to produce its total output (Micro, Macro, UOE). Introduced in Micro., total cost

total revenue

A firm’s total revenue is the number of units sold times the price per unit (Micro, Macro, UOE). Introduced in Micro, Micro., revenue, total revenue, revenue

trade or labor union

An organization consisting predominantly of workers, the main activities of which include the negotiation of wages and conditions of employment for its members, for example, work hours and safety conditions (UOE). Introduced in 2.1 Democratic rights and changing the rules of the game.

unemployed worker

A worker who is not currently employed but is able to work and is currently looking for a job (UOE).

unemployment benefit

A government transfer that is paid to an unemployed person while they are unemployed (or for part of the unemployment period). Also known as unemployment insurance. A government transfer that is paid to an unemployed person while they are unemployed (or for part of the unemployment period). Also known as: unemployment insurance. A government transfer received by an unemployed person. Also known as: unemployment insurance (Micro, Macro, ESPP, TE1, TESA, UOE). Introduced in Micro, Macro, Macro, TE1, TESA, ESPP., unemployment benefits

unemployment rate

The unemployment rate is the fraction of the total labour force that is seeking work, but is not currently employed. The ratio of the number of the unemployed to the total labour force. (Note that the employment rate and unemployment rate do not sum to 100%, as they have different denominators.) The ratio of the number of the unemployed to the total labour force. (Note that the employment rate and unemployment rate do not sum to 100%, as they have different denominators). The unemployment rate is the fraction of the labor force that is seeking work but is not currently employed (Macro, ESPP, TE1, TESA, UOE). Introduced in Macro, TE1, TESA, ESPP. See also: labour force, employment rate.

variable costs

Costs of production that vary with the number of units produced (Micro, Macro, UOE). Introduced in Micro., variable cost

willingness to pay

Willingness to pay is an indicator of how much a buyer values a good, measured by the maximum amount they will pay to acquire a unit of that good (UOE).