Economics vocabulary
1.INSTITUTIONS:social arrangement created to satisfy the needs of
the people in the long run. ethics, justice and the State are three naturally
created institutions.
languaje,morals(result
of ethics(conscience) andcreate by imaginationis necessary to maintain some
form of order to have a impartial judge),
justice,property
rights(appear on third state of society in evolution/hunt/agriculture/farm/commercial
interdependence->let government pursue laissez faire->self interest maximize
well being of society->compare motivation of farmer because of assurance and
a slave with no incentives of improve),
division
of labor (it is with specialization makes cooperative production and make worker more effcient) dl and
markets limitless possibilities to
expand its wealth trough manufacture and trade
,money, and market and value(“use value” and
“exchange value.”(is quantity of labor which enables him to purchase
or command)now labor based on disutility,and value based also capital(profit),land(rent)
and profits of stock.)Wealth of nation focus on the manner in wich
institutional arrangement structure the decision making of the individual.
2. FIRST ECONOMIC REVOLUTION: The 1st
Economic Revolution was the transition from nomadic hunting and gathering to
agriculture (farming) and settlement.. Occurring in the 8.000 B.C, it brought
forth the appearance of property rights savings
(people produced more than they needed) and the creation of the state
who provide security,specialization and new military technologies. This ocurred
in the Mesolithic (between the Paleolithic and Neolithic). In the Paleolithic
people just huntered and gathered, and there was no scarcity. There was a gift
economy, with a sense of communality and not based on the trade (it was not
seen as natural except with a stranger). First economic revolution emerged when
scarcity started. Afterwards, the glacial period came and scarcity began. In
the Neolithic goods were discovered to be scarce so people had to economise.
Having to choose brought about the notion of opportunity cost: the requirements
for economics are scarcity and alternative use/ diversity.
3. ECONOMICS: Economics is the social science that studies the
production, distribution, and consumption of goods and service,it involves the
study of choices as they are affected by incentives and resources. Other
definitions like Lionel Robbins based on scarcity and alternative uses of
available resources.Two types gift economy, goods are communal, it is ideally
voluntary and serves to redistribute wealth troughout a community.In contrast
barter economy there is a exchange of goods and services for commodity or money
. 4. MONEY:is any object or record that
is generally accepted as a payment for goods and services and repayment of
debts in a given socio-economic context or country. Money emerged when there
were different preferences between people, as barter couldn´t take place
anymore. The first coins were created on 3.000 BC. Money has several
functions:1.Means of exchange2. Store of value. It may vary with inflation.3.
Unit of account/Standard of deferred payment.Types: commodity money is that
whose value comes from the material out of which it is made. Ex: salt, silver,
gold(contras underlying value can vary from its agreed currency value and they use
to deteriorate..Historically, other forms of money were used which did have an
underlying value, such as foods, fuels or metals.Fiat money is a currency that
a government has declared to be legal tender, despite the fact that it has no
value itself and is not backed by reserves.
5. LEGAL TENDER: Legal tender is any form of payment that must be
accepted for a debt, according to the laws of the area. Generally, the term
refers to government-issued cash money such as bills and coins, as opposed to
credit lines, checks, or cards. The laws surrounding legal tender have proved
vital in the formation of the fiscal policy of many nations.
6.MARKETS: social arrangement that
allows buyers and sellers to discover information and carry out a voluntary
exchange of goods or services, it origin on middle ages with creation of
routes.it requires, at a minimum, that both parties expect to become better off
as a result of the transaction. it with property rights organize Markets.For Smith can not be created by
authorities, but most market are regulated by them.types: goods and services
are exchanged by market functions is called a market economy. An alternative
economic system in which non-market forces (often government mandates)
determine prices are called planned economies or command economies. Markets are
efficient when the price of a good or service attracts exactly as much demand
as the market can currently supply.
7.
SUPPLY CHAIN: system of organizations, people, technology, activities,
information and resources involved in moving a product or service from supplier
to customer. Supply Chain includes purchasing, manufacturing, warehousing,
transportation, customer service, demand planning , supply planning and Supply
Chain management.
8. DIAMOND- WATER
PARADOX: stablish the comparation between (makes the question)water which it is fundamental
for survival but its abundance reduces its value and diamonds which are highly
valued despite their minimal value in use. Therefore, for Adam Smith, the value
of an item is determined by its cost of production, which explains the paradox:
diamonds, although their little use are hard to obtain.
9. PRODUCTION COST VALUE: to Adam Smith, value of goods are
determined by the respective quantities of labor(natural measure of exchange(mirar
institutions) required for their production
acting as a center of gravity for the price. Also its determine the
“cost of production”, wages (effort), profits (Risk taking, Saving of time
and Lucrum cessans) and the rent of the land (monopoly over a scarce resource),
dosnt deny role of supply and demand on influence of prices,but are set by..
10. RATE OF INTEREST: are the price of
credit (not of money). It is a fee paid on borrowed assets. most common form
interest in money, but there areother assets may be lent to the borrower, such
as shares, consumer goods through hire purchase, or entire factories in finance
lease arrangements.There are interest rate because of time preferences(value
more present is debtor and is a positive interest rate and in the opossite
negative).being based on the agreemet between the lender who doesnt spend its
money on the present and lend it(lucrum cessans)and the borrower(
benefcios.The amount lent,It is form by
the principal (value of the assets lent) and the interest rate(The percentage
of the principal which is paid as fee (the interest), over a certain period of
time).and also depends on inflation.
11.
NATURAL PRICE: to Adam Smith, it is the cost of production of an item, it
remains constant in time, depending on wages, profits and the rent of the land
It is the price of commodity which is sufficient to pay the production value so
if the seller charges the natural price, he will not get any profit (not have
to work as the price market but competition push it to this price.
12. MARKET PRICE
: price that a
good or service is offered at,According to Adam Smith and classical economics
it’s the price determined by the demandand and in inverse relation with
supply.The actual market price will establish a particular price point, valid
for a short period which is the gear of current demand and supply.But when mp^
than np,competition seek mp low to np .Then will made losses,going out
traders,decreasing supply and increasing again mp in the marketplace.
13. DEMAND CURVE:For a given market of a commodity, demand shows the
quantity that all buyers would be prepared to purchase at each unit price of
the good. represented using a graph
relating price and quantity demanded.
characteristics:individual
consumers act always rational”;taking into account ‘constrained utility maximization’ (with
income as the “constraint” on demand) and ‘utility’ as the preference
relation for individual consumers;are used to see the effect of a price change
on the quantity demanded; law of demand states that, in general, price and
quantity demanded are inversely related(explain),
so the demand curve usually slopes downwards from left to right.
exceptions:Veblen goods (luxury
goods)(demand curve is elastic and Giffen goods (inferior goods)(inelastic).
14. SUPPLY CURVE:relation between the price of a good and the quantity available for sale
from suppliers at that price.represented using a graph relating price and
quantity supplied.
Characteristics:
Producers they meant to be profit-maximizers;Supply is a directly proportional
relation between price and quantity supplied(explain); price below equilibrium(shortage)push price up and At a
price above equilibrium(surplus)pushes price down.;generaly supply curves slope
upwards;in short-run analysis can reflect the law of decreasing marginal
return(exp); In the long run a
positively-sloped supply curve can reflect diseconomies of scale or fixity of
specialized resources (such as farm land or skilled labor).
exceptions:show on supply curve of labor when the wage reaches and
extremely high amount,(disminishing of the marg in relation to its salry,work
less(leisure)as its wage increase;market oil(1973 oil crisis)precios^production
baja.
15. NOMINAL
PRICE:It is the monetary value of a commodity. It refers to an economic value expressed in
fixed nominal terms in a given year or series of years. So, it is the money
value which changes along the time.
16.
REAL PRICEadjusts nominal value to remove effects of general
price level price changes over time.changes on nv reflect changes in quantities
of the bundle or their associated prices and rv only quantitys Real values over
time are a measure of the purchasing power.The real value is the nominal
price/CPI (this process is called indexation, and in the case of wages WR=
Wn/CPI). We need a base year to see what is happening with the Price in the
long-run. on the other hand According to Adam Smith, the real price of every
thing,is the toil and trouble of acquiring it. stablishing corn will be the
basis for the real price in the short-run, and gold and silver in the long-run.
17.PURCHASING
POWER PARITY (rate of exchange): theory
based on the Fisher’s law that defends that, in the long run identical products
and services in different countries should cost the same in different
countries. This is based on the belief that exchange rates will adjust to
eliminate the arbitrage opportunity of buying a product or service in one
country and selling it in another. it is estimates the amount of adjustment
needed on the Exchange rate between countries in order to be equivalent e . p*= p.
18. GROSS DOMESTIC PRODUCT (GDP):Is the total value of final goods and services produced within a
country’s borders in a year. GDP counts income according to where it is earned
rather than who owns the factors of production.(ej income german car factory in
spain is counted on spain gdp) is more
commonly used as an index measure (i.e. wealth inside a country, if GDP
increases employment increases…)., considered an indicator of a country´s
standard of living.depends on demand for consumption, investment, and public
expecditure and balance of tradeGDP =c +i+pe+(e-i)
19. GROSS NATIONAL PRODUCT:total value of all final goods and services produced by a country’s
factors of production and sold on the market in a given time period. (A UK
taxpayer in Paris income to UK GNP but his output to French GDP). it measures
the value of output during a given year using the prices prevailing during that
year(taking into account inflation) .It does not include goods produced on a
subsistence level,(consuming of farmers of its own products)GNP= GDP – Goods
produced by foreigners inside+ Goods produced by nationals abroad
20. CONSUMER PRICE INDEXstatistical estimate of the level of prices of goods and services bought
for consumption purposes by households. Cpi changes because inflation and can
be used for evaluation of wages,
salaries, pensions… we need to construct the CPI: price data(sample of goods
and services from sample sales of point,locations and times) and weighting
data( estimates of the shares of the different types of expenditure as
fractions of the total expenditure covered by the index),The index is usually
computed monthly, or quarterly in some countries;exclusions:consumers
expenditures outside and visitors,black market,illegal
drugs,prostitution(altough ethics require free moral judgements).saving and
investment.
21. INFLATION:results in a rise in the general price level and decreased in the value
of money(1/cpi), as measured against a standard level of purchasing power.
Diferents beliefs of measure inflation:”monetarists”(
monetary effects set the rate of inflation), and”Keynesians”
(interaction of money, interest and output dominate over other effects.
There are two
causes for inflation:1. cost push inflation, (costs of production are higher and
this produces a rise on prices).maybe cause raw materials become scarce(oil)2.
demand pull
inflation (demand increases and the firm rise the prices of that
product/service). This type of inflation produces a profit for the firm (profit
inflation) and employment is ecourage.
Bad
consequences:1. Less purchasing power (inflationary tax).2. Instability.
People lose faith in currency as a store of value and often borrow as much as
possible to invest in ‘real’ assets like gold, houses and antiques3. Hoarding
of durable goods.4. Less competitive for international trade.5.can penalize
people on fixed incomes, like pensioners 6.High inflation rates lead to higher
interest rates.7.There may be a wage spiral. (workers want increase wage,raise
cost of product makin hyper-infkation
.Good
consequences: increase in profit for businessmen, shareholders( if prices
increase and cost remain constant, profits increase) no necessary relation
between the level of inflation and the wealth of poverty of a nation. However
high inflation is always negative.
22. PROFIT INFLATIONpossible in a
demand-pull inflation because the demand of a product rises(and prices) while
costs are still the same It is a positive effect of inflation,andencourages
investment in non-monetary capital projects.According to Hume, the increase of
the quantity of money affects prices in the long run. But in the short run,
there would be profit inflation. (slow but constant increase in the quantity of
money in circulation may provide a
constant stimulant to business activity)
23. BASE YEAR
reference
period, the year used for comparison of an economic index over time. It is the
first of a series of years in an economic or financial index. is normally set
to an arbitrary level of 100. Any year can be chosen as a base year, but
typically recent years are chosen. New, more up-to-date base years are
periodically introduced to keep data current in a particular index.
24. UNEMPLOYMENTtwo types unemployment
for
: 1. to refer to inputs to
production that are not being fully used (unemployed capital goods). In its
most general usage, unemployment might also denote objects not put to
productive use.not being recognized as a issue in rural areasBefore
industrialization unemployment.
2.condition
of people seeking activelyfor a worker or”remunerated employment”.
its is measure by the econmy to see how much people are wothout job on an
economy usin the unemployment rate(which is the number of unemployed workers
divided by the total civilian labor force). During periods of recession, an
economy usually experiences a relatively high unemployment rate. For Adam Smith
unemployment can be only voluntary or due to institutional or legal reasons,
for Keynes it can be involuntary and generalized.
25. DISGUISED UNEMPLOYMENTWhen the labour
marginal productivity is zero due to the fact that there are employed workers
that do not produce at all. (high compesation for firing so you keep it on the
firm)This people are not counted in the official unemployment statistics. An
economy demonstrates disguised unemployment where productivity is low and where
too many workers are filling too few jobs
26. COMPETITION/COLLUSION
(HISTORICAL EXAMPLES): Competition is the rivalry of two or more parties
over something. In economics, a competitive market, that runs under
laissez-faire policies, is a free market. Collusion is a term to refer to acts
of cooperation or collaboration among rival entities often takes place within
the market form of oligopoly,Historical example: guilds which determined the
“fair price” for handicrafts and the quality of .The ‘fair price’ was thought
to be a price not so high to exploit the consumer and not so low to not have
profit. Cartels are a special case of explicit collusion. Collusion which is
not overt, on the other hand, is known as tact collusion.is largely illegal in
the US and most of the EU due to antitrust law. There are significant barriers
to collusion, but the main one is potential entry as new firms may enter the
industry, establishing a new baseline price and eliminating collusion (though
anti-dumping laws and tariffs can prevent foreign companies entering the
market).
27. MONOPOLY/ MONOPSONY (HISTORICAL
EXAMPLES)Both are examples of imperfect competition.Monopoly(
market where the is only one supplier of a good or service,which often results
in high prices and inferios products). characterized by a lack of economic
competition. different form collusion(which are various,an oligopoly.And exist
an antimonoply regulation.An example are the East India Companies (France,
Great Britain and Holland) that where the only traders in the coloniesand have
the exclusivity in exchange for establishing order and justice
there.Monopsomy:When only one buyer is available for a given commodity, so
faces many sellers, And as the only
purchaser he monopsonist may dictate terms to its suppliers controlling its
market. historical example:town companies(only one demanders of labour settled
in a town, so they established the wages.)
28. GRESHAM´S LAWeconomic principle that states:“bad money drives out
good.”(coins containing metal of different value have the same value as legal
tender,coins with cheaper metal overvalued and ending circulate on the market
and the ones with more expensive metal becomes undervalued being acumulated or
exported and thus tend to disappear from circulation.(often ends when kings
mixed it all,having the same value)It also aplay it on foreign
exchange,Gresham’s law also implies that “When a government compulsorily
overvalues one type of money and undervalues another, the undervalued money
will leave the country or disappear from circulation into hoards, while the
overvalued money will flood into circulation.”