Historical economy vocabulary

NOMINAL PRICE: An estimated price that may or may not resemble an asset’s market price, and which is quoted to initiate a negotiation or transaction. Nominal price is used where either the recent market price has not been established (the item is new), or where demand and supply situation makes the market-price uncertain (the item is scarce).

REAL PRICE: Nominal price/cpi( this process is called indexation).

THE PURCHASING POWER PARITY THEORY(THE RATE OF EXCHANGE : a price at which one currency is exchanged for another.): The theory 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.

GROSS NATIONAL PRODUCT GNP: is the total value of all final goods and services produced within a nation in a particular year, plus income earned by its citizens (including income of those located abroad), minus income of non-residents located in that country. Basically, GNP measures the value of goods and services that the country’s citizens produced regardless of their location.

GROSS DOMESTIC PRODUCT :The total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports. regardless of the producer’s nationality.GDP: c+i+g+(e-i)

UNEMPLOYMENT RATE: The percentage of the total labor force that is unemployed but actively seeking employment and willing to work. (Unemployed workers/total labour force)

DISGUISED UNEMPLOYMENT: This is when people do not have full time employment, but are not counted in the official unemployment statistics. This may include:● People on sickness / disability benefits (but, would be able to do some jobs)● People doing part time work.● People forced to take early retirement and redundancy● Disguised unemployment could also include people doing jobs that are completely

COMPETITION-COLLUSION: A non-competitive agreement between rivals that attempts to disrupt the market’s equilibrium. By collaborating with each other, rival firms look to alter the price of a good to their advantage. The parties may collectively choose to restrict the supply of a good, and/or agree to increase its price in order to maximize profits.Groups may also collude by sharing private information, allowing them to benefit from insider knowledge. unproductive, i.e. they get paid but they don’t have a job.HISTORICAL EXAMPLES: in the American automobile market in 1955. Market division and price-fixing among manufacturers of heavy electrical equipment in the 1960s, including General Electric.An attempt by Major League Baseball owners to restrict players’ salaries in the mid-1980s.

MONOPSOMY: Monopsony is a state in which demand comes from one source. A market similar to a monopoly except that a large buyer not seller controls a large proportion of the market and drives the prices down. Sometimes referred to as the buyer’s monopoly.EXAMPLES: During the Cold War, the defense industry in the United States had a monopsonistic element in respect to major defense projects; A single-payer universal health care system, in which the government is the only “buyer” of health care services,MONOPOLY: Market situation where one producer (or a group of producers acting in concert) controls supply of a good or service, and where the entry of new producers is prevented or highly restricted. Monopolist firms (in their attempt to maximize profits) keep the price high and restrict the output, and show little or no responsiveness to the needs of their customers. Most governments therefore try to control monopolies by (1) imposing price controls, (2) taking over their ownership (called ‘nationalization’), or (3) by breaking them up into two or more competing firms.EXAMPLES: The Federal Reserve Bank is a monopoly on producing money in the US, he production and distribution of diamonds….Antwerp, where 80% of all rough diamonds, 50% of all cut diamonds and more than 50% of all rough, cut and industrial diamonds combined are handle.

GRESHAM’S LAW: A monetary principle stating that “bad money drives out good.” In currency valuation, Gresham’s Law states that if a new coin (“bad money”) is assigned the same face value as an older coin containing a higher amount of precious metal (“good money”), then the new coin will be used in circulation while the old coin will be acumulated and will disappear from circulation.

SPECIE-FLOW MECHANISM: argument by David Hume against mercantilism,holding that a nation should strive for a positive balance of trade. The argument considers the effects of international transactions in a gold standard, a system in which gold is the official means of international payments and each nation’s currency is in the form of gold itself or of paper currency fully convertible into gold.

WEALTH: abundance of valuable resources or material possessions, or the control of such assets.


42:FIRST INDUSTRIAL REVOLUTION: A period of major industrialization that took place during the late 1700s and early 1800s. The Industrial Revolution, beginning in Great Britain, quickly spread throughout the world. This time period saw the mechanization of agriculture and textile manufacturing and a revolution in power (i.e., steam ships and railroads) and had a massive effect on social, cultural and economic conditions.MSECOND INDUSTRIAL REVOLUTION: also known as the Technological Revolution, was a phase of the larger Industrial Revolution corresponding to the latter half of the 19th century and the first decade and a half of the 20th, until World War I. It is considered to have begun with Bessemer steel in the 1860s and culminated in mass production and the production line.THIRD INDUSTRIAL REVOLUTION: 1940 – today called third industrial revolution, the third scientific-technical revolution or revolution intelligence (RCT) originates at the end of World War II and is strengthened because experiencing the crisis of capitalism of the time. + info on wikipedia. The third rev industry has three phases: the first where the field occupied ⅔ of the economy, the second where 55% of the economy resided in the area industrial and services and the third and final where they were already ⅔ of the economy which resided in industry and services.46 LINKAGES: spin-offs, feedback between different areas of industry..

INVENTION, INNOVATION AND DIFFUSION OF TECHNOLOGY: invention: the discovery of product or process of producing by using imagination, thinking and experimenting. Invention is based in scientific knowledge and it is the result of work of individuals who work on their own or as members of Research and Development (R&D) departments in firms.innovation is the successful introduction of new product (invention) in the market, the first use of a new method of producing, or the creation of new form of business firm. There are two types of innovation: product innovation, improving products and services, and process innovation, which is improved ways of production and spreading of these inventions in the market.   Diffusion is the process of spreading of inventions through imitating or copying. To take the advantage of new profits or to slow down disappearing of others, all firms try to implement the innovations. In most of the cases innovation leads to widespread imitation (that’s diffusion) of inventions. In economics technological advantage is new and better goods and services and new and better ways of producing or spreading them.

MALTHUSIAN RESTRICTION: Concept that since food production can increase at only arithmetic rate whereas populations tend to grow at geometric rate , the number of people would increase faster than the food supply. It warns that if this growth is not checked, total population would eventually reach a resource limit which would result in decimation of sections of the population by famine, disease, or war. It negates the belief that high birth rates add to the natural wealth of a nation, and advocates moral restraint (birth control by abstinence or late marriage) to restrict the size of families.

ENCLOSURE MOVEMENT: Division or consolidation of communal lands in Western Europe into the carefully delineated and individually owned farm plots of modern times. Before enclosure, farmland was under the control of individual cultivators only during the growing season; In England the movement for enclosure began in the 12th century and proceeded rapidly from 1450 to 1640; the process was virtually complete by the end of the 19th century. In the rest of Europe, enclosure made little progress until the 19th century. Common rights over arable land have now been largely eliminated.

FORWARD LINKAGE: relationship between a firm or industry and its consumers:An increase in the output of the firm or industry is transmitted forward, yelding an increase in the number of consumer s and in the demand of outputs.BACKWARD LINKAGE: The relationship between a firm or industry and the suppliers of its inputs, or raw materials. An increase in the output of the firm or industry is transmitted backward, yielding an increase in the demand for inputs. Ex: increase in agriculture=increase in the demand of machinery.

ENGEL’S LAW: An economic theory introduced in 1857 by Ernst Engel, a German statistician, stating that the percentage of income allocated for food purchases decreases as income rises. As a household’s income increases, the percentage of income spent on food decreases while the proportion spent on other goods (such as luxury goods) increases.

LEWIS MODEL: or dual-sector model explains the growth of a developing economy in terms of a labour transition between two sectors, a traditional agricultural sector and a modern industrial sector.

THE RENT OF THE LAND: (David Ricardo) is the proportion of the produce of the land that is paid to the landlord for the use of the original and indestructible powers of the soil.

COMMERCIAL REVOLUTION: period of European economic expansion, colonialism, and mercantilism which lasted from approximately the 16th century until the early 18th century. Itwas succeeded in the mid-18th century by the Industrial Revolution. Beginning with the Crusades, Europeans rediscovered spices, silks, and other commodities rare in Europe. This development created a new desire for trade, and trade expanded in the second half of the Middle Ages.

A BILL OF EXCHANGE VERSUS A PROMISSORY NOTE: 1:A non-interest-bearing written order used primarily in international trade that binds one party to pay a fixed sum of money to another party at a predetermined future date.2: A written, dated and signed two-party instrument containing an unconditional promise by the maker to pay a definite sum of money to a payee on demand or at a specified future date. Promissory notes differ from bills of exchange in that they have interest rates.

DOUBLE ENTRY ACCOUNTANCY: An accounting technique which records each transaction as both a credit and a debit. Credit entries represent the sources of financing, and the debit entries represent the uses of that financing. Since each credit has one or more corresponding debits (and vice versa), the system of double entry bookkeeping always leads to a set of balanced ledger credit and debit accounts. Selected entries from these ledger balances are then used to prepare the income statement

PUTTING OUT SYSTEM : Production system widespread in 17th-century Europe in which merchant-employers “put out” materials to rural home workers, who then returned finished products to the employers for payment. The domestic system differed from the handicraft system of home production in that the workers neither bought materials nor sold products. It undermined the urban guilds and brought the first widespread industrial employment of women and children.

THE GOLD STANDARD: monetary system in which the standard economic unit of account is a fixed weight of gold. The gold standard was mainly used from 1875 to 1914 and also during the

BANKRUPTCY: A legal proceeding involving a person or business that is unable to repay outstanding debtsproceeding in a federal court in which an insolvent debtor’s assets are liquidated and the debtor is relieved of further liability.

PARTNERSHIPS VERSUS COMMANDITE TYPE BUSINESSES: PARNERSHIP: was generally used for financing maritime trade, it was a partnership agreement through which an investor supplied fundson which he both accepted the risk of loss and received a return depending on the trade conducted by a merchant. COMMANDITE COMPANIES: limited partnerships, where one or more persons are general partners, and are jointly and severally responsible with all their estates, and one or more other persons who furnish a part or the whole of the capital, who are liable only to the extent of the capital they have furnished.

LLC’S VERSUS JOINT-STOCK COMPANIES: JOINT-STOCK COMPANIES: its a type of corporation or partnership involving two or more individuals that own shares of stock in the company. The shares are issued by the company for each financial contribution, and the shareholders are free to transfer their ownership interest at any time by selling theirs shareholding to others. the shareholders are only liable for the company´s debts to the value of the money they invested in the company.LIMITED LIABILY COMPANY: A corporate structure whereby the members of the company cannot be held personally liable for the company’s debts or liabilities. Its profits and tax benefits are split any way the stockholders/ shareholders (whether individuals or other firms) choose.