- Industry: Economy; Printing & publishing
- Number of terms: 15233
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The sum of all the different benefits from investing in an asset, including income paid to the investor and any change in the market value of the asset. The total return is often expressed as a percentage of the amount invested.
Industry:Economy
In a globalizing economy, it is perhaps surprising that countries increasingly trade with their nearest neighbors. One explanation is geography: as countries have lowered their tariff barriers, the relatively greater importance of transport costs makes proximity matter more. According to new trade theory, this also produces gains from economies of scale. But another reason for the fast growth in trade among nearby countries may be less benign. The proliferation of regional trade agreements may be causing neighbors to trade with each other when it would be more efficient for them to export to and import from afar. In the past 50 years more than 150 regional trade agreements have been notified to the general agreement on tariffs and trade (GATT) or the world trade organization (WTO), most of which are still in force. Roughly half of these, including some revisions of previous deals, have been set up since 1990. The best-known are the European union, the North American Free-Trade Agreement (NAFTA) and Mercosur in South America. There are dozens of other examples. Economists have generally been unenthusiastic about regionalism, for two reasons. First, they worry that preferential tariffs will cause trade to flow in inefficient ways, a process known as trade diversion. In a perfect world, trade patterns should be determined by comparative advantage: the comparative cost of making different goods yourself as opposed to buying them from various countries. If the United States imports Mexican televisions merely because the Mexican goods are tariff-free, even if Malaysia has a comparative advantage in television manufacturing, the main benefit of trade will be lost. The second concern is that regionalism will impede efforts to liberalize trade throughout the world. One prominent critic, Jagdish Bhagwati, an economist at Columbia University in New York, has famously said that regional trade areas are “stumbling blocks” rather than “building blocks” in the freeing of global trade. There is no clear-cut theoretical answer to the question of whether regional trade agreements are good or bad, and the empirical findings are hotly disputed. In general, though, it seems likely that it is better to have regional groups that are open to the rest of the world than groups that are closed.
Industry:Economy
An excess of imports over exports is a trade deficit. An excess of exports over imports is a trade surplus. (See balance of payments. )
Industry:Economy
A country’s exchange rate with the currencies of its trading partners weighted by the amount of trade done by the country in each currency.
Industry:Economy
A 19th-century amateur mathematician, William Forster Lloyd, modeled the fate of a common pasture shared among rational, utility-maximizing herdsmen. He showed that as the population increased the pasture would inevitably be destroyed. This tragedy may be the fate of all sorts of common resources, because no individual, firm or group has meaningful property rights that would make them think twice about using so much of it that it is destroyed. Once a resource is being used at a rate near its sustainable capacity, any additional use will reduce its value to its current users. Thus they will increase their usage to maintain the value of the resource to them, resulting in a further deterioration in its value, and so on, until no value remains. Contemporary examples include overfishing and the polluting of the atmosphere. (See public goods and externality. )
Industry:Economy
The costs incurred during the process of buying or selling, on top of the price of whatever is changing hands. If these costs can be reduced, the price mechanism will operate more efficiently.
Industry:Economy
The prices assumed, for the purposes of calculating tax liability, to have been charged by one unit of a multinational company when selling to another (foreign) unit of the same firm. Firms spend a fortune on advisers to help them set their transfer prices so that they minimize their total tax bill. For instance, by charging low transfer prices from a unit based in a high-tax country that is selling to a unit in a low-tax country, a firm can record a low profit in the first country and a high profit in the second. In theory, however, transfer prices are supposed to be set according to the arm’s-length principle: that they should be the same as would be charged if the sale was to a business unconnected in any way to the selling firm. But when there is no genuinely independent market with which to compare transfer prices, what an arm’s length price would be can be a matter of great debate and an opportunity for firms that want to lower their tax bill.
Industry:Economy
Payments that are made without any good or service being received in return. Much public spending goes on transfers, such as pensions and welfare benefits. Private-sector transfers include charitable donations and prizes to lottery winners.
Industry:Economy
Former communist economies that, with varying degrees of enthusiasm, have embraced capitalism.
Industry:Economy
The process by which changes in the money supply affect the level of total demand in an economy.
Industry:Economy
