- Industry: Economy; Printing & publishing
- Number of terms: 15233
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The study of the individual pieces that together make an economy. Contrast with macroeconomics, the study of economy-wide phenomena such as growth, inflation and unemployment. Microeconomics considers issues such as how households reach decisions about consumption and saving, how firms set a price for their output, whether privatization improves efficiency, whether a particular market has enough competition in it and how the market for labor works.
Industry:Economy
Selling state-owned businesses to private investors. This policy was associated initially with Margaret Thatcher’s government in the 1980s, which privatized numerous companies, including public utility businesses such as British Telecom, British Gas, and electricity and water companies. During the 1990s, privatization became a favorite policy of governments all over the world. There were several reasons for the popularity of privatization. In some instances, the aim was to improve the performance of publicly owned companies. Often nationalization had failed to achieve its goals and had become increasingly associated with poor service to customers. Sometimes privatization was part of transforming a state-owned monopoly into a competitive market, by combining ownership transfer with deregulation and liberalization. Sometimes privatization offered a way to raise new capital for the firm to invest in improving its service, money that was not available in the public sector because of constraints on public spending. Indeed, perhaps the main attraction of privatization to many politicians was that the proceeds from it could ease the pressure on the public purse. As a result, they could avoid (in the short-term) doing the more painful things necessary to improve the fiscal position, such as raising taxes or cutting public spending.
Industry:Economy
A crude method of judging whether shares are cheap or expensive; the ratio of the market price of a share to the company’s earnings (profit) per share. The higher the price/earnings (P/E) ratio, the more investors are buying a company’s shares in the expectation that it will make larger profits in future than now. In other words, the higher the P/E ratio, the more optimistic investors are being.
Industry:Economy
When prices of, say, a public utility are regulated, giving producers an incentive to maximize their profits by reducing their costs as much as possible. Contrast with rate of return regulation.
Industry:Economy
The main reason firms exist. In economic theory, profit is the reward for risk taken by enterprise, the fourth of the factors of production – what is left after all other costs, including rent, wages and interest. Put simply, profit is a firm’s total revenue minus total cost. Economists distinguish between normal profit and excess profit. Normal profit is the opportunity cost of the entrepreneur, the amount of profit just sufficient to keep the firm in business. If profit is any lower than that, then enterprise would be better off engaged in some alternative economic activity. Excess profit, also known as super-normal profit, is profit above normal profit and is usually evidence that the firm enjoys some market power that allows it to be more profitable than it would be in a market with perfect competition.
Industry:Economy
The relationship between inputs and output, which can be applied to individual factors of production or collectively. Labor productivity is the most widely used measure and is usually calculated by dividing total output by the number of workers or the number of hours worked. Total factor productivity attempts to measure the overall productivity of the inputs used by a firm or a country. Alas, the usefulness of productivity statistics is questionable. The quality of different inputs can change significantly over time. There can also be significant differences in the mix of inputs. Furthermore, firms and countries may use different definitions of their inputs, especially capital. That said, much of the difference in countries’ living standards reflects differences in their productivity. Usually, the higher productivity is the better, but this is not always so. In the UK during the 1980s, labor productivity rose sharply, leading some economists to talk of a “productivity miracle”. Others disagreed, saying that productivity had risen because unemployment had risen – in other words, the least productive workers had been removed from the figures on which the average was calculated. There was a similar debate in the United States starting in the late 1990s. Initially, economists doubted that a productivity miracle was taking place. But by 2003, they conceded that during the previous five years the United States enjoyed the fastest productivity growth in any such period since the Second World War. Over the whole period from 1995, labor productivity growth averaged almost 3% a year, twice the average rate over the previous two decades. That did not stop economists debating why the miracle had occurred.
Industry:Economy
The difference between what a supplier is paid for a good or service and what it cost to supply. Added to consumer surplus, it provides a measure of the total economic benefit of a sale.
Industry:Economy
How likely something is to happen, usually expressed as the ratio of the number of ways the outcome may occur to the number of total possible outcomes for the event. For instance, each time you throw a dice there are six possible outcomes, but in only one of these can a six come up. Thus the probability of throwing a six on any given throw is one in six. The fact that you threw a six last time does not alter the one-in-six probability of throwing a six next time (see risk).
Industry:Economy
The state of being poor, which depends on how you define it. One approach is to use some absolute measure. For instance, the poverty rate refers to the number of households whose income is less than three times what is needed to provide an adequate diet. (Though what constitutes adequate may change over time. ) Another is to measure relative poverty. For instance, the number of people in poverty can be defined as all households with an income of less than, say, half the average household income. Or the (relative) poverty line may be defined as the level of income below which are, say, the poorest 10% of households. In each case, the dividing line between poverty and not-quite poverty is somewhat arbitrary. As countries get richer, the number of people in absolute poverty usually gets smaller. This is not necessarily true of the numbers in relative poverty. The way that relative poverty is defined means that it is always likely to identify a large number of impoverished households. However rich a country becomes, there will always be 10% of households poorer than the rest, even though they may live in mansions and eat caviar (albeit smaller mansions and less caviar than the other 90% of households).
Industry:Economy
Economics that describes the world as it is, rather than trying to change it. The opposite of normative economics, which suggests policies for increasing economic welfare.
Industry:Economy
