- Industry: Economy; Printing & publishing
- Number of terms: 15233
- Number of blossaries: 1
- Company Profile:
A firm providing essential services to the public, such as water, electricity and postal services, usually involving elements of natural monopoly. Food is essential, but because it is provided in a competitive market, food supply is not usually regarded as a public utility. Because public utilities have some monopoly power, they are typically subject to some regulation by government, such as price controls and perhaps an obligation to provide their services to everybody, even to those who cannot afford to pay a market price (the universal service obligation). Public utilities are often owned by the state, although this has become less common as a result of privatization.
Industry:Economy
Spending by national and local government and some government-backed institutions. See fiscal policy, golden rule and budget.
Industry:Economy
Things that can be consumed by everybody in a society, or nobody at all. They have three characteristics. They are:
* non-rival – one person consuming them does not stop another person consuming them;
* non-excludable – if one person can consume them, it is impossible to stop another person consuming them;
* non-rejectable – people cannot choose not to consume them even if they want to. Examples include clean air, a national defense system and the judiciary. The combination of non-rivalry and non-excludability means that it can be hard to get people to pay to consume them, so they might not be provided at all if left to market forces. Thus public goods are regarded as an example of market failure, and in most countries they are provided at least in part by government and paid for through compulsory taxation. (See also global public goods. )
Industry:Economy
Opposition to free trade. Although intended to protect a country’s economy from foreign competitors, it usually makes the protected country worse off than if it allowed international trade to proceed without hindrance from trade barriers such as quotas and tariffs.
Industry:Economy
A theory of “irrational” economic behavior. Prospect theory holds that there are recurring biases driven by psychological factors that influence people’s choices under uncertainty. In particular, it assumes that people are more motivated by losses than by gains and as a result will devote more energy to avoiding loss than to achieving gain. The theory is based on the experimental work of two psychologists, Daniel Kahneman (who won a Nobel Prize for economics for it) and Amos Tversky (1937–96). It is an important component of behavioral economics.
Industry:Economy
Essential to any market economy. To trade, it is essential to know that the person selling a good or service owns it and that ownership will pass to the buyer. The stronger and clearer property rights are, the more likely it is that trade will take place and that prices will be efficient. If there are no property rights over something there can be severe consequences. A solution to the costly externality of clean air being polluted may be to establish property rights over the air, so that the owner can charge the polluter to pump smoke into the atmosphere. Private property rights are often more economically efficient than common ownership. When people do not own something directly, they may have little incentive to look after it. (See the tragedy of the commons. ) Strikingly, in Russia after communism, the establishment of a well-functioning market economy proved difficult, partly because it was unclear who owned many of the country’s resources, and those property rights that did exist often counted for little. Businesses would often have their products stolen by criminal gangs or be forced to hand over most of their profits in protection money. It is no coincidence that an effective judicial system, as well as property rights for it to enforce, is a feature of all advanced market economies. That said, nowhere are property rights absolute. For instance, taxation is a clear example of the state infringing taxpayers’ ownership of their money. The economic cost of infringing property rights underlines how important it is that governments think carefully about the consequences for economic growth of their tax policies.
Industry:Economy
Economics abounds with propensities to do various things: consume, save, invest, import, and so on. In each case, it is important to distinguish between the average propensity and the marginal one. The average propensity to consume is simply total consumption divided by total income. The marginal propensity to consume measures how much of each extra dollar of income is consumed: the percentage change in consumption divided by the percentage change in income. The value of the marginal propensity to consume, which determines the multiplier, is harder to predict than the value of the average propensity to consume.
Industry:Economy
Taxation that takes a larger proportion of a taxpayer’s income the higher the income is. (See vertical equity. )
Industry:Economy
The presumed goal of firms. In practice, business people often trade off making as much profit as possible against other goals, such as building business empires, being popular with staff and enjoying life. The growing popularity in recent years of paying bosses with shares in their firm may have reduced the agency costs that arise because they are the hired hands of shareholders, making them more likely to pursue profit maximization.
Industry:Economy
