Small Simple Dictionary of Economics (Part 3 of 8)

Economics, like other sciences and arts, has its own language. Without knowledge of this language, it is very difficult to understand economics. This has stopped many from following local, national and international economic developments. When I mention that economics is my field of interest, it often creates a sense of uneasiness since, unlike politics and sports, where almost everyone has an opinion, no one has much to say, and the conversation quickly changes to other things. This is unfortunate because economics is everywhere and is one of the most important factors in our lives. It touches almost every activity we undertake. But also, it isn’t easy to have an economics dictionary handy, so I explain about 200 common economic terminologies in a simple way. For some, it may be overly simplified; if that is the case, they can always refer to the Oxford Dictionary of Economics.   

Earned income: any income that a person or company receives for work they have done.

Economic efficiency: an economic state in which every resource is optimally allocated to serve each person in the best way while minimizing waste and inefficiency.

Economic good: an economic good is a good or service that has a benefit (utility) to society.

Economic sanction: domestic penalties applied unilaterally by one country (or multilaterally, by a group of countries) on another country (or group of countries). Economic sanctions may include various forms of trade barriers and restrictions on financial transactions.

Economics is the social science that describes the factors determining the production, distribution and consumption of goods and services.

Entrepreneur: in charge of the process of starting a business, a startup company or another organization. The entrepreneur develops a business plan, acquires the human and other required resources, and is fully responsible for its success or failure.

Equity: the difference between the value of the assets/interest and the cost of the liabilities of something owned. For example, if someone owns a car worth $25,000 but owes $10,000 on that car, the car represents $15,000 equity. Equity can be negative if liability exceeds assets.

European Economic Community (EEC): an economic union created by the Treaty of Rome of 1957. Upon the European Union’s (EU’s) formation in 1993, the EEC was incorporated and renamed the European Community (EC). In 2009, the EC’s institutions were absorbed into the EU’s broader framework, and the community ceased to exist.

European Currency Unit (ECU): a basket of the currencies of the European Community member states, used as the unit of account of the European Community before being replaced by the euro on 1 January 1999, at parity.

Exchange rate (also known as a foreign exchange rate): the rate at which one currency will be exchanged for another.

Exports: selling goods and services produced in the home country to other markets. The export of commercial quantities of goods normally requires the involvement of the customs authorities in both the country of export and the country of import.

Face value: the value printed or depicted on a coin, banknote, postage stamp, ticket, etc., especially when less than the actual or intrinsic value.

Factors of production: describes the inputs that are used in the production of goods or services in the attempt to make an economic profit. The factors of production include land, labour, capital and entrepreneurship.

Finance: is a field that allocates assets and liabilities over time under conditions of certainty and uncertainty.

Fiscal policy: the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation’s economy. It is the sister strategy to monetary policy through which a central bank influences a nation’s money supply.

Foreign-exchange market: a global market for the trading of currencies. In terms of volume of trading, it is by far the largest market in the world.

Free market: a market economy based on supply and demand with little or no government control. A completely free market is an idealized form of a market economy where buyers and sellers are allowed to transact freely.

Free trade: a policy in international markets where governments do not restrict imports or exports. Free trade is exemplified by the European Union / European Economic Area and the North American Free Trade Agreement.

Futures: a financial contract obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future date and price. Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange.