Small Simple Dictionary of Economics (Part 8 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.

Quotas is a legal quantity restriction placed on an imported good that the domestic government imposes.

Rate of return: a profit on an investment over a period of time, expressed as a proportion of the original investment. The time period is typically a year, in which case the rate of return is referred to as an annual return.

Redeemable securities: a security which can be redeemed at its face value at a specific date in the future.

Resource allocation: the assignment of available resources to various uses. In an entire economy, resources can be allocated by markets, central planning, or some combination of the two.

Resources: a source or supply from which benefit is produced. Typically, resources are materials, energy, services, staff, knowledge, or other assets that are transformed to produce benefit and, in the process, may be consumed or made unavailable.

Sales tax: a tax paid for the sales of specific goods and services. Usually, laws allow (or require) the seller to collect funds for the tax from the consumer at the point of purchase.

Scarcity is the fundamental economic problem of having seemingly unlimited human wants in a world of limited resources. It states that society has insufficient productive resources to fulfill all human wants and needs.

Securities: a financial instrument representing an ownership position in a publicly traded corporation (stock), a creditor relationship with a governmental body or a corporation (bond), or rights to ownership as represented by an option.

Services: service is an intangible commodity such as accounting, banking, cleaning, consultancy, education, insurance, expertise, and medical treatment.

Share: the capital of a company is divided into shares. Each share forms a unit of ownership of a company and is offered for sale so as to raise capital for the company. Shares can be broadly divided into two categories – equity and preference shares.

Social security: any government system that provides monetary assistance to people with inadequate or no income.

Social welfare: the provision of minimal well-being and social support for all citizens, sometimes referred to as public aid.

Socialism is a social and economic system characterized by social ownership of the means of production and cooperative management of the economy, as well as a political theory and movement that aims to establish such a system.

Soft currency: a currency which is expected to fluctuate erratically or depreciate against other currencies. Such softness is typically the result of political or fiscal instability within the associated country.

Soft loan: a loan, typically one to a developing country, made on terms very favorable to the borrower.

Stabilization policy: a package or set of measures introduced to stabilize a financial system or economy. The term can refer to policies in two distinct sets of circumstances: business cycle stabilization and crisis stabilization. In either case, it is a form of discretionary policy.

Stagflation: persistent high inflation combined with high unemployment and stagnant demand in a country’s economy.

Stamp duty: a tax that is levied on documents. Historically, this included the majority of legal documents such as cheques, receipts, military commissions, marriage licences and land transactions.

Standard deviation: the standard deviation (SD) (represented by the Greek letter sigma, σ) is a measure used to quantify the variation or dispersion of a set of data values.

Stock: the capital a business or corporation raises through issuing and subscribing shares.

Subsidiaries: a company whose voting stock is more than 50% controlled by another company, usually referred to as the parent company or holding company. A subsidiary is a company that is partly or entirely owned by another company that holds a controlling interest in the subsidiary company.

Subsidy: a form of financial aid or support extended to an economic sector (or institution, business, or individual) generally to promote economic and social policy.

Supply: the amount that firms, consumers, labourers, providers of financial assets, or other economic agents are willing to provide to the marketplace.

Take-over: the purchase of one company (the target) by another (the acquirer or bidder).

Tariffs: a tax imposed on imported goods and services. Tariffs are used to restrict trade, as they increase the price of imported goods and services, making them more expensive to consumers.

Taxation: the act of a taxing authority levying a tax. Taxation as a term applies to all types of taxes, from income to gift to estate taxes.

Tenders: an offer to carry out work, supply goods, or buy land, shares, or another asset at a stated fixed price.

Term loan: term loans can be given on an individual basis but are often used for small business loans. The ability to repay over a long period of time is attractive for new or expanding enterprises, as the assumption is that they will increase their profit over time.

Transfer costs: the total opportunity cost of moving an item from one place to another, including transport costs, loading and unloading costs, and administrative costs.

Transfer payments: a transfer payment (or government transfer or simply transfer) is a redistribution of income in the market system.

Treasury: the funds or revenue of a government, corporation, or institution.

Turnover: in accounting, the number of times an asset is replaced during a financial period or the number of shares traded for a period as a percentage of the total shares in a portfolio or of an exchange.

Underwriting: the practice by which investment bankers represent corporate and government entities in the initial public offering of their securities. Investment bankers cover the risk of selling the securities to the public.

Utilitarianism: a theory suggesting that the moral action is the one that maximizes utility. The utility is defined in various ways, including pleasure, economic well-being and the lack of suffering. Utilitarian ethics aims to promote the greatest happiness for the greatest number.

Utility: a measure of preferences over some set of goods and services. The concept is an important underpinning of rational choice theory. Utility is an essential concept in economics because it represents satisfaction experienced by the consumer of a good.

Value-added tax (VAT): a type of consumption tax placed on a product whenever value is added at a production stage and at the final sale.

Variable costs: costs vary depending on a company’s production volume; they rise as production increases and fall as production decreases. Variable costs differ from fixed costs, such as rent, advertising, insurance and office supplies, which tend to remain the same regardless of production output.

Voting shares: shares that give the stockholder the right to vote on matters of corporate policy-making and who will compose the board of directors.

Warrants: a security that entitles the holder to buy the underlying stock of the issuing company at a fixed price called exercise price until the expiry date.

Welfare economics: a branch of economics that uses microeconomic techniques to evaluate well-being (welfare) at the aggregate (economy-wide) level. A typical methodology begins with the derivation (or assumption) of a social welfare function, which can then be used to rank economically feasible allocations of resources in terms of the social welfare they entail.

Window dressing: a strategy used by mutual fund and portfolio managers near the year or quarter end to improve the appearance of the portfolio/fund performance before presenting it to clients or shareholders. To window dress, the fund manager will sell stocks with large losses and purchase high-flying stocks near the end of the quarter. These securities are then reported as part of the fund’s holdings.

Withholding tax: the amount of an employee’s pay withheld by the employer and sent directly to the government as partial payment of income tax.

Working capital: a financial metric representing operating liquidity available to a business, organization or other entity, including a governmental entity. Working capital is part of operating capital, along with fixed assets such as plant and equipment.

World Trade Organization (WTO): an intergovernmental organization which regulates international trade.

X-efficiency: the difference between the efficient behaviour of businesses assumed or implied by economic theory and their observed behaviour in practice. It occurs when technical efficiency is not being achieved due to a lack of competitive pressure.

Yield: the income return on investment. This income refers to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investment’s cost, current market value or face value.