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Named after Robert Giffen (1837-1910), a good for which demand increases as its price rises. But such goods may not exist in the real world.
Industry:Economy
A relatively new way of analyzing fiscal policy by identifying the financial costs and benefits of government policies to people of different ages, now living or yet to be born. Fiscal policy can distribute resources between different generations, sometimes deliberately and often inadvertently. At any moment in time, one generation may be in work and paying taxes that support other generations (those at school or retired) that are not working. Over its lifetime, one generation's mix of taxes paid and benefits received may differ sharply from that of another generation. Politicians are often tempted to ignore the needs of future generations (who, clearly, cannot vote at the time) in order to win the support of current generations, for instance by borrowing heavily to fund current spending. More fundamentally, because it incorporates all the tax and spending, current and future, to which a government is committed, generational accounting is a much better guide to whether fiscal policy is sustainable than measures such as the budget deficit, which looks only at taxes and spending in the current year.
Industry:Economy
Economic perfection. This is when demand and supply are in balance (the market is in equilibrium) for each and every good and service in the economy. Nobody thinks that real-world economies can ever be that perfect; at best there is "partial equilibrium". But most economists think that general equilibrium is something worth aspiring to.
Industry:Economy
The vehicle for promoting international free trade, through a series of rounds of negotiations between the governments of trading countries. The first GATT round began in 1945. The last led to the establishment of the world trade organization in 1995.
Industry:Economy
A company's debt expressed as a percentage of its equity; also known as leverage. (See also capital structure and leveraged buy-out. )
Industry:Economy
How to win at Twister? No, but maybe at monopoly. Game theory is a technique for analyzing how people, firms and governments should behave in strategic situations (in which they must interact with each other), and in deciding what to do must take into account what others are likely to do and how others might respond to what they do. For instance, competition between two firms can be analyzed as a game in which firms play to achieve a long-term competitive advantage (perhaps even a monopoly). The theory helps each firm to develop its optimal strategy for, say, pricing its products and deciding how much to produce; it can help the firm to anticipate in advance what its competitor will do and shows how best to respond if the competitor does something unexpected. It is particularly useful for understanding behavior in monopolistic competition. In game theory, which can be used to describe anything from wage negotiations to arms races, a dominant strategy is one that will deliver the best results for the player, regardless of what anybody else does. One finding of game theory is that there may be a large first-mover advantage for companies that beat their rivals into a new market or come up with an innovation. One special case identified by the theory is the zero-sum game, where players see that the total winnings are fixed; for some to do well, others must lose. Far better is the positive-sum game, in which competitive interaction has the potential to make all the players richer. Another problem analyzed by game theorists is the prisoners' dilemma. (See also Nash equilibrium. )
Industry:Economy
I don't want to belong to any club that will accept me as a member, quipped Groucho Marx. But the world's politicians are desperate to join the economic clubs that are the Group of Seven (G7), G8, G10 G20 and so on. Being a member shows that, economically speaking, your country matters. Alas, beyond making politicians feel good, there has not been much evidence in recent years that they do anything useful, apart from letting government officials and journalists talk to each other about economics and politics, usually in beautiful locations with lots of fine food and drink on hand. In 1975, six countries, the world's leading capitalist countries, ranked by GDP, were represented in France at the first annual summit meeting: the United States, the UK, Germany, Japan and Italy, as well as the host country. The following year they were joined by Canada and, in 1977, by representatives of the European Union, although the group continued to be known as the G7. At the 1989 summit, 15 developing countries were also represented, although this did not give birth to the G22, which was not set up until 1998 and swiftly grew into G26. At the 1991 G7 summit, a meeting was held with the Soviet Union, a practice that continued (with Russia) in later years. In 1998, although it was not one of the world's eight richest countries, Russia became a full member of the G8. Meetings of the IMF are attended by the GIO, which includes 11 countries--the original members of the G7 as well as representatives of Switzerland, Belgium, Sweden and the Netherlands. In 2003, 21 developing countries, representing half of the world's population and two-thirds of its farmers, formed the G21 to lobby for more free trade in agriculture.
Industry:Economy
You can't tell them apart. Something is fungible when any one single specimen is indistinguishable from any other. Somebody who is owed $1 does not care which particular dollar he gets. Anything that people want to use as money must be fungible, whether it be gold bars, beads or shells.
Industry:Economy
Jobs for all that want them. This does not mean zero unemployment because at any point in time some people do not want to work. Also, because some people are always between jobs, there will usually be some frictional unemployment. Full employment means that everyone who wants work and is willing to work at the market wage is in work. Most governments aim to achieve full employment, although nowadays they rarely try to lower unemployment below the nairu: the lowest jobless rate consistent with stable, low inflation.
Industry:Economy
An influential economist of the Austrian school, who won the Nobel Prize for economics in 1974 for his theory of the business cycle many years after this body of work seemed to have been disproved by Keynes. Born in 1899, Hayek attended his home-town University of Vienna after the First World War. He was attracted to socialism until he read a pioneering Austrian economist, Ludwig von Mises, on the subject, after which, he said, “the world was never the same again”. Hayek argued that the business cycle originated from expanded credit creation by banks, which was followed by firms and people making mistaken capital investments in producing things for which the market turns out to be smaller (or larger) than expected. But after an initially enthusiastic reception, the Austrian business-cycle theory lost out in policy debates to Keynes's General Theory. After the Second World War, Hayek was a leading member of the Chicago school along with Milton Friedman, among others. Hayek was a noted proponent of the free-market system and a critic of state planning. His 1944 book, The Road to Serfdom, anticipated the demise of command economies that sought to suppress price signals. This prediction came from his belief in the limits of human reason and has faith in the superior ability of capitalism to make efficient use of limited information and to learn by trial and error. His views, which echo Adam Smith’s invisible hand, are said to have inspired the free-market economic reforms undertaken in the 1980s by Margaret Thatcher and Ronald Reagan. He died in 1992.
Industry:Economy
