- Industry: Economy; Printing & publishing
- Number of terms: 15233
- Number of blossaries: 1
- Company Profile:
The “dismal science”, according to Thomas Carlyle, a 19th-century Scottish writer. It has been described in many ways, few of them flattering. The most concise, non-abusive, definition is the study of how society uses its scarce resources.
Industry:Economy
A way of punishing errant countries, which is currently more acceptable than bombing or invading them. One or more restrictions are imposed on international trade with the targeted country in order to persuade the target’s government to change a policy. Possible sanctions include limiting export or import trade with the target; constraining investment in the target; and preventing transfers of money involving citizens or the government of the target. Sanctions can be multi¬lateral, with many countries acting together, perhaps under the auspices of the United Nations, or unilateral, when one country takes action on its own. How effective sanctions are is debatable. According to one study, between 1914 and 1990 there were 116 occasions on which various countries imposed economic sanctions. Two-thirds of these failed to achieve their stated goals. The cost to the country imposing sanctions can be large, particularly when it is acting unilaterally. It is estimated that in 1995 imposing sanctions on other countries cost the American economy over $15 billion in lost exports and 200,000 in lost jobs in export industries. Widely considered a notable success was the use of economic sanctions against the apartheid regime in South Africa, although some economists question how big a part the sanctions actually played. Clearly important was the fact that the sanctions were imposed multilaterally by the international community, so there were comparatively few breaches of the restrictions. But, arguably, the most crucial factor in persuading the government in Pretoria to cave in was that foreign companies fearing that their share price would fall because their investments in South Africa would attract bad publicity voluntarily chose for commercial reasons to disinvest.
Industry:Economy
At the heart of economic theory is homo economicus, the economist’s model of human behavior. In traditional classical economics and in Neo-classical economics it was assumed that people acted in their own self-interest. Adam Smith argued that society was made better off by everybody pursuing their selfish interests through the workings of the invisible hand. However, in recent years, mainstream economists have tried to include a broader range of human motivations in their models. There have been attempts to model altruism and charity. Behavioral economics has drawn on psychological insights into human behavior to explain economic phenomena.
Industry:Economy
A statistic used for judging the health of an economy, such as GDP per head, the rate of unemployment or the rate of inflation. Such statistics are often subject to huge revisions in the months and years after they are first published, thus causing difficulties and embarrassment for the economic policymakers who rely on them.
Industry:Economy
In January 1999, 11 of the 15 countries in the European union merged their national currencies into a single European currency, the Euro. This decision was motivated partly by politics and partly by hoped-for economic benefits from the creation of a single, integrated European economy. These benefits included currency stability and low inflation, underwritten by an independent European central bank (a particular boon for countries with poor inflation records, such as Italy and Spain, but less so for traditionally low-inflation Germany). Furthermore, European businesses and individuals stood to save from handling one currency rather than many. Comparing prices and wages across the Euro zone became easier, increasing competition by making it easier for companies to sell throughout the Euro-zone and for consumers to shop around. Forming the single currency also involved big risks, however. Euro members gave up both the right to set their own interest rates and the option of moving exchange rates against each other. They also agreed to limit their budget deficits under a stability and growth pact. Some economists argued that this loss of flexibility could prove costly if their economies did not behave as one and could not easily adjust in other ways. How well the Euro-zone functions will depend on how closely it resembles what economists call an optimal currency area. When the Euro economies are not growing in unison, a common monetary policy risks being too loose for some and too tight for others. If so, there may need to be large transfers of funds from regions doing well to those doing badly. But if the effects of shocks persist, fiscal transfers would merely delay the day of reckoning; ultimately, wages or people (or both) would have to shift. In its first few years, the Euro fell sharply against the dollar, though it recovered during late 2002. Sluggish growth in some European economies led to intense pressure for interest rate cuts, and to the stability and growth pact being breached, though not scrapped. Even so, by 2003 12 countries had adopted the Euro, with the expectation of more to follow after the enlargement of the EU to 25 members in 2004.
Industry:Economy
Selling something for less than the cost of producing it. This may be used by a dominant firm to attack rivals, a strategy known to antitrust authorities as predatory pricing. Participants in international trade are often accused of dumping by domestic firms charging more than rival imports. Countries can slap duties on cheap imports that they judge are being dumped in their markets. Often this amounts to thinly disguised protectionism against more efficient foreign firms. In practice, genuine predatory pricing is rare – certainly much rarer than anti-dumping actions – because it relies on the unlikely ability of a single producer to dominate a world market. In any case, consumers gain from lower prices; so do companies that can buy their supplies more cheaply abroad.
Industry:Economy
A firm with the ability to set prices in its market (see monopoly, oligopoly and antitrust).
Industry:Economy
When a country’s own money is replaced as its citizens’ preferred currency by the US dollar. This can be a deliberate government policy or the result of many private choices by buyers and sellers (for instance, at the first sign of trouble, investors across Latin America generally flee into dollars). When it is government policy, dollarization is, in essence, a beefed up currency board. The appeal of dollarization is that the value of the dollar is more stable than the distrusted local currency, which may well have a history of suddenly falling in value. By eliminating all possible risk of devaluation against the dollar, the cost of local companies’ and the government’s borrowing in international markets is reduced, as the currency risk is removed. A big downside is that the country hands over control of monetary policy to the Federal Reserve, and the right interest rate for the United States may not be appropriate for the dollarized country, if that country and the United States do not constitute an optimal currency area. This is one reason that in some countries the local currency has been displaced by another fairly stable currency, such as, in some central European economies, the Euro (and before that the d-mark).
Industry:Economy
People are better off specializing than trying to be jacks of all trades and ending up masters of none. The logic of dividing the workforce into different crafts and professions is the same as that underpinning the case for free trade: everybody benefits from doing those things in which they have a comparative advantage and using income from doing so to meet their other needs.
Industry:Economy
The part of a company’s profit distributed to shareholders. Unlike interest on debt, the payment of a dividend is not automatic. It is decided by the company’s managers, subject to the approval of the company’s owners (shareholders). However, when a company cuts its dividend, this usually triggers a sharp fall in its share price by more than would be appear to be justified by the reduced dividend. Economists theorize that this is because a dividend cut signals to shareholders that the company is in a bad way, with more bad news to follow.
Industry:Economy
