Economics & Finance¶

163 domain-specific abstractions whose origin domain is Economics & Finance.

Absolute Advantage — A per-good comparison of output per unit input between two producers — establishing that productivity differences exist (the precondition for gains from trade) while deliberately not settling who should specialize in what.
Accelerator Effect — The macroeconomic mechanism by which a change in the level of consumer demand produces a proportionally larger swing in investment, because desired capital tracks output at a fixed ratio — so it is the rate of change of demand, not the level, that drives capital ordering.
AD–AS Model — The workhorse macroeconomic framework that plots the economy as the intersection of an aggregate-demand and an aggregate-supply schedule in price-level × output space, reading disturbances as curve shifts and diagnosing their source from a four-quadrant typology.
Aggregate Demand — The total planned expenditure on final goods and services at a given price level, summed as C + I + G + (X − M) and matched against aggregate supply to set short-run output and the price level.
Aggregate Supply — The total real output producers will supply at a given general price level — sloping up in the short run because wages are sticky, but vertical at potential output in the long run once the binding constraint migrates from nominal rigidity to capacity.
Allais Paradox — An engineered pair of lottery choices whose majority preference pattern (A over B, D over C) violates the independence axiom of expected-utility theory, isolating the certainty effect as the culprit.
Ambiguity Aversion — The regularity that people prefer options with known probabilities over those with unknown ones even at equal expected value — a Savage-violating tilt toward the precise that the single-prior model can't represent, repaired by scoring acts against a set of priors.
Arrow's Impossibility Theorem — Prove that no ranked-preference voting rule over three or more alternatives can jointly satisfy four minimal fairness axioms — certifying the 'fair in every respect' region of design space empty and reducing the debate to which axiom to knowingly sacrifice.
Arrow–Debreu Model — Prove that a competitive economy has a set of prices at which every market clears at once, by treating each date-and-state-indexed good as its own priced commodity and applying a fixed-point argument to joint excess demand.
Assurance Game — The stag-hunt game in which each player strictly prefers to cooperate if and only if the others do, producing two self-enforcing equilibria — a payoff-dominant cooperative one and a risk-dominant defection one — so the binding constraint is mutual confidence, not incentives.
Balance-Sheet Recession — A contraction caused not by weak income but by impaired private balance sheets — after a debt-financed boom collapses, actors switch from profit maximization to paying down debt, so monetary policy goes inert and only fiscal deficits sustain demand until balance sheets heal.
Balassa-Samuelson Effect — The mechanism by which countries with fast-growing tradable-sector productivity end up with systematically higher price levels and appreciating real exchange rates — because tradable wage gains spill through mobile labor into non-tradable prices that cross-border arbitrage cannot compete away.
Bank Run — A self-reinforcing mass withdrawal or refusal to renew short-term claims on a financial institution, where a finite liquid pool rewards early exit and each withdrawal worsens later claimants' prospects, so even a solvent institution can be drained by the race.
Barrier to Entry — Read market power off the durable, asymmetric cost of joining a market rather than the current count of firms — sorting each barrier into structural, strategic, or legal to select the remedy that can actually remove it.
Basis-Risk Failure — Diagnose why a hedge collapses at the worst moment: the proxy instrument, chosen for its calm-market correlation with the exposure, decouples under stress, so protection that passed every ex-ante metric evaporates exactly when it is needed.
Baumol's Cost Disease — Explain why labor-intensive sectors with little productivity growth become relatively more expensive as wages rise with productive sectors through a shared labor market while stagnant-sector output per worker does not.
Bayesian Nash Equilibrium — The solution concept for games of incomplete information: recast not knowing an opponent's payoffs as Nature drawing each player's private type from a common prior, then solve for a fixed point of type-conditional strategy functions where every type's action is a best response in expectation and the supporting beliefs are Bayes-consistent.
Bayesian Persuasion — Model how a sender who cannot lie — committed to a public, truthful signal structure faced by a Bayes-rational receiver — still shifts the receiver's action by choosing how informative the signal is, solved geometrically as the concave closure of the sender's value over posteriors.
Beauty Contest Game — Have players simultaneously pick a number to land closest to p times the group average, so that iterated best-response contracts the target toward zero — turning the infinite tower of 'what others expect others to expect' into a single measurable reasoning-depth scalar read off the choices.
Bertrand Paradox (Economics) — Compute the extreme corner of price competition — two firms selling an identical good at equal marginal cost price at marginal cost with zero profit — as a deliberately-wrong baseline whose gap to real margins becomes a five-assumption diagnostic audit.
Black–Scholes Model — Price an option without forecasting the stock by noting that a continuously rebalanced stock-and-bond portfolio can replicate its payoff exactly, so no-arbitrage forces the price to equal that replication cost — leaving volatility as the only input to estimate.
Bundling — A seller conditions access to one good on accepting another by offering a combined package, extracting more surplus when component valuations are dispersed and negatively correlated — or leveraging market power in one good to foreclose rivals in a complementary one.
Business Cycle — Read the joint state of a whole economy off one phase label on an ordered ring — expansion, peak, contraction, trough, recovery — by tracking position relative to trend and direction of motion rather than the absolute level of activity.
Capital Accumulation — Track an economy's whole productive base as one state variable growing under the law of motion ΔK = I − δK, a self-feeding loop of output-saving-investment that diminishing returns brake into a steady state where thrift raises the level but not the long-run growth rate.
Capital Stock — Treat a durable productive resource as a priced stock with four operations — investment, depreciation, accumulation, and return — plus a present-value pricing convention that renders holdings of different capital forms commensurable on one ROI ledger.
Centipede Game — A sequential finite-horizon game in which each player can take the larger share or pass to grow the pot, where backward induction prescribes taking on the first move — isolating common knowledge of rationality as the load-bearing assumption cooperation depends on.
Chicken Game — A two-player payoff structure (DC > CC > CD > DD) where each side prefers the other to yield and mutual non-yielding is catastrophic but off-path, so the strategic question is not what to play but which asymmetric equilibrium gets selected — resolved by whoever can most credibly and irreversibly commit first.
Circular Flow — Represent the whole economy as two loops running opposite ways between households and firms, then track every off-loop flow as a leakage or an injection whose sums must balance when the loop closes in steady state.
Club Good — Classify a shared resource as excludable-and-non-rival-up-to-congestion, which fixes that it can be provided privately by membership fee, and select its pricing regime by which side of the congestion threshold it sits on.
Coase Theorem — State that with clear property rights and zero transaction costs, parties bargain to the same efficient allocation whatever the initial assignment — so the assignment fixes only who pays whom, and observed inefficiency is read contrapositively as the signature of a specific friction.
Cobweb Model — The economic model of self-sustaining price-quantity oscillation in markets with a rigid production lag, where producers commit output on today's price and discover it clears at another — tracing a cobweb spiral whose stability follows from the supply-to-demand slope ratio.
Collateral Squeeze — The procyclical spiral in which a fall in a pledged asset's price cuts every leveraged holder's borrowing capacity and forces sales into the same market that sets the price — coupling firms through a shared observable rather than a counterparty network.
Common-Pool Resource — The taxonomy cell for a good that is rival yet non-excludable — a conjunction that opens an appropriability gap between private and social cost, switching on the overuse dynamic and posing a three-way governance choice: privatize, regulate, or self-govern.
Concentration Illusion — The failure where a portfolio looks diversified across many labels but its holdings share a hidden common factor — so a single shock moves them together and realized risk tracks the rank of the factor-exposure matrix, not the count of positions.
Consumer Surplus — The aggregate welfare buyers gain by paying a market price below what each would have been willing to pay, measured as the area between the demand curve and the price line — giving voluntary exchange's buyer-side value a monetary magnitude for welfare analysis.
Contestable Market — Diagnose market power from entry conditions rather than firm count — where entry and exit are costless, the mere credible threat of hit-and-run entry disciplines even a monopolist to competitive pricing, so the binding variable is sunk cost, not concentration.
Cross Elasticity of Demand — The unit-free ratio of the percentage change in one good's quantity demanded to the percentage change in another good's price — whose sign classifies goods as substitutes, complements, or independent and whose magnitude ranks how tightly they constrain each other's prices.
Crowding In — The macroeconomic pattern in which public expenditure raises rather than displaces private investment — the sign reversal of crowding out — obtained when the economy has slack and the public input complements private activity, through a demand channel or a complementarity channel.
Debt Overhang — The condition where existing senior debt is so large that a new project's upside flows first to old creditors, so the residual claimant rationally declines even positive-NPV investment — the cure being to reorder the payoff cascade until the needed party can capture enough to participate.
Deflation — A sustained, broad-based fall in the general price level whose policy-critical content is the debt-deflation spiral — falling prices raise the real burden of fixed nominal debts, forcing distress selling and spending cuts that push prices down further when the monetary stabiliser is bounded.
Demand Shaping — The supply-chain practice of applying pricing, promotion, substitution, and channel levers to the consumer side of a capacity mismatch — moving realized demand toward feasible supply rather than scaling supply to meet it — by steering the marginal consumer's selection.
Deposit Concentration Risk — Judge a bank's funding fragility by the correlation-adjusted effective depositor count rather than the headline number — coupled depositors collapse toward one bet, voiding the law-of-large-numbers smoothing a large base seems to guarantee.
Disposition Effect — Explain why investors sell winners too early and cling to losers: the purchase price is a reference point, so gains sit in the concave risk-averse domain of the prospect-theory value function and losses in the convex risk-seeking one, measured as the PGR minus PLR gap.
Dominant Strategy — An action that yields a payoff at least as high as any alternative regardless of what opponents choose, so the player needs no model of the others — a belief-free best response that makes the strategic problem collapse to a row-by-row dominance check on the payoff matrix.
Double Coincidence of Wants — The two-sided matching requirement that makes direct barter expensive — each trader must simultaneously hold what the other wants and want what the other holds — whose probability falls as goods diversify, motivating a commonly accepted medium that splits each two-sided match into two one-sided sell-then-buy problems.
Double Marginalization — Explain why a chain of firms each holding pricing power ends up charging more and selling less than a single integrated firm would, because each node adds its markup while ignoring the demand-shrinking externality that markup imposes on the other node's profit base.
Dutch Disease — Trace how a boom in one tradable sector hollows out the others by running a foreign-exchange windfall through two channels — a spending effect that appreciates the real exchange rate and a resource-movement effect that bids up factor costs — so that headline GDP rises while non-booming tradables de-industrialize.
Easterlin Paradox — Reconcile the puzzle that richer people report more happiness at any moment yet national well-being stays flat as real income multiplies over decades — by recognising the cross-sectional gradient reflects relative income against a moving reference, not absolute income.
Economic Growth Model — Represent an economy's long-run output path as a closed dynamic system of productive stocks, accumulation and depreciation, production returns, population or labor, and technology, so assumptions determine whether growth converges, balances on a knife-edge, or sustains itself endogenously.
Edgeworth Paradox — Show that Bertrand's price-equals-marginal-cost result collapses once firms face capacity constraints below total demand: no pure-strategy equilibrium exists and prices cycle endlessly between the competitive floor and monopoly ceiling.
Ellsberg Paradox — Show that people prefer betting on a known-composition urn over an ambiguous one of equal expected value on both colors at once — a pattern no single subjective probability can rationalize — proving ambiguity is a separately priced dimension of uncertainty distinct from risk.
Endogenous Growth Theory — The class of models that make long-run growth an output of the economy's own agents and incentives rather than an exogenous parameter — the non-rivalry of knowledge generating aggregate increasing returns that escape diminishing-returns convergence and turn R&D and IP policy into growth levers.
Endowment Effect — Explain why the same person prices the same good higher once they own it — willingness-to-accept running two-to-five times willingness-to-pay — by acquisition shifting the reference point to include the good, so parting with it registers as a loss that loss aversion over-weights.
Engel curve — Read a good's economic character — normal or inferior, necessity or luxury — off the slope and curvature of a single schedule that plots its consumption against household income while holding all prices fixed.
Entrepreneurial Discovery — Explain how markets correct their own disequilibria — alert agents perceive profit gaps that others overlook and are not yet in anyone's search space, act on them, and thereby arbitrage the gaps away, an endogenous error-correction no central planner could replicate.
Environmental Kuznets curve — The hypothesis that environmental degradation follows an inverted-U against per-capita income — rising as a poor economy industrializes, peaking at middle income, then falling as richer populations buy cleaner technique — holding only for local, internalized pollutants, not global-commons ones.
Equity premium puzzle — Confront one number against one model — the ~6-point historical equity premium against what a consumption-CAPM with plausible risk aversion can rationalize — and read the order-of-magnitude miss as indicting a load-bearing assumption in an enumerable stack.
Excludability — Classify a good by whether non-payers can feasibly be kept from consuming it, and cross that with rivalry to place it in the four-cell Samuelsonian map — private, club, common-pool, public — each cell carrying its own provision pathology and remedy.
Feldstein-Horioka Puzzle — The anomaly that national saving and investment rates are strongly correlated across countries when frictionless capital mobility predicts near-zero — turning the regression slope into a continuous gauge of de facto capital-market integration.
Financial Accelerator — The credit-market feedback loop by which a modest shock is amplified — falling asset prices erode collateral, raising the external-finance premium, which cuts investment and depresses prices further — its whole strength read off one elasticity: the premium's sensitivity to borrower net worth.
Fiscal Illusion — The public-finance phenomenon in which a financing mechanism obscures the price signal linking public goods to their cost, so taxpayers underperceive the true burden — biasing demand for public spending upward relative to what fully-informed citizens would choose.
Fiscal Multiplier — Compress a fiscal impulse's whole propagation cascade into one estimable ratio — the change in aggregate output over the change in government spending or taxation — driven by the marginal propensity to consume through induced rounds of income, less leakages and offset channels, and conditioned on regime.
Flight to Quality — Read a scatter of cross-asset crisis moves as one event with one direction — capital fleeing toward the safe end of the risk spectrum — driven by a self-reinforcing amplification loop that safe-asset provision is designed to break.
Folk Theorem (Repeated Games) — Show that in a sufficiently long, patiently discounted repeated game, almost any mutually acceptable outcome can be held as an equilibrium by credible intertemporal punishment — so repetition both explains cooperation and destroys predictive determinacy.
Friedman Rule — Set the nominal interest rate to zero — via a steady deflation at the real rate — so that the private opportunity cost of holding money equals its near-zero social cost of production, eliminating the shoe-leather distortion; a benchmark that isolates one welfare cost and prices money at marginal cost.
Funding Fragility — The condition in which an entity depends on short, revocable, confidence-sensitive financing to sustain long, illiquid positions, so that the same balance sheet supports both a continued-funding equilibrium and a self-fulfilling run equilibrium — and can be killed while technically solvent.
Gibrat's Law — The claim that a firm's proportional growth rate is independent of its current size — which, iterated as multiplicative iid noise, makes log-size a random walk and drives the cross-sectional size distribution toward log-normal.
Gibson's Paradox — The gold-standard-era regularity that long-term nominal interest rates tracked the price level itself, not the rate of inflation — a Fisher-violating correlation that vanished under fiat money, marking it a regime-specific artifact rather than a law.
Giffen Good — A good whose quantity demanded rises as its own price rises — the rare case where a good is inferior and its income effect outweighs its substitution effect, flipping the Marshallian demand curve upward in apparent violation of the law of demand.
Gini Coefficient — Collapse a whole distribution of a resource into one number on a 0-to-1 scale by measuring how far its Lorenz curve bows away from perfect equality.
Global Games — Pick a single prediction out of a coordination game's many self-fulfilling equilibria by giving each player a private noisy signal of a common fundamental and deleting dominated strategies inward until one threshold cutoff survives.
Golden Rule Savings Rate — Pin the savings rate that maximizes steady-state per-capita consumption at the capital stock where the marginal product of capital equals population growth plus depreciation (f'(k*) = n + δ) — turning savings-policy welfare into a single scalar sign test.
Government Failure — The patterned ways government intervention produces outcomes worse than the market failure it meant to correct, derived by modeling the state as self-interested actors under institutional constraints — capture, rent-seeking, electoral myopia, bureaucratic bloat — and set symmetrically against market failure on one comparative surface.
Greater Fool Theory — The transaction logic in which a buyer knowingly pays above what they judge an asset is worth, betting purely on a higher-paying successor before they must exit — individually rational under a long enough mania, yet collectively self-terminating once the supply of willing buyers is exhausted.
Gross Domestic Product — Compress a whole economy's heterogeneous output into one scalar by summing the market value of final goods and services produced within a geographic boundary over a fixed period, cross-checked by three coincident production, expenditure, and income identities.
Harrod-Domar Model — Estimate an economy's sustainable growth rate as its savings rate divided by its capital-output ratio (g = s/v), giving a two-lever policy arithmetic and exposing a knife-edge equilibrium with no mechanism to return the economy to its warranted path.
Hawk–Dove Game — Model an anti-coordination contest with mutually destructive escalation as a 2x2 game whose entire equilibrium is fixed by the cost-to-prize ratio V/C — predicting a structural, tunable rate of costly conflict among fully rational players who would all prefer peace.
Hold-up Problem — Explain why parties who would both gain from a relationship-specific asset fail to build it: once the investment is sunk the counterparty can renegotiate against the exposed investor, and it is the anticipation of that squeeze — not the squeeze itself — that quietly distorts investment beforehand.
Holdout Problem — The bargaining failure in which a complementary surplus requiring unanimous consent lets any pivotal, non-substitutable party refuse agreement and extract a disproportionate share as the price of consent — making rational extraction, not bad faith, the equilibrium.
Hotelling's Law — The result that two share-maximizing suppliers competing for uniformly distributed consumers who patronize the nearest provider converge on minimum differentiation — both clustering at the median — a share-maximizing yet welfare-minimizing equilibrium whose predictions shift in signed directions as its base-case assumptions are relaxed.
Hotelling's Rule — Treat an unextracted unit of a nonrenewable resource as a non-dividend asset, and require its net price — spot price minus marginal extraction cost — to compound at the interest rate, so the owner is indifferent between extracting now and holding for later.
Human Capital — Treat the knowledge, skills, experience, and health embodied in people as an investable capital stock — with a cost, a discounted return stream, and a depreciation rate — so schooling and health spending become commensurable investments rather than consumption.
Impossible Trinity — A monetary authority can hold at most two of a fixed exchange rate, free capital mobility, and independent monetary policy because interest-rate parity and balance-of-payments adjustment make the third a residual.
Income Effect — Split a consumer's demand response to a price change into the part driven purely by the shift in real purchasing power — separating it from re-optimization toward cheaper substitutes — so a good's Engel-curve slope classifies it as normal, inferior, or Giffen.
Income Elasticity of Demand — Collapse a good's whole income-demand relationship into one unit-free ratio of percentage change in quantity to percentage change in income, so its sign and position relative to one classify it as inferior, necessity, or luxury.
Inferior Good — Classify a good by the sign of its income elasticity: one whose demand falls as income rises (η_Y < 0), because a rising budget lets the consumer shift toward a preferred substitute now within reach — with the Giffen good as its extreme tail.
Inflation — Track the shrinking purchasing power of a currency by measuring the annualized percentage change in a weighted price index, isolating the common price movement shared across a basket from the relative-price shifts that carry allocative information.
Information Avoidance — Actively decline information that is freely available because the anticipated content carries disutility — affective pain, identity threat, or an unwanted obligation — so the resulting non-knowledge is a chosen decision, not an absence.
Interest Rate — Price the use of money over time as a percentage of principal per period, the single factor that discounts any future cash flow into a present-value equivalent and, through a web of arbitrage conditions, binds every rate in an economy into one coherent system.
Intermediate-Scale Option (the "missing middle") — Diagnose a hollowed-out middle of some continuum — building size, price tier, credential level — not as revealed preference for the extremes but as the artefact of a specific removable rule that burdened the intermediate, so the fix is to change the rule rather than serve the extremes.
IS–LM model — A two-curve diagram fixing short-run equilibrium in a closed economy: the downward IS curve where the goods market clears and the upward LM curve where the money market clears cross at one point (r, Y) that pins down the interest rate and output jointly.
Iterated Prisoner's Dilemma — The prisoner's-dilemma stage game (payoffs T > R > P > S) played over many observed rounds, where a high enough continuation probability lets the threat of future punishment deter present defection — turning the one-shot game's unavoidable mutual defection into sustainable cooperation.
J-Curve Effect — Explain why a policy's early signal reverses sign — an initial deterioration then a larger, delayed improvement — via a time-elasticity gap between a fast price channel and a slow quantity channel, gated by the Marshall-Lerner condition.
Kaldor-Hicks Efficiency — Judge a policy efficiency-improving if the gainers could in principle fully compensate the losers and still stay ahead, reducing the whole welfare ledger to the sign of one scalar — aggregate willingness-to-pay minus willingness-to-accept — whether or not compensation is paid.
Kondratiev wave — The contested hypothesis that capitalist economies exhibit roughly 40-60-year cycles of expansion and contraction, driven by clusters of general-purpose innovations whose diffusion generates a long upswing, saturates, and gives way to a depressive phase in which the next techno-economic paradigm gestates — a heuristic placement ladder more than a predictive model.
Kuznets curve — Read income inequality's response to development as an inverted-U — rising early as a dispersion force (sectoral transition) dominates and falling late as a compression force (skills and redistributive institutions) overtakes it — while checking whether the falling limb is developmental or merely contingent institutions.
Kuznets swing — Read a roughly 15-25-year cycle in construction and investment as the interaction of two coupled lags — a slow demographic demand pulse against the multi-year build lag of long-lived capital — placing it as the medium octave between the short business cycle and the long Kondratiev wave.
Laffer curve — Tax revenue is a non-monotone function of the rate — zero at 0% and zero at 100% — so a mechanical effect raising revenue and a behavioural base-erosion effect eroding it produce an interior revenue-maximising peak at rate 1/(1+e).
Lerner index — Collapse a firm's market power into one dimensionless number, the markup of price over marginal cost as a fraction of price, L = (P − MC) / P, which under profit maximization also equals the reciprocal of the demand elasticity the firm faces.
Liquidity Preference — Keynes's claim that agents hold money out of three motives — transactions, precaution, and speculation — so the interest rate is the reward for parting with liquidity, set in the money market where the rate adjusts until money demanded across the three motives equals the supply the central bank controls.
Liquidity Trap — The regime where the central bank's short-rate lever stops working because the rate has hit its effective lower bound and cash and short bonds become perfect substitutes, so added base money is hoarded rather than spent and the transmission to demand is severed even as the lever still moves.
Lorenz Curve — Read a whole distribution's inequality off a single curve by plotting the cumulative share of a quantity against the cumulative share of its ranked holders, so the sag below the perfect-equality diagonal shows how concentrated it is and whether two distributions can be safely ranked.
Lucas Critique — Refuse to trust a macroeconometric model's historical coefficients for policy evaluation unless they are deep, regime-invariant parameters, because reduced-form relationships are themselves functions of the policy regime and shift the instant policy shifts.
Malthusian Trap — The demographic-economic dynamic in which productivity gains trigger population growth fast enough to absorb them, pinning long-run living standards near a subsistence floor through a negative feedback loop — until either technology outruns demographic absorption or the feedback's sign reverses.
Mark-to-Market Cliff — The discontinuous worsening of a financial position when a continuously-marked value crosses a contractual threshold, waking a dormant clause whose enforcement — forced selling, collateral calls, cross-default — pushes the reference further in the direction that tripped it.
Market power — Gauge an actor's ability to profitably set price above (or wages below) the competitive level by reading the slope of the downward-sloping residual demand curve it faces, quantified as the price-cost wedge (P − MC)/P.
Median Voter Theorem — Under majority rule with single-peaked preferences on one policy dimension, binary competition converges to the median voter's ideal point, because that position is the unique Condorcet winner — any platform away from it is beaten by one moving closer.
Middle-Income Trap — The growth deceleration where a country that rose from low to middle income via factor accumulation stalls before high income, because the engines of the first regime exhaust while the qualitatively different capabilities of an innovation-led regime are not yet built.
Minsky Moment — The financial collapse in which an extended calm endogenously breeds its own undoing — leveraged actors drift from hedge to speculative to Ponzi finance until a modest trigger reveals the hidden fragility and forces a cascade of fire-sale deleveraging; stability is destabilizing.
Modigliani–Miller theorem — Establish that in a frictionless capital market a firm's total value is independent of its debt-equity mix — enforced by investors replicating corporate leverage on personal account — so every real financing decision reads as that baseline minus a catalog of named frictions.
Money Multiplier — The relation by which one unit of base money supports up to 1/r units of bank deposits through the chained redeposit of fractional-reserve lending — a causal lever where the reserve fraction binds, but only an ex-post accounting ratio where the central bank accommodates reserve demand.
Monopolistic Competition — A market structure where many small firms each sell a differentiated product — giving each a downward-sloping demand curve and local pricing power — while free entry erodes any profit until price equals average cost, leaving excess capacity as the standing signature.
Monopsony power — Gauge a buyer's ability to set the price it pays below the competitive level by the slope of the upward-sloping residual supply curve it faces (finite elasticity ε), which yields a markdown of roughly 1/ε and the double distortion of underpayment plus under-hiring.
Multiplier Effect — Read the total output change from a one-shot spending injection off a single number — the leakage rate — by recognizing the successive re-spending rounds as a convergent geometric series summing to 1/(1−c) times the injection.
Natural Rate of Unemployment — The unemployment rate consistent with stable inflation in the long run — the frictional-plus-structural floor set by labour-market frictions and institutions, below which demand stimulus buys only accelerating inflation, never durable jobs.
Oligopoly — A market structure of a few sellers each large enough that its choices visibly move the others, so optimal strategy turns on anticipating rivals' responses — with the outcome swinging between competitive and monopoly-leaning by which equilibrium template (Cournot, Bertrand, Stackelberg, or repeated-game collusion) the market fits.
Paradox of Plenty (Resource Curse) — The resource-curse regularity that extractive-rent dependence can turn abundance into slower development through five reinforcing channels — Dutch disease, revenue volatility, severed tax accountability, conflict finance, and diversification crowd-out — whose mix and timing are gated by prior institutional quality.
Paradox of Thrift — The macroeconomic result that a simultaneous, economy-wide rise in the desire to save lowers total saving in equilibrium, because the coordinated withdrawal of spending contracts demand and income until realized saving falls.
Partial Equilibrium — The Marshallian method of isolating one market and solving its equilibrium price and quantity off supply and demand while holding the rest of the economy as fixed background — trading economy-wide feedbacks for tractability, valid only when the studied market is small and weakly connected.
Perfect Competition — The idealized market of many small price-takers trading a homogeneous good under free entry and full information, yielding price equal to marginal cost and a Pareto-efficient allocation — a benchmark whose five assumptions, when they break, name every standard market failure.
Peso problem — Explain an apparent pricing anomaly — persistent forward-rate bias or too-good Sharpe ratios — as a sampling artifact, in which the price correctly embeds a rare severe tail event that the finite observation window happened to omit.
Phillips Curve — The short-run inverse relation between unemployment and inflation — positioned by expected inflation, sloped by how anchored those expectations are, vertical at the natural rate in the long run, and displaced by supply shocks — whose exploitable trade-off dissolves once agents come to expect the inflation.
Pirate game — A toy sequential-bargaining model showing how backward induction in a propose-vote-or-eliminate mechanism lets the most senior proposer capture nearly the whole prize, because each voter's price is their continuation payoff and downstream subgames impoverish enough players to buy a cheap minimum coalition.
Poverty Trap — A self-reinforcing development dynamic in which those below a critical resource threshold cannot accumulate enough to escape a low-level equilibrium — a bistable attractor where sub-threshold inputs are absorbed and reverted, while a large sustained push flips the basin and persists on its own.
Privacy Paradox — Explain the stable gap between people's high stated concern for privacy and their routine sharing of personal data for trivial benefits as a decoupling of attitude from choice behavior, produced by present bias, decision fatigue, opacity, and friction asymmetry.
Producer Surplus — The gap between the price a seller receives and its reservation price (marginal cost), aggregated as the area between the market price line and the supply curve — the seller's side of a conserved welfare ledger that any market distortion redistributes or destroys.
Productive Efficiency — The condition of producing a chosen output at the lowest feasible input cost — operating on the production frontier — with any interior point measuring recoverable waste as its distance inside, held strictly apart from the allocative question of whether the right mix is produced.
Productivity Paradox — The observation that economy-wide investment in a new general-purpose technology fails to show up in aggregate productivity statistics for years or decades, because measured gains lag the complementary intangible investment — process redesign, skills, restructuring — the technology's payoff actually depends on.
Public Choice — The research program applying economics' rational-self-interest assumptions to politics — modelling voters, politicians, and bureaucrats as utility-maximizers responding to institutional incentives, so government failures read as predicted equilibrium and reform runs through the rules, not the roster.
Quantity Theory of Money — Bind money supply, velocity, the price level, and real output in the identity MV = PY, then add the behavioural premises that velocity is stable and output is set by real factors — so that in the long run changes in the money stock translate proportionally into the price level.
Real vs. Nominal Value Distinction — The operation of separating a monetary quantity's real change from the drift in its unit's purchasing power by dividing a nominal series through a price index and rebasing — treating the measuring unit itself as a variable, so cross-time comparisons are not confounded by inflation.
Redistribution — The deliberate reallocation of income, wealth, or consumption between groups through state authority — a clearing-house collecting from a source base and paying a recipient base under rules set so the net flow runs from those with more to those with less along a named axis.
Rent-Seeking Trap — The public-choice pathology in which institutional rules make the marginal return on capturing an existing rent exceed the return on producing new value, so effort is dissipated into contests over distribution — self-reinforcing where the rent-defending coalitions persist and manufacture further rents.
Revelation Principle — The mechanism-design theorem that any outcome achievable by any mechanism is also achievable by a direct mechanism where agents truthfully report their private type — collapsing the search over all mechanisms to a tractable optimization over incentive-compatibility constraints, while saying nothing about which mechanism to deploy.
Revenue Equivalence Theorem — The auction-theory result that under symmetric independent-private-values conditions, every format allocating to the highest bidder yields the seller the same expected revenue — pinning revenue to the allocation rule and lowest-type rent, so format matters only where a condition fails and the failure direction names the preferred format.
Ricardian Equivalence — Treat a debt-financed tax cut as a deferred tax of equal present value, so forward-looking households save the windfall to meet the future bill and the financing choice adds no stimulus.
Risk-Free Rate Puzzle — The asset-pricing anomaly that a CRRA model calibrated to the observed equity premium predicts a real risk-free rate far above the ~1% seen — because the single parameter γ is overloaded as both risk aversion and the inverse elasticity of intertemporal substitution, so fitting one target misfits the other.
Say's Law (Supply Creates Its Own Demand) — The classical claim that aggregate production generates the income constituting aggregate demand, so a general glut cannot persist — a conditional resting on flexible market-clearing prices, no permanent hoarding, and a loanable-funds market that routes saving into investment.
Secular Stagnation — A structural glut of saving over investment pushes the market-clearing interest rate below zero — below the floor a central bank can reach — so rate cuts run out of room and the shortfall persists as deficient demand rather than the trend.
Slutsky Decomposition — Decompose a price-induced change in consumer demand into a compensated substitution effect from changed relative prices and an income effect from changed real purchasing power, so the two terms sum exactly to the observed response.
Snob Effect — The demand pattern in which a consumer segment values a good more when fewer others own it — a negative prevalence term in utility that decomposes the good into a fixed use-value and a prevalence-dependent rarity signal.
Social Surplus — Measure a market's total net benefit as the area between the demand and supply curves — consumer plus producer surplus — so a policy's efficiency cost reads off the deadweight-loss triangle of trades the price wedge suppresses, distinct from surplus merely transferred.
Solow Computer Paradox — The puzzle that heavy IT investment coincided with a productivity slowdown, not an acceleration — resolved as a deployment-to-impact lag: the headline measure waits on the complementary intangible stocks (process redesign, retraining, standards) a general-purpose technology must accumulate first.
Solow–Swan Model — The neoclassical growth model whose diminishing-returns structure drives each economy to a parameter-pinned steady state, yielding conditional convergence — economies sharing fundamentals close their gaps at a rate set by the capital share, while saving raises the level of income but not the long-run growth rate.
St. Petersburg Paradox — A gamble whose expected monetary value is infinite yet which real deciders will pay only a few coins to enter, exposing that a value function linear in money mishandles fat-tailed payoffs and must be replaced by a concave or bounded utility.
Stag Hunt — Model a cooperation problem in which the joint payoff-dominant choice and a certain safe choice are both equilibria, so the barrier to cooperating is not temptation but coordination under uncertainty about the partner — fixed by assurance, not enforcement.
Subgame Perfect Equilibrium — Refine the Nash equilibria of a sequential game by keeping only strategy profiles that prescribe a best response in every subgame, discarding outcomes propped up by threats a player would never actually carry out.
Substitution Effect — Isolate the part of a consumer's demand response to a price change that comes purely from shifted relative prices, holding real purchasing power constant, by hypothetically compensating income and observing how she reallocates toward the now-cheaper goods.
Supply — Model producer behavior as a whole price-to-quantity schedule rather than a single quantity, upward-sloping because expanding output raises marginal cost, so any disturbance either moves output along the curve (only the good's own price) or shifts the whole curve (everything else).
Timing Risk — The failure mode where a technically sound product, technology, or policy fails not from its own defects but because the surrounding environment is not yet — or is no longer — ready to absorb it, treating environmental readiness as a risk factor independent of execution.
Tobin's q — The ratio of a firm's market value to the replacement cost of its physical assets, read against a threshold of one to signal whether capital should flow in (build) or out (divest) — because building beats buying only when the market prices assembled capital above the cost of reproducing it.
Triffin Dilemma — The structural bind in which a national currency serving as the world's reserve asset must run persistent deficits to supply global liquidity, yet those same deficits erode the confidence that makes the currency worth holding — two roles one issuer cannot jointly satisfy over time.
Tullock Paradox — The puzzle that observed rent-seeking expenditures — lobbying fees, contributions, access payments — run far below the value of the rents they secure, read as a diagnostic signal that barriers to entry keep competition from dissipating the prize as the standard model predicts.
Ultimatum Game — A two-player, one-shot bargaining test in which a proposer splits a fixed stake and a responder may accept or reject for nothing, isolating costly punishment of unfairness by pitting the selfish equilibrium against the offers and rejections people actually make.
Unit-Economics Mirage — The error of judging a business viable from a rising aggregate metric — revenue, users, gross merchandise volume — while its fully-loaded per-unit economics are structurally negative, exposed by testing the contribution on the next unit rather than the average across existing ones.
Veblen Effect — The anomaly that, for status goods, demand rises with price rather than falling — because the conspicuous high price is itself the costly signal of the buyer's wealth, so cutting it destroys the signal and drives out the very buyers who constitute the market.
Velocity of money — The average number of times a unit of money changes hands in a period, computed as nominal spending over the money stock (V = PY/M), turning the equation of exchange into an accounting bridge from a money stock to a flow of spending — provided velocity itself holds steady.
Verdoorn's Law — The empirical regularity that labour-productivity growth rises with output growth — a sustained one-point rise in manufacturing output growth adding roughly 0.5 points of productivity growth — so that fast output expansion endogenously induces productivity gains through learning, specialization, and capital deepening.
Vickrey Auction — A sealed-bid auction where the highest bidder wins but pays the second-highest bid, decoupling what you win from what you pay so that bidding your true valuation is the dominant strategy — no rival-modeling needed — and the item reaches whoever values it most.
Volatility Smile — The pattern that an option's implied volatility varies systematically with strike and maturity rather than being the constant Black-Scholes assumes, tracing a curve whose shape is read as the fingerprint of the market's risk-neutral return distribution and its pricing of tail risk.
Wagner's Law — The empirical regularity that as a country industrializes and per-capita income rises, public expenditure grows faster than GDP so its share of national income climbs — driven by the compounding pull of administrative load, income-elastic demand for merit goods, and Baumol cost-disease.
Wholesale-Funding Run — A rapid, self-reinforcing withdrawal of short-term funding by a small set of professional creditors who simultaneously refuse to roll over maturing liabilities — coordinated by shared information and driven by the first-mover advantage of a finite liquid-asset pool, draining a firm in days.
Zero Lower Bound — The near-hard floor that stops a central bank cutting its nominal policy rate below zero — because savers can always hold cash yielding 0% — turning the exhaustion of the conventional rate lever into a regime change that forces unconventional easing tools.