Glossary – Accounting Profit

Definition A company’s total revenue minus its total explicit costs. Example Assume a carpenter produces 1’000 chairs, which he then sells at a price of $100 each. His total revenue will add up to $100’000. If he faces total costs of $60’000, accounting profit will amount to $40’000 ($100’000 – […]

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Glossary – Adverse Selection

Definition A situation where asymmetric information (between buyers and sellers) causes unwanted results, because the unobserved attributes lead to an undesirable selection from the perspective of the uninformed party. Example A good example of adverse selection is the market for health insurance. In this market, the buyers know more about […]

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Glossary – Business Cycle

Definition Often irregular and mostly unpredictable fluctuations (i.e. expansions or recessions) in economic activity experienced in an economy over a certain period of time.  Example As the economy expands, unemployment decreases while income and as spending increase. Once the expansion reaches its maximum, productivity starts to decline which results in higher […]

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Glossary – Deadweight Loss

Definition The decrease in overall social welfare in an economy that results from a market distortion. A deadweight loss occurs whenever there is no efficient market equilibrium. Example A common cause for deadweight losses is the imposition of a tax. If consumers have to pay a specific tax on ice […]

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Glossary – Economic Growth

Definition The increase in the amount of goods and services that are produced in an economy over a certain period of time. Economic growth can be measured in nominal or real terms using the respective GDP (Gross Domestic Product). Nominal GDP accounts for the effects of inflation, whereas they are […]

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Glossary – Human Capital

Definition The skills, talent, and knowledge that the employees of a company possess, measured in terms of economic value to the employer. Example Human capital can either be acquired from external sources or developed within an organization. This is usually done by recruiting new employees or providing on-the-job training and […]

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