Category: Glossary

Definition The effect a tax has on the distribution of economic welfare. Tax Incidence describes how the burden of a tax is shared among producers and consumers in a market. Example Assume a new per unit tax of 1$ is imposed on ice cream. As a result, producers increase the […]

Definition The percentage of a country’s workforce (i.e. people who are willing and able to work) that is unemployed and actively looking for a job. The unemployment rate is calculated as the number of unemployed workers divided by the number of people in the workforce. Example Assume a country’s workforce […]

Definition Costs that are dependent on the quantity of output produced. Variable costs have to be paid only if production is above zero. Example To give an example, think of an ice cream seller. The costs associated with the purchase of ingredients for the production process (milk, sugar, etc.) are […]

Definition The study of how economic well-being on an aggregate level is affected by the allocation of resources and economic policies. Example To measure welfare, economists usually assign units of utility in order to compare the subjective well-being of an individual in different situations. Based on those individual results, they […]

Definition The degree of efficiency maintained by companies (or individuals) in market situations characterized by imperfect competition. The concept of x-efficiency states that under those conditions inefficiencies may persist due to the lack of competitive pressure. Example If a company is the sole producer and seller of a product, it is at […]

Definition The income return on an investment to the owner. The return is usually measured annually as interest or dividend payments in relation to the cost of the investment. Example If you buy a stock for $100 that pays a dividend of $2, the yield will be 2% ($2/$100). Generally speaking, […]

Definition An economic situation, with at least two parties involved, in which one party’s gain is equal to the other party’s loss. As a result the overall change in wealth is zero. Example An example of a zero-sum game is options trading. Assume you buy a call option from a […]