Archives: Terms

Definition of Balance of Trade The Balance of Trade (BOT) refers to the difference between the monetary value of a nation’s exports and imports over a certain period. It’s a crucial component of a country’s balance of payments (BOP) that summarizes all transactions between its residents and the rest of […]

Definition of Balance of Payments The Balance of Payments (BOP) is a comprehensive record of all economic transactions between the residents of a country and the rest of the world during a specific period of time, usually a year. It includes the trade balance (exports and imports of goods and […]

Definition of Economic Backwardness Economic backwardness refers to the situation of an economy that is lagging behind in its development compared to other more advanced economies. This term typically describes the status of economies that exhibit characteristics such as low levels of industrialization, poor infrastructure, limited technological innovation, inadequate education […]

Definition of Backward Induction Backward Induction is a method used in game theory and decision making that involves working backwards from the end of a problem or scenario to determine the sequence of optimal actions. It starts with the last move of the game and then deduces the penultimate move, […]

Definition of Backus–Smith Puzzle The Backus–Smith puzzle, named after economists Backus and Smith who identified it, relates to an anomaly observed in international economics, especially within the context of real business cycle models. It suggests that, contrary to what one might expect, countries with high consumption volatility compared to output […]

Definition of the Backus–Kehoe–Kydland (BKK) Puzzle The Backus–Kehoe–Kydland (BKK) puzzle, named after economists David Backus, Finn E. Kydland, and Patrick J. Kehoe, refers to an economic anomaly observed in international finance and macroeconomics. The puzzle arises from the empirical observation that contrary to theoretical predictions, real exchange rates are more […]

Definition of Average Cost Average cost, also known as unit cost, is a key concept in economics and accounting that refers to the total cost of production divided by the number of goods produced. It is calculated by summing up all the fixed and variable costs associated with production and […]

Definition of the Austrian School The Austrian School of Economics is a broad school of economic thought that emphasizes the spontaneous organizing power of the price mechanism and advocates a strict methodological individualism. Rooted in the works of Carl Menger, Ludwig von Mises, and Friedrich Hayek, among others, this perspective […]

Definition of Aumann’s Agreement Theorem Aumann’s agreement theorem is a fundamental concept within the realm of game theory and information economics, asserting that two people acting rationally and with common knowledge of each other’s beliefs cannot agree to disagree on any subject. The theorem assumes that both parties have all […]

Introduction to the Atkinson–Stiglitz Theorem The Atkinson–Stiglitz theorem is a fundamental concept in the field of economics, named after two influential economists, Anthony B. Atkinson and Joseph E. Stiglitz. This theorem addresses the optimal taxation and its effects on goods and savings. It suggests that, under certain conditions, it is […]