Archives: Terms

Definition of the American School The American School, also known as the American System, represents an economic philosophy that emphasizes government intervention in the economy to stimulate growth, development, and national self-sufficiency. Rooted in the 19th century, this approach advocates for a combination of protective tariffs, investments in infrastructure, and […]

Definition of Ambiguity Aversion Ambiguity aversion refers to a preference for known risks over unknown risks, indicating a psychological tendency of individuals to favor situations with clear, predictable outcomes over those with uncertainty or ambiguity. This concept suggests that people are more comfortable making decisions when they have more information […]

Definition of Alternative Minimum Tax (AMT) The Alternative Minimum Tax (AMT) is a supplementary income tax imposed by the United States federal government in addition to baseline income tax for certain individuals, corporations, estates, and trusts. The AMT is designed to ensure that certain taxpayers with access to advantageous tax […]

Definition of Allais Paradox The Allais paradox, named after French economist Maurice Allais, challenges the conventional notions of rational decision-making in economic theory. It presents a scenario where individuals’ choices violate the expected utility theory, a foundational concept in economics and decision theory that suggests people always make decisions that […]

Definition of the Alchian–Allen Effect The Alchian–Allen effect, named after economists Armen Alchian and William R. Allen, posits that when a fixed cost (like shipping or tax) is applied uniformly to two similar goods with different pre-cost prices, the relative consumption of the higher-priced (and usually higher-quality) good will increase. […]

Definition of the AK Model The AK model represents a class of endogenous growth models in economics where the level of output (or production) in an economy does not exhibit diminishing returns to capital, suggesting that an increase in investment leads directly to proportional increases in output. This characteristic differentiates […]

Definition of Agricultural Economics Agricultural economics is a specialized field of economics that focuses on the production, distribution, and consumption of agricultural goods and services. This branch of economics combines principles of both microeconomics and macroeconomics to address issues related to agriculture, including resource allocation, production efficiency, government policy effects, […]

Definition of the Aggregation Problem The aggregation problem is a conceptual and practical issue faced in economics and statistics that arises when combining or aggregating individual preferences, behaviors, or data into a collective whole. This problem highlights the challenges in creating a comprehensive and coherent aggregate measure from diverse individual […]

Definition of Agflation Agflation is a term combining “agriculture” and “inflation,” referring specifically to the inflation driven by rising prices in the agricultural sector. This phenomenon occurs when the prices of agricultural commodities such as grains, fruits, vegetables, and animal products increase, leading to higher food prices for consumers. Unlike […]

Definition of Advertising Elasticity of Demand Advertising Elasticity of Demand (AED) measures the responsiveness of demand for a product to a change in the level of advertising for that product. Essentially, it quantifies how variations in advertising expenditure affect the quantity demanded of the good or service. A high elasticity […]