Dictionary of Economics Terms

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A.

Absolute advantage: Absolute advantage occurs when a country or region can produce more of a product using the same resources compared to other countries, showing higher efficiency in the production of a certain good.

Absolute poverty: Absolute poverty measures the number of people living below a specific income threshold or the number of households unable to afford essential goods and services.

Accelerator effect: The accelerator effect links private sector capital investment to the growth of demand for goods and services. Increased consumer or export demand may lead to higher investment to meet the extra demand, while a slowdown in demand can result in reduced planned investment.

Ad valorem tax: An indirect tax based on a percentage of the sales price of a good or service, like Value Added Tax (VAT).

Adam Smith: A founding figure in modern economics, known for his work The Wealth of Nations (1776) which highlights the benefits of individuals acting in their self-interest, ultimately benefiting the overall public good. His discussion on the advantages of the division of labour remains influential in economic literature.

Advertising: Creating consumer loyalty through branding, making market entry for new firms more expensive. Advertising can shift the demand curve rightward and reduce price sensitivity.

Ageing population: An increase in the average age of the population due to higher life expectancy and lower birth rates. This has significant implications for demand, government welfare spending, and healthcare services.

Aggregate demand curve: The aggregate demand (AD) curve shows the quantity of goods and services that households, firms, and the government want to buy at various price levels.

Aggregate supply: Aggregate supply (AS) measures the volume of goods and services produced within the economy at different price levels, representing the economy's ability to produce in the short or long term.

Allocative efficiency: Occurs when the price consumers are willing to pay for a good equals its production cost, maximising total economic welfare.

America First: Refers to a populist political theory which involves disregarding global affairs and focusing solely on domestic policy in the United States. The term was coined by President Woodrow Wilson in his 1916 campaign that pledged to keep America neutral in World War I. Decades later, Donald Trump used the slogan in his presidency (2017–2021), emphasising the U.S.'s withdrawal from international treaties and organisations in the administration's foreign policy.

Anarcho-capitalism: An anti-statist, libertarian political philosophy and economic theory that seeks to abolish centralised states in favour of stateless societies with systems of private property enforced by private agencies, based on concepts such as free markets and self-ownership.

Anchoring behaviour: Anchoring is an irrational bias towards an arbitrary benchmark figure. This benchmark then skews decision-making by market participants, such as when to sell the investment.

Animal spirits: Animal spirits is a term used by John Maynard Keynes in his 1936 book The General Theory of Employment, Interest and Money to describe the instincts, proclivities and emotions that seemingly influence human behavior, which can be measured in terms of consumer confidence.

Anticipated inflation: Anticipated inflation refers to the expectations or predictions made by households and firms about future increases in prices. These expectations play a crucial role in shaping economic decisions, as individuals and businesses take anticipated inflation into account when making financial plans.

Anti-competitive behavior: Anti-competitive practices are strategies employed by firms with the intention of limiting competition in a market. These actions can be initiated by a single firm acting alone or by multiple firms engaging in explicit or implicit collusion. Such practices, especially when firms collude, are considered harmful to the public interest.

Antitrust: This is a term used to describe laws or regulations designed to stop firms from exploiting their monopoly positions in markets at the expense of consumers or rival businesses.

Appreciation: The rise in the value of an asset. In particular, currencies are often described as appreciating when they go up and depreciating when they go down.

Asset: Something that can be used to create economic value. An asset can be tangible, such as a building or machinery or intangible, such as a patent or a brand name. Assets make up one side of a company’s balance-sheet; the other is liabilities.

Asset stripping: The practice of buying a company and rapidly selling off the component parts with the aim of making a profit. This often leads to great disruption in the business and a loss of jobs.

Asset value: One measure used by investors to calculate the worth of a company. Normally, a company’s debts are deducted to calculate a net asset value. Also known as book value.

Asymmetric information: Asymmetric information occurs when one party in a transaction possesses more information than the other. This unequal distribution of information can create difficulties in conducting business transactions, as the party with less information may face challenges in making informed decisions.

Auctions: These are usually associated with the sale of livestock, antiques and works of art. But in recent decades, they have been favoured by economists as a means of ensuring that sellers get the best price for a wider range of assets. For example, governments have used auctions to sell off parts of the electromagnetic spectrum to mobile telecoms companies.

Austerity: A term used to describe efforts to reduce the share of public spending in GDP, particularly in the 2010s. When the economy is already weak, Keynesian economists view austerity programmes as a mistake, because they reduce demand. But free-market economists worry that, without austerity, the government’s role in the economy inexorably expands over time.

Austrian school: A group of libertarian economists, notably Friedrich Hayek and Ludwig von Mises, focused on the individual and deeply suspicious of state planning. The school developed in opposition to communism and social democracy, and believes in low taxes and a minimal state.

Authoritarian capitalism: Usually applied especially to China and Russia, this describes economies in which big business co-exists with an authoritarian government. Businesses are allowed to make money but if they dare to criticise the government, or appear too independent, they may face criminal or financial sanctions.

Automatic stabilisers: Automatic fiscal changes are alterations in tax revenues and government spending that occur automatically as the economy goes through different stages of the business cycle. For instance, during an economic slowdown or recession, tax revenues tend to decrease, and government spending may rise, which can help stabilise the overall economy.

Autarky: Autarky is an economic concept suggesting that a country should strive for self-sufficiency and avoid participating in international trade. However, historical experiences show that pursuing complete self-sufficiency and substituting domestic production for imports has led to inefficiency and relative poverty compared to countries engaging in international trade.

Average earnings: Average earnings represent the total factor reward paid to labour. It includes basic pay as well as additional income from productivity-related pay, overtime, and other bonuses, divided by the number of workers.

Average product: Average product refers to the total output produced divided by the total units of labour employed. It helps to understand the productivity of labour in producing goods or services.

Average rate of tax: The average rate of tax is the proportion of gross income that individuals or businesses pay in taxes. In a progressive income tax system, the average rate of tax increases as income rises due to higher marginal tax rates at specific income levels.

B.

Bait-and-switch: This refers to the action (generally illegal) of advertising goods which are an apparent bargain, with the intention of substituting inferior or more expensive goods.

Balance of autonomous transactions: The sum of private transactions in the current and capital accounts, independent of the country's Balance of Payments account. For example, foreign investments in Ireland for profit are autonomous transactions.

Balance of payments: Records all financial transactions between a country and the rest of the world, showing consumer spending on imports and success in exporting goods and services to other countries.

Balance of trade: This is the difference between a country’s visible imports and visible exports in a given year. If exports exceed imports there is said to be a balance of trade surplus, whereas if imports are greater there is a balance of trade deficit.

BANANA: Economic jargon for Build Absolutely Nothing Anywhere Near Anything/Anyone. This term is often used to describe opposition to any kind of development or construction project, regardless of its location.

Bank run: In a crisis, bank depositors may start to doubt they will get their money back. So they may demand to withdraw it. Since banks have lent out this money, it is impossible for them to repay all depositors instantly. The bank may fail. To avoid this, most countries have schemes of deposit insurance.

Barriers to entry: Entry barriers are mechanisms that prevent new suppliers from entering a market, allowing monopolies to maintain high profits.

Barter: The direct swap of goods and services for other goods and services, without the use of money. This is normally a less efficient form of trade, since the wants and needs of buyers and sellers rarely match exactly.

Basis point: One hundredth of a percentage point. The term is often used to describe interest rate changes. A quarter-percentage-point rise or fall in rates is described as 25 basis points.

Bear: This is an investor who expects the price of an asset or assets in general to fall.

Behavioural economics: A school of thought that believes that the economic decisions of individuals are often driven by psychological biases rather than the rational analysis of expected returns. For example, individuals value the goods they own more highly than they would pay for the same item in an open market. Ask your parents how much they think your house is worth.

Belt and Road Initiative: The Belt and Road Initiative (BRI) is a global infrastructure development strategy launched by China in 2013. It aims to enhance connectivity and cooperation among countries primarily in Asia, Africa, and Europe through investments in transportation, energy, telecommunications, and other sectors. The initiative consists of the Silk Road Economic Belt, focusing on land routes, and the 21st Century Maritime Silk Road, focusing on sea routes, fostering economic growth and cultural exchange among participating nations.

Benefit-in-kind: This is a non-monetary payment for work done in-lieu of cash payments, e.g. a company car. See Income-in-kind below.

Big Mac index: A light-hearted guide to whether currencies are over- or undervalued, invented by The Economist in 1986. The index is based on the theory of purchasing-power parity—the notion that in the long run exchange rates should tend to equalise the prices of goods in different currencies.

Bill of exchange: A short-term financial instrument, originally used to finance international trade. The buyer of goods would give the seller a signed bill, equal to the value of the purchase, which the seller could then cash with a banker. In modern finance, bills are a catch-all term for short-term debt such as Treasury bills and commercial bills.

Bitcoin: A decentralised digital currency that operates without a central authority or intermediary, utilising cryptography for secure transactions and a public ledger called the blockchain to record all transactions.

Black market: An illegal market which is also known as the hidden economy, where economic transactions are unrecorded.

Black swan event: These are events that are highly improbable and unexpected, yet have significant and widespread consequences. Black Swan events can profoundly disrupt financial markets, economies, and societies, challenging conventional risk assessment and management strategies. The turmoil of the Covid-19 era was a black swan event.

Blockchain: A distributed ledger used to make a digital record of the ownership of assets, in particular cryptocurrencies.

Blue economy: Involves sustainable economic activities using ocean resources while conserving marine ecosystems to promote economic growth, job creation, and sustainable development.

Bonds: IOUs issued by a borrower which normally promise repayment of the money on a set date (the maturity) with regular interest payments during the life of the bond. The more risky the issue, the higher the interest rate (or yield) on the bond. Governments issue bonds to cover the gap between the amount they receive in taxes and the amount they spend. Companies issue bonds to finance investment programmes.

Book value: This is another term for asset value.

Boom: This is the term given to a state of rapid economic expansion, as opposed to bust.

Brand: A unique product offering created through logos, symbols, names, designs, or packaging to differentiate from competitors.

Brand loyalty: When consumers prefer one brand over others, which can serve as a barrier to entry for new products.

Bretton Woods: This was the location in New Hampshire of a conference in 1944 which decided the post-war economic order. It led to the establishment of the International Monetary Fund and the World Bank. And it agreed on a currency system that linked all currencies at fixed exchange rates to the dollar, which was convertible into gold at $35 an ounce.

Broadening the tax base: Increasing the number of items subject to taxation, like the property tax, sugar tax, excise duties etc.

BRICS: BRICS is an intergovernmental organisation comprising Brazil, Russia, India, China, South Africa, Iran, Egypt, Ethiopia and the United Arab Emirates. Originally identified to highlight investment opportunities, the grouping evolved into a geopolitical bloc, with their governments meeting annually at formal summits and coordinating multilateral policies since 2009.

Bubble: The concept that asset prices can rise far higher than can be justified by their fundamentals, such as the expected cashflows that will derive from them. 

Buffer stock schemes: Government price support schemes to stabilise agricultural product prices by buying excess supply during plentiful harvests and selling during low supply periods.

Budget deficit: Occurs when current government spending exceeds tax revenue in a given year, resulting in borrowing.

Bull: A bull is an investor who expects the price of an asset or assets in general to rise.

Built-in obsolescence: A policy of deliberately planning or designing a product with a finite lifespan, so it will become obsolete or non-functional after a certain period. Planned obsolescence is often used to tempt the customer to purchase again. Cars, computers, smartphones and software are examples of products with built-in obsolescence.

Business confidence: Business confidence refers to the level of optimism or pessimism among businesses, which plays a crucial role in their decision-making regarding investment projects. When confidence is high, planned investments are more likely to increase.

Business cycle: The business cycle, also known as the trade or economic cycle, represents the recurring pattern of ups and downs in actual GDP (Gross Domestic Product). It leads to periods of economic booms and slumps, with recession and recovery as intermediate stages.

Bust: A bust is a sudden economic contraction, also known as a recession.

Buyer's justification: The cognitive process or rationalisation through which a consumer convinces themselves of the value or necessity of a purchase. It involves the internal reasoning or external validation used by a buyer to justify their decision to make a particular purchase.

Buyer's remorse: The feeling of regret or dissatisfaction experienced by a consumer after making a purchase. It often occurs when the buyer perceives the purchased item as less valuable or necessary than originally thought, leading to feelings of disappointment or remorse.

C.

Capital: A word that serves a lot of purposes in economics. It is used to refer to the investment that an entrepreneur puts into a new project or business (hence capitalism); to any lump sum that has been saved; and more broadly to the people and institutions who invest in the world’s financial markets. It can also refer to a bank’s equity capital.

Capital accumulation: The process of increasing the stock of capital inputs, involving positive net investment to grow the capital stock.

Capital deepening: The process of increasing the amount of physical or human capital per unit of labor in an economy, typically through investments in machinery, technology, or education. Capital deepening increases the ratio of capital to labour.

Capital flight: This is what happens when investors try to avoid high taxes, or the prospect of currency devaluation, by sending their money abroad. Governments try to prevent such flight by imposing capital controls but they need to act quickly. Investors will anticipate the introduction of capital controls by indulging in capital flight.

Capital gains tax: This is a tax levied when investors sell assets for more than the purchase price.

Capital goods: Goods like machinery and factories used to produce other goods and services.

Capital investment: Spending by companies on fixed capital goods and working capital, such as new equipment, buildings, and stocks of finished goods.

Capital widening: The expansion of the overall stock of capital in an economy without a proportional increase in capital per worker. Unlike capital deepening, capital widening focuses on increasing the total quantity of capital rather than improving the capital-to-labor ratio. Capital widening maintains the ratio of capital to labour.

Capitalism: This is a term coined to describe the use of private capital to finance economic activity. Investors and entrepreneurs use their money to create businesses, hiring workers, renting property and buying equipment as needed. Any surplus, or profit, belongs to the entrepreneur or investors. Communism is seen as the obverse of capitalism, as all economic activity is controlled by the state.

Capitalist economy: An economic system driven by market-determined prices, privately owned productive resources, and minimal state intervention.

Carbon neutrality: Achieving a balance between greenhouse gas emissions and removal or offsetting measures, promoting sustainability.

Carbon pricing: Placing a monetary value on carbon emissions to incentivise emission reduction through carbon taxes or cap-and-trade systems.

Carbon tax: A tax levied on carbon emissions. The aim is to penalise heavy emitters and encourage alternative approaches that do not contribute to global warming.

Cartel: A group of firms engaging in price-fixing to maximise joint profits in a market, e.g. OPEC.

Central banks: Institutions controlling the money supply and setting short-term interest rates, with many being independent from the government.

Ceteris paribus: An assumption in economics that all other factors remain constant when analysing the relationship between two variables.

Chicago school: A school of thought that emerged from the University of Chicago and was associated with belief in the free market, monetarism, and that people are rational, and act in their self-interest. Its leading exponents include Gary Becker, Ronald Coase and Milton Friedman. The school gained influence in the 1970s, as conservative politicians adopted its nostrums and the Keynesian post-war consensus broke down.

Choices: In economics, due to scarcity, individuals, businesses, and governments must make daily choices. Making a choice involves a trade-off, where selecting more of one thing means sacrificing something else, as resources are limited while wants are unlimited.

Circular economy: The circular economy is an economic model that aims to minimise waste and maximise resource utilisation by promoting continuous reuse, repair, and recycling of products and materials. This approach helps reduce the consumption of finite resources and lessen the environmental impact of production and consumption.

Circular flow of income: The circular flow of income is a diagrammatic representation of economic activity within a given time period. It identifies the main sectors in the economy (households, firms, financial institutions, government, and overseas trade) and shows the linkages between sectors through factors such as wages, government spending, and interest payments.

Classical economics: This was the dominant school of thought in the late 18th and 19th centuries, as developed by Adam Smith and David Ricardo. It largely focused on the self-correcting nature of economies if left alone by governments and thus argued for a laissez faire approach and, thanks in part to the theory of comparative advantage, developed by Ricardo, a belief in free trade.

Climate resilience: Climate resilience refers to the ability of communities, systems, and infrastructure to withstand and recover from the impacts of climate change. Resilience strategies include building infrastructure capable of withstanding extreme weather events, developing early warning systems, and implementing adaptive measures to reduce vulnerability to climate-related risks.

Collateral: Any item pledged as security against a loan. An obvious example is a house, which your parents used as collateral when taking out a mortgage.

Collusion: Collusion occurs when suppliers in a market reach an explicit or implicit agreement to avoid competition. Producers may control market supply through collusion and fix prices instead of engaging in competitive practices, aiming to reduce uncertainty and achieve joint profits similar to a pure monopolist.

Commercial banks: These are banks that focus on taking in money in the form of deposits and lending it out to individuals and businesses. Examples in Ireland include Bank of Ireland and Permanent TSB.

Commodity: A raw material, such as oil or copper, that is usually traded in bulk. Changes in commodity prices can have significant economic effects by, for example, feeding through into consumer prices. A sharp rise in energy prices can adversely affect consumer demand; because consumers have to spend more on energy, they have less to spend elsewhere.

Common Agricultural Policy (CAP): The Common Agricultural Policy is a contentious aspect of the European Union, providing farm support. Some economists view the CAP as inefficient and in need of fundamental reform, while others argue it has increased the efficiency of the European farm system and achieved many of its original objectives.

Communism: A system, devised by Karl Marx, in which the state controls virtually all economic activity. Private property is outlawed and income inequality is reduced.

Comparative advantage: Comparative advantage exists when a country can produce a good or service at a lower opportunity cost than other countries. The Theory of Comparative Advantage ( David Ricardo) suggests that a country should specialise in producing goods where it has a comparative advantage and trade for other goods it needs.

Competitive advertising: Competitive advertising refers to the promotional efforts by firms to highlight and differentiate their products or services from those of their rivals in the same industry. It often involves emphasising unique features, quality, or price advantages to attract customers away from competitors.

Competitive market: A competitive market is characterised by multiple firms with no dominant position, and consumers have plenty of choices when buying goods or services. Few barriers to entry allow new businesses to enter the market if they believe they can earn sufficient profits.

Competitive supply: Goods in competitive supply represent alternative products a firm could produce using its resources. For example, a farmer can choose to plant either potatoes or carrots, and an electronics factory can produce either smartphones or home-security systems.

Complementary goods: Complementary goods are products that are in joint demand, where the demand for one product is related to the demand for another. Examples include fish and chips, golf clubs and golf balls.

Composite demand: Composite demand occurs when goods or services have multiple uses, leading to an increase in demand for one product leading to a fall in the supply of another. For example, milk can be used to produce cheese, yoghurts, cream, butter, and other products.

Composite Price Index (CPI): A Composite Price Index is compiled using a base year, selecting goods to be included, determining the price of goods in the base year, and calculating a simple index for each good with appropriate weighting.

Conflict minerals: Conflict minerals are minerals mined in conditions of armed conflict and human rights abuses, notably in the eastern provinces of the Democratic Republic of the Congo (DRC) and neighbouring countries. These minerals include cobalt, tantalum, tungsten, tin, and gold, which are used in various consumer electronic products.

Conglomerate: A conglomerate is a large company that has diversified across a range of countries and business areas, normally through making acquisitions.

Consumer surplus: Consumer surplus represents the difference between the total amount consumers are willing to pay for a product (indicated by the demand curve) and the actual amount they pay (market price).

Consumer confidence: Consumer confidence affects major spending decisions and depends on individuals' confidence in their financial circumstances and the overall health of the economy. Fluctuations in consumer confidence can be influenced by various factors, and the underlying trend is important.

Consumer prices index: The CPI is a measure of the cost of a “typical” assortment of goods and services, used to calculate the rate of inflation. Statisticians first calculate the composition of the basket of goods and services bought by the average consumer: e.g. bread, petrol and electrical goods. They then compare the cost of those goods in one period with that in another, weighting the goods and services to reflect the amount the average consumer spends. The change in this consumer prices index over the period of a year is the inflation rate.

Consumer spending: Consumer spending includes consumers' expenditure on goods and services, such as durable goods (e.g., washing machines, vehicles) and non-durable goods like food and beverages.

Consumption: Consumption refers to the use of goods and services by households to satisfy their wants and needs.

Contagion effect: A contagion effect refers to the spread of economic disturbances or shocks from one region, market, or sector to others, often causing a domino effect of negative outcomes. This phenomenon typically occurs due to interconnectedness and interdependencies within the global economy.

Contestable market: A contestable market is one with no entry barriers, allowing firms to enter or exit the industry easily. The threat of potential entry encourages imperfectly competitive firms to set prices and output close to competitive levels.

Corporate Social Responsibility: Corporate Social Responsibility involves businesses considering their economic, social, and environmental impacts, challenging the assumption that businesses are solely profit-driven.

Corporation tax: Corporation tax is paid on profits, and changes in its rate or investment tax allowances can impact incentives for investment.

Cost-benefit analysis: Cost-benefit analysis (CBA) offers a systematic framework for measuring and evaluating the likely impact of public sector projects, considering private and external costs and benefits over the project's entire life.

Costs: Costs represent the expenses incurred by businesses when producing goods or services for the market. In the short run, firms face fixed and variable costs.

Cost-push inflation: Cost-push inflation is caused by increases in production costs, such as wages, import prices, or indirect taxation. Firms raise prices to maintain profit margins, leading to a contraction of real output and a rise in the general price level.

Counter-cyclical economics: In a recession governments tend to pursue conservative economic policies which can make the situation worse. Counter-cyclical economics advocates increased credit creation during a recession, or lowering of taxes when growth slows.

Coupon: This is the term given to the interest rate on a bond, which stems from a time when physical coupons were attached to bond certificates. On a fixed-rate bond, the coupon does not change but the price of the bond does; the yield of the bond is determined by the relationship between the coupon and the price, plus any capital gain or loss that would result in holding the bond until it matures.

Cross-price elasticity of demand: Cross-price elasticity measures the responsiveness of demand for one good following a change in the price of another related good, helping distinguish between substitute products and complementary goods.

Currency manipulation: The deliberate and systematic effort by a country's government or central bank to artificially influence the value of its currency relative to other currencies, typically to gain a competitive advantage in international trade.

Crawling peg: This is an exchange-rate system in which a currency is tied to another, but can fluctuate within a range, or band, depending on certain conditions. See also currency peg and fixed exchange rate.

Creative destruction: Developed by Joseph Schumpeter, this concept explains economic innovation. Old inefficient companies must go out of business to release capital and workers so they can be used in new, more innovative ways.

Credit: Credit refers to the extension of loans to individuals, companies or organisations. The term is also used more generally to refer to the total amount of debt in an economy.

Credit creation: The ability to create credit is determined by factors such as the availability of creditworthy customers, ECB guidelines, demand for loans, and the availability of cash deposits.

Credit crunch: This occurs when there is a sudden reduction in the willingness of banks and others to lend money. We (Ireland) experienced a credit crunch following the banking collapse in 2008.

Credit default swap: A derivative contract between two parties in which one insures the other against the default of a bond or loan.

Credit expansion: This is an increase in the willingness of banks to lend money and normally happens in the course of an economic boom.

Crony capitalism: Crony capitalism involves businesses looking out for their own interests by awarding contracts only to family and friends, potentially leading to economic inefficiency.

Cryptocurrency: Cryptocurrency, sometimes called crypto-currency or crypto, is any form of currency that exists digitally or virtually and uses cryptography to secure transactions. Cryptocurrencies don't have a central issuing or regulating authority, instead using a decentralised system to record transactions and issue new units.

Currency peg: This is a system in which a national currency is fixed in relation to another currency (usually the US$).

Cyclical unemployment: Cyclical unemployment results directly from economic cycles of expansion and recession. Unemployment tends to rise during recessions and decrease during economic upturns.

D.

Debasement: In economics, debasement refers to the practice of reducing the intrinsic value of money, particularly coins, by altering its composition, typically by lowering the content of precious metal (gold or silver) while maintaining the same nominal value. Historically, this was often done by monarchs or governments to increase the money supply, fund expenditures, or reduce debt without explicitly admitting to inflation or currency devaluation.

Debt Deflation: A situation where the general price levels in an economy fall (deflation) while the real value of debt rises. This occurs because the debt is usually fixed in nominal terms, so as prices decrease, the burden of debt becomes heavier relative to income or asset values. This can lead to a negative feedback loop where people pay down debts instead of spending, further reducing demand and prices, potentially leading to economic contraction. This was a serious problem during the Great Depression.

Default: When a borrower fails to repay a debt.

Deflation: Negative inflation resulting in falling prices and an increase in the value of money.

De-industrialisation: Long-term decline in the manufacturing sector's importance in an economy.

Demand: The quantity of a good or service consumers are willing and able to buy at a given price and time.

Demand curve: Illustrates the relationship between the price of a product and the quantity demanded, showing how demand changes with price.

Demand management: Government attempts to influence the level and growth of aggregate demand to impact national income, employment, inflation, and trade balance.

Demand pricing: Also referred to as dynamic pricing, surge pricing, or time-based pricing, and variable pricing is a revenue management pricing strategy in which businesses set flexible prices for products or services based on current market demands. It usually entails raising prices during periods of peak demand and lowering prices during periods of low demand. Popular pubs engage in surge pricing when they charge more for drinks as the night progresses

Demand-pull inflation: Inflation caused by excessive aggregate demand exceeding the economy's supply capacity.

De-merit goods: Products like alcohol and cigarettes, believed to have negative externalities and undesirable effects on society.

Demographics: Characteristics of a population, such as size or composition by age.

Dependency ratio: The proportion of the population that is not of working age, compared with that which could work, if it chose to. Dependants are usually defined as those aged up to 16 or over 65.

Depression: A prolonged period of negative economic growth, typically lasting six consecutive quarters.

De-regulation: Opening up markets to competition by reducing regulations, aiming to increase supply, and expand consumer choices.

Derivatives: These are financial assets whose value “derives” from something else, such as a stock market index or a commodity price. Examples include futures, options and swaps. Derivatives are often used to insure against a sudden change in the value of a key variable, such as a sharp rise in the oil price.

Derived demand: The demand for a product linked to the demand for a related product; for example, the demand for coal is linked to the demand for energy generation.

Devaluation: This is a formal reduction in the value of a currency. 

Developed countries: A term used for nations where incomes per person are high, relative to the global average.

Developing countries: A term used to describe countries where income per person is lower than in “developed nations”. 

Diamond-Water Paradox: The diamond-water paradox, also known as the paradox of thrift, highlights the seemingly contradictory situation where items with less practical use (such as diamonds) command a higher price in the market compared to essential items for survival (such as water). This paradox was famously articulated by economist Adam Smith, questioning the apparent mismatch between value in use (water, essential for life) and value in exchange (diamonds, non-essential but desirable luxury goods).

Diminishing returns: Diminishing Returns is based on the fact that factors of production are not perfect substitutes for each other. When resources are used to produce one type of product, they may not be as efficient when switched to the production of another good or service.

Direct taxation: Direct taxation involves levies on income, wealth, and profit. It includes income tax, national insurance contributions, capital gains tax, and corporation tax.

Discount rate: This is the rate the European Central Bank charges for lending to commercial banks, and upon which all other rates are based.

Diseconomies of scale: When a business expands beyond a certain size, average costs per unit may start to increase. This phenomenon is known as diseconomies of scale, mainly arising due to management problems as a firm grows larger.

Discouraged workers: Discouraged workers are individuals who leave the active labour force, often because they have been structurally unemployed for a long time and have lost motivation to actively search for jobs. The tax and benefit system may create disincentives for them to search for and take jobs.

Discretionary fiscal policy: Discretionary fiscal policy refers to deliberate changes in direct and indirect taxation and government spending, such as increasing capital spending on road building or allocating more resources to the healthcare system.

Disinflation: A situation where prices across the economy are rising, but more slowly than before—e.g. a fall in the annual inflation rate from 10% to 5%. This should not be confused with deflation (see above).

Disintermediation: Cutting out the middleman, or connecting customers directly with producers, which in theory should reduce costs.

Disposable income: Disposable income measures the income available for households to spend and is essential for analysing factors that influence consumer spending and saving. It is calculated as household income minus personal taxation plus transfer payments.

Diversification: The practice of spreading one’s interests widely. In investment, diversification is considered best practice: a big pension fund will own shares in a wide range of companies, across many nations, and will own bonds and property as well. 

Dividend: A regular payment made by a company to its shareholders. The payment comes from a company’s profits.

Division of labour: Division of labour involves the specialisation of functions and roles in producing separate parts of a product. It is closely connected to standardised production, the use of machinery, and the development of large-scale industry. Mass-production techniques increase total production compared to if each worker made the complete product.

Donut effect: The donut effect refers to the phenomenon where economic activity and population density shift from the core of a city (the "hole" of the donut) to the surrounding suburban areas (the "ring" of the donut). The donut effect is often associated with factors such as rising housing costs in city centers, improved transportation networks, and changing preferences for larger living spaces.

Dumping: Dumping refers to a situation where a country floods a foreign market with cheap goods to put indigenous suppliers out of business. This can create challenges for local industries and trade relationships.

Duopoly: Duopoly is an economic market structure characterised by the dominance of two interconnected firms or entities that exert substantial control over the production, pricing, and distribution of a particular good or service within a specific industry.

Dynamic pricing: Also referred to as surge pricing, demand pricing, or time-based pricing, and variable pricing is a revenue management pricing strategy in which businesses set flexible prices for products or services based on current market demands. It usually entails raising prices during periods of peak demand and lowering prices during periods of low demand. Popular pubs engage in dynamic pricing when they charge more for drinks as the night progresses.

E.

Econometrics: The use of statistical analysis to quantify economic relationships.

Economic boom: An economic boom occurs when the real national output is growing at a rate faster than the estimated trend rate of growth. This leads to expanding national output, increased employment, and high aggregate demand. Businesses take advantage of the boom to raise their output and profit margins by increasing prices for consumers.

Economic development: Economic development refers to the increase in income and living standards in a country, accompanied by changes in the structure of society. It can be encouraged through foreign aid programs, restructuring foreign debt, attracting multinational corporations, and promoting peace and stability.

Economic growth: Economic growth is the long-term expansion of the economy's productive potential. It leads to higher living standards and increased employment. Short-term growth is measured by the annual percentage change in real national output (real GDP).

Economic recession: A recession is a period when the level of real national output falls (negative growth), leading to a contraction in employment, incomes, and profits. It marks a low point in the economy, and a recovery is expected after this trough.

Economic recovery: An economic recovery occurs when real national output picks up from the low point reached during a recession. The pace of recovery depends on the rise in aggregate demand and the extent to which producers increase output and rebuild stock levels in anticipation of increased demand.

Economic rent: Economic rent refers to any payment made to a factor of production above its supply price.

Economic slowdown: A slowdown happens when the rate of economic growth decelerates, but national output is still rising. If the economy continues to grow without falling into a recession, it is known as a soft landing.

Economies of scale: Economies of scale are significant for many businesses, especially those competing in international markets. They lead to lower average costs for producers and lower market prices for consumers, ultimately improving economic welfare.

Effective demand: Effective demand in economics means that consumers' desire to buy a product is backed up by their ability to pay for it. It ensures that the demand is real and not just based on preferences.

Elasticity: A measure of the responsiveness of one variable to changes in another. For example, if a good rises in price by 10%, then demand could fall by less than 10% (price inelasticity) or more than 10% (price elasticity). Essential goods like food and fuel tend to be price inelastic.

Endogenous growth: Endogenous growth pertains to economic growth primarily generated from within the economic system (country) through internal mechanisms, such as innovation, human capital accumulation, research and development, and technological progress.

Entrepreneur: An entrepreneur is an individual who supplies products to the market for a profit. They take risks by investing their own financial capital in a business and are essential for economic growth.

Equilibrium: Equilibrium in economics refers to a state of balance where there is no tendency for change.

Equi-Marginal Principle: Also called the Law of Equi Marginal Returns states that if a t (usually a house) and the outstanding mortgage owed on that asset wants to receive maximum satisfaction he must spend his income in such a way that the ratio of MU to price is the same for all goods he buys.

Equity: This term has various meanings depending on the country. In Ireland it refers to the difference between the value of your asset e.g. a house, and the outstanding mortgage owed on that asset.

Euro Zone: The Euro Zone includes the countries that use the European Single Currency, known as the Euro.

European Central Bank: The European Central Bank (a.k.a. the ECB) sets a common official interest rate for Euro Zone countries to maintain the purchasing power of the Euro.

Excess capacity: Excess capacity refers to the situation where a producer can decrease average cost by increasing output, making production more efficient.

Exchange rate: The exchange rate measures the value of one currency in terms of another, showing how much of another currency can be bought with a certain amount.

Exchange rate index: The exchange rate index is a weighted index that shows the value of a currency against a basket of international currencies.

Exchange value: This is the quantitative aspect of a commodity, representing how much one good can be traded for another in the market. It's essentially the value of a product in terms of how much of another commodity or money it can be exchanged for. Exchange value is determined by supply and demand in the market and reflects the social aspect of value where commodities are compared with each other. For instance, if one loaf of bread can be traded for two apples, then the exchange value of the bread in terms of apples is two. Read also use value below.

Exogenous growth: Exogenous growth refers to economic growth primarily driven by external factors or forces that are independent of the economic system's internal mechanisms. These external factors could include technological advancements, changes in government policies, or external shocks such as natural disasters or international events.

Expectations: Expectations of consumers and businesses can significantly impact planned expenditure in the economy, influencing aggregate demand.

Explicit Costs: These are tangible, out-of-pocket expenses incurred by a firm in conducting its business activities. Explicit costs involve actual cash payments and can be easily identified and quantified. Examples include wages, rent, utilities, and the cost of raw materials.

Exports: Exports are goods and services sold overseas, adding to the demand for domestically produced output.

External costs: External costs are costs borne by a third party for which no compensation is provided. Identifying and valuing external costs is crucial for addressing environmental impacts.

External economies of scale: External economies of scale arise from the growing size of an industry, leading to lower average costs and benefits for firms.

Externalities: Externalities are third-party effects resulting from the production and consumption of goods and services, affecting economic agents not directly involved in the process. They can be positive or negative.

F.

Factor immobility: Factor immobility occurs when a factor cannot easily switch between different sectors of the economy.

Factors of production: The ingredients necessary for economic activity: land, labour, capital and entrepreneurship, which is needed to bring the other three elements together.

Fair trade: Fair trade argues that consumers should not simply focus on the cost of the goods they buy but on the working conditions and wages of the workers that supply them. Various schemes offer to certify that a product (such as coffee) has been made in a fair-trade fashion.

Fast fashion: Fast fashion refers to the rapid production and delivery of inexpensive clothing collections that mimic current fashion trends. This business model prioritises quick turnover and low prices, often at the expense of ethical and sustainable practices in manufacturing. Fast fashion brands typically mass-produce garments, frequently updating their inventory to reflect the latest styles, encouraging consumers to purchase frequently and discard items after limited use.

Fiat currency: A currency declared to be legal tender in a country by a government. Such a currency is not backed by gold or another asset; the government simply issues an order (or fiat) that it is legal tender, and can insist it be used to pay taxes. Almost all countries have fiat currencies, and they achieve widespread acceptance as a medium of exchange because of their convenience.

Fifteen-Minute Cities: The concept of a 15-minute city aims to create neighborhoods where residents can access most of their daily needs within a 15-minute walk or bike ride from their homes, promoting sustainable, localised living.

Financial economies: Small firms may face higher interest rates and difficulty raising money compared to larger firms due to perceived higher risk.

Finite resources: Resources on Earth are finite and limited, and the continuous production for a growing population poses challenges for long-term sustainability.

Firm: A firm is an organisation that uses resources to create goods and services.

Fiscal drag: Fiscal drag is an economic term whereby inflation or income growth moves taxpayers into higher tax brackets. The increase in taxes reduces aggregate demand and consumer spending from taxpayers as a larger share of their income now goes to taxes, which leads to deflationary policies, or drag, on the economy.

Fiscal expansion: Fiscal expansion involves the government increasing its spending to boost aggregate demand.

Fiscal policy: Fiscal policy uses government spending, taxation, and borrowing to influence economic activity and aggregate demand and supply.

Fiscal rectitude: Fiscal rectitude involves a commitment to maintaining fiscal discipline, typically characterised by practices aimed at balancing budgets, reducing deficits, controlling public spending, and managing government debt within sustainable limits.

Fiscal stimulus: Fiscal stimulus refers to government spending or tax cuts that are designed to boost economic activity and stimulate demand in the economy. The goal of fiscal stimulus is to increase employment, wages, and consumption, which can help to reduce the negative effects of a recession or sluggish economic growth.

Fixed costs: Fixed costs do not vary with the level of output and include expenses like rent and depreciation.

Fixed exchange rate: In a fixed exchange rate system, the central bank intervenes to keep the exchange rate close to a target value.

Floating exchange rate: In a floating exchange rate system, the value of the currency is determined by market forces without central bank intervention.

Flotation: The term used when a company lists its shares on a stock market for the first time. This is also known as an initial public offering, or IPO.

FOMO: The Fear of Missing Out is an anxiety that an exciting or interesting event may currently be happening elsewhere, often aroused by posts seen on social media.

Four freedoms: The European single market allows the free movement of goods, capital, services, and people among member states.

Foreign Direct Investment (FDI): FDI involves investing directly in production in another country, such as buying a company or establishing new operations.

Foreign exchange market: The foreign exchange market is where currencies are traded globally.

Foreign exchange reserves: Assets, normally held by a central bank, that can be used in a financial crisis or to influence the country’s exchange rate. Central banks tend to hold their reserves in major currencies like the dollar or euro, as well as gold. 

Framing: In behavioural economics, the idea that how a proposition is framed can affect the reaction of individuals. So expressing the cost of an annual subscription at €72 a year will attract fewer customers than describing it as €6 a month.

Franchises: Franchises and licenses give a firm the right to operate in a market, subject to renewal every few years.

Free goods: Free goods are not scarce and have no opportunity cost.

Free market economy: In a free market economy, markets work with minimal government intervention, allowing supply and demand to set prices and allocate resources.

Free rider problem: Free rider problem occurs when consumers benefit from a public good without contributing to its cost, e.g. a public park.

Free trade: Free trade involves few barriers to international trade, allowing resources to be allocated without import controls, taxes or tariffs.

Free trade area: A free trade area is a region which has eliminated tariffs, quotas and other controls on imports and exports. The best-known examples are the European Union and NAFTA (now the USMCA).

Frictional unemployment: Frictional unemployment occurs due to job turnover in the labour market and the time taken to find new employment.

Full employment: Full employment occurs when there is no cyclical unemployment, but some frictional and structural unemployment may still exist. Typically an unemployment rate of 3.6% indicates full employment.

Futures market: A futures market allows trading of contracts for the future delivery of commodities like grain, livestock, and precious metals.

G.

Game theory: In game theory, a dominant strategy delivers the best results for a player regardless of others' actions.

General Government Spending: General government spending includes state-provided goods and services, excluding transfer payments like welfare benefits.

Geographical immobility: Geographical immobility occurs when barriers prevent people from moving between areas to find work in a different area of thier country.

Giffen goods: A Giffen good refers to a good that people consume more as the price rises. Therefore, a Giffen good shows an upward-sloping demand curve and violates the fundamental law of demand. All Giffen goods are inferior goods, but not all inferior goods are Giffen goods. There are no Giffen goods in the developed world. For a good to be a Giffen good, it must be an inferior good, a necessity, and typically require around 60% of a person's income, e.g. rice in Malawi would be a Giffen good.

Gig economy: The gig economy refers to a labour market characterised by short-term, freelance, or temporary work arrangements, often facilitated by digital platforms or apps, e.g. Uber. In the gig economy, individuals typically work as independent contractors or freelancers, taking on tasks or projects on a flexible basis rather than being employed full-time by a single employer.

Gilts: An old term used to describe bonds issued by the government. At one stage, the debt certificates had a gilt edge so the term “gilt-edged” came to refer to the quality of the government’s credit, i.e. investors could be assured of repayment.

Gini coefficient: The Gini coefficient measures income distribution, with 0 indicating perfect equality and 1 representing total inequality.

Globalisation: Globalisation refers to increased worldwide integration and interdependence of economies through trade and transnational firms.

Gold standard: A monetary system where a country backs its currency with a reserve of gold.

Government bonds: Debt issued by governments.

Government failure: Government failure occurs when well-intentioned policies lead to unintended negative outcomes.

Government paternalism: Government paternalism involves the imposition of government preferences on consumers, sometimes referred to as the nanny state.

Great Depression: The era in the 1930s when economic output and volumes of international trade collapsed. The depression was a challenge to classical economics which held that market forces would eventually bring the economy back to growth and eventually led to the adoption of Keynesian economics after the second world war.

Green bonds: Green bonds raise capital for environmentally friendly and sustainable projects and may be purchased through the bond market.

Greenwashing: Greenwashing happens when a company makes an environmental claim about something it's doing that is intended to promote a sense of environmental impact that, at best is misleading, and at worst, doesn't exist. The green claim is typically about some form of positive effect on the environment.

Gresham’s Law: The idea that bad money drives out good. Suppose that some coins in circulation are pure gold, and others are only 90% metal but both have the same par value (e.g. a euro or a pound). Traders will keep the pure coins for themselves and hand over the debased coinage. Eventually only the debased coins will be in circulation.

Gross capital investment: Gross capital investment accounts for capital depreciation and leads to an expansion of productive capacity.

Gross Domestic Product: GDP measures the value of output produced within a country's boundaries irrespective of whether the economic agents are indigenous or foreign.

Gross National Income: GNI is essentially GNP, but also includes extra income earned overseas like interest on savings accounts or pensions earned from a time spent working abroad.

Gross National Disposable Income: Gross National Disposable Income (GNDI) measures the income available to the nation for final consumption and saving.

Gross National Product at Factor Cost: GNP at factor cost includes GNP at Market Prices plus subsidies and minus indirect taxes.

H.

Hard currency: A hard currency is a stable and trusted currency that maintains its value against other, weaker currencies, making it preferable for international transactions. Examples include the US dollar and the Swiss franc.

Harmonised Index of Consumer Prices (HICP): In the euro area, the Harmonised Index of Consumer Prices (HICP) is used to measure consumer price inflation. That means the change over time in the prices of consumer goods and services purchased by euro area households. It is “harmonised” because all the countries in the European Union follow the same methodology. This ensures that the data for one country can be compared with the data for another. The HICP is compiled by Eurostat and the national statistical institutes in accordance with harmonised statistical methods. The inflation rate is also used in assessing whether a country is ready to join the euro area.

Health rationing: Health rationing occurs when the demand for healthcare services exceeds available resources, leading to waiting lists and treatment delays. Rationing can take various forms, such as prioritising patients based on clinical need or ability to pay in private sector markets.

Hedge funds: Investment vehicles that attract money from institutions (such as endowments and pension funds) and from wealthy individuals. They follow a wide range of strategies, often using leverage and going short (betting on falling prices).

Helicopter money: Helicopter money refers to central banks creating cash and distributing it directly to the public to stimulate economic activity in times of criris like the financial collapse in 2008.

Hidden economy: Also known as the shadow economy or the black economy, it encompasses unrecorded economic activities that are not taxed or included in official GDP figures.

Horizontal integration: Horizontal integration occurs when two firms at the same stage of production in one industry merge or one takes over the other.

Horizontal equity: Horizontal equity requires treating equals equally, meaning individuals in the same income group should be taxed at the same rate.

House price inflation: House price inflation refers to the annual percentage change in house prices, often measured by organisations like Daft.ie. 

Household Savings Ratio: The household savings ratio is the level of savings as a percentage of disposable income. A decrease in this ratio may be influenced by high consumer borrowing due to rising house prices.

Housing Assistance Payment (HAP) Scheme: HAP is a form of social housing support provided by all local authorities in Ireland. Under HAP, local authorities can provide housing assistance to households with a long-term housing need, including many long-term rent supplement recipients.

Human capital: Human capital refers to the accumulated skills, knowledge, and expertise possessed by the labour force, which contributes to the production process and long-term economic growth.

Human development index (HDI): The HDI, published by the United Nations, is a composite measure of human development that considers indicators like income, life expectancy, and education.

Human resource management (HRM): Human resource management involves enhancing procedures related to recruitment, training, promotion, retention, and support of employees, especially when skilled workers are in short supply.

Hybrid working: A term that emerged during the pandemic to describe employees who work part of the time in the office and part of the time at home. 

Hyperinflation: Hyperinflation is an extremely rare and severe form of inflation, causing money to become worthless, leading to a loss of confidence in it as a store of value and a medium of exchange. Examples include historical cases in Germany, Argentina, Brazil, Georgia, and Turkey.

I.

Impact of taxation: The impact of taxation refers to the individuals or entities on whom taxes are levied. For example, if the government imposes a 10% carbon tax on coal, the impact of this tax is on the coal merchants. On the other hand, the incidence of tax refers to the party that ultimately ends up paying tax, most likely the customer.

Imperfect information: Imperfect information in the context of economics refers to the situation where consumers and producers do not have complete and accurate information about the availability of goods, services, and their prices in the market. In perfectly competitive markets, it is assumed that all participants have perfect information, but in reality, people often lack complete and accurate data, leading to potential misallocation of resources and making "wrong" choices.

Implicit Costs: Implicit costs are non-monetary opportunity costs that arise from using resources for a particular purpose instead of their next best alternative. For example, the implicit cost of using a firm's own capital in the business is the potential return that could have been earned elsewhere.

Import penetration: Import penetration is a measure of the percentage of domestic demand in a particular market or industry that is met by goods or services imported from foreign suppliers. For instance, if a significant portion of coal used in energy generation comes from overseas suppliers, the import penetration of coal is high.

Import quota: An import quota is a physical restriction imposed by the government on the quantity of a good that can be imported into a country. It sets a limit on the maximum amount of a specific product that can enter the domestic market from foreign sources.

Imports: Imports refer to the goods and services that are purchased from foreign countries and brought into the domestic economy. They represent a withdrawal of demand from the circular flow of income and spending as money flows out of the economy to pay for the imported goods and services.

Incentives: Incentives play a crucial role in microeconomics, markets, and market failures. They refer to the factors that influence economic agents (consumers and producers) to respond to price signals in the market. Government interventions, such as subsidies and taxation, can alter incentives, leading to changes in consumer and producer behavior.

Incidence of taxation: The incidence of taxation pertains to the party that ultimately bears the burden of a tax. It can be different from the individual or entity on whom the tax is initially imposed (the impact of taxation). For example, if the government levies a tax on a product, the burden may be shifted to the consumers, and they become the ones who actually pay the tax.

Income: Income represents the flow of earnings derived from using factors of production to produce goods and services. It includes wages, salaries, profits, and other forms of earnings received by individuals and businesses.

Income effect: Income effect refers to the changes in the real purchasing power of consumers as a result of changes in their income. When the average price level falls, a given amount of money income can purchase more goods and services, leading to increased demand for normal goods but decreased demand for inferior goods.

Income elasticity of demand: Income elasticity of demand (YED) measures the responsiveness of the quantity demanded of a good or service to changes in consumers' real income. It is calculated as the percentage change in quantity demanded divided by the percentage change in income.

Income-in-kind: This is a non-monetary payment for work done in lieu of cash payments, e.g. a company car. See Benefit-in-kind above.

Indexation: This term is most commonly used to describe the linking of a variable (e.g. old age pensions) to the inflation rate. 

Indirect tax: An indirect tax is a tax imposed by the government on producers or suppliers of goods and services. Examples include excise duties on cigarettes, alcohol, and value-added tax (VAT). The burden of an indirect tax can be shifted to consumers through higher prices, depending on the price elasticity of demand and supply.

Inequality: A measurable difference in quantity, status, or opportunities between individuals or groups, often in areas like income, education, or access to resources.

Inequity: An unfair or unjust distribution of resources, opportunities, or treatment, often rooted in systemic biases or discrimination.

Infant industry: A young industry that a government nurtures with protection from foreign competition, in the form of tariffs, subsidies and other barriers. This is usually associated with developing economies, like Ireland after independence, hoping to kickstart industrialisation and accelerate economic growth.

Inferior goods: Inferior goods are products for which demand decreases as consumers' income rises. They are usually cheaper, lower-quality substitutes for other goods. Examples include own-brand foods and clothing. As consumers' income increases, they tend to switch to more preferred alternatives, reducing the demand for inferior goods.

Infinite wants: In economics, human needs and wants are considered to be infinite, as people always desire better goods and services, improved living standards, and new products. However, the resources available to fulfill these infinite wants are limited, leading to the need for resource allocation and trade-offs in production and consumption decisions.

Inflation: Inflation refers to a sustained increase in the general price level of goods and services in an economy over time. It results in the erosion of purchasing power and a decrease in the value of money.

Inflation rate: The inflation rate is the percentage change in the general price level, usually measured by a price index, over a specific period, typically a year. For example, a 2% inflation rate indicates that prices have, on average, risen by 2% over the past year.

Inflation target: The inflation target is a specific rate of inflation set by the government or central bank as a goal for price stability. For example, a target inflation rate of 2% means that policymakers aim to keep the general price level increasing at an annual rate of 2%.

Informal economy: The informal economy refers to economic activities that are not officially recognised, monitored, or regulated by the government. These activities often occur in the shadow or underground economy, and participants may not report their earnings or pay taxes.

Inheritance taxes: These are levies on the assets of those who die.

Insider trading: This involves the use of non-public information to gain an advantage in financial markets. It is illegal because it discriminates against other investors and can cause confidence in the probity of financial markets to fall.

Institutional investors: A catch-all term to describe some of the major investors in the financial markets: insurance companies, pension funds, sovereign wealth funds, charitable endowments and the like.

Intellectual property (IP): This refers to creations of the mind, such as inventions, literary and artistic works, designs, symbols, names, and images used in commerce. It's protected by law through patents, copyrights, trademarks, and trade secrets, enabling creators or owners to earn recognition or financial benefit from their creations.

Interdependence: Interdependence refers to the mutual reliance and influence that firms have on each other in oligopolistic markets. In these markets, firms' actions and decisions are affected by the actions of their competitors, leading to strategic interactions and the need to consider the reactions of rivals.

Interest rate transmission mechanism: The interest rate transmission mechanism describes the complex process through which changes in interest rates set by the central bank impact various aspects of the economy, such as aggregate demand, national output, employment, and inflation. The effects of interest rate changes may take time to fully materialise.

Interest elasticity of demand: Interest elasticity of demand measures the responsiveness of the demand for a good or service to changes in interest rates. Some goods, particularly those bought on credit, may have a relatively high interest elasticity of demand, meaning that demand is sensitive to changes in interest rates.

Internal expansion: Internal expansion refers to a firm's growth and increase in sales by expanding its operations within its existing structure. It may involve exploiting economies of scale and efficiency gains. The alternative growth strategy is external expansion through mergers and takeovers.

International Monetary Fund (IMF): The IMF is an international organisation established in 1944 to supervise the fixed exchange rate system and provide financial assistance and policy advice to member countries. It plays a role in addressing currency crises and supporting economic stability worldwide.

Invisible hand: The invisible hand, as described by Adam Smith, represents the self-regulating nature of a competitive market economy. In a free-market system, individuals pursuing their own self-interest inadvertently contribute to the overall economic well-being, as if guided by an invisible hand.

Insurable risk: An insurable risk is a type of risk that meets specific criteria for insurance coverage. These criteria include having a definite time and place for the insured loss, being accidental, having an insurable interest, and being predictable and calculable.

Interest rates: Interest rates refer to the cost of borrowing or the return on saving money. Different interest rates, such as savings rates and borrowing rates, can vary based on economic conditions and the policies of the central bank.

Irish Fiscal Advisory Council (IFAC): This is an independent statutory body whose purpose is to provide an independent assessment of official budgetary forecasts and proposed fiscal policy.

Iron Law of Wages: The Iron Law of Wages, proposed by Thomas Malthus, posits that if wages rise above the subsistence level, population growth will increase, leading to a subsequent decline in wages back to subsistence levels, restoring the equilibrium.

J.

Joint demand: Joint demand occurs when the demand for one good or service is related to the demand for another. These goods are often complementary, meaning that they are used together. The demand for printers and printer ink is an example of joint demand.

Joint supply: Joint supply describes a situation where the production of one good leads to the simultaneous production of another good. For instance, an increase in beef production may result in a rise in the supply of beef hides as well.

JOMO: The Joy of Missing Out is a pleasure derived from living in a quiet or independent way without feeling anxious that one is missing out on exciting or interesting events that may be happening elsewhere.

Junk bonds: Bonds that are deemed to be highly risky where the borrower might stop paying interest or default on repayment altogether. For many years Argentinian government bonds were described as junk.

Just-in-time manufacturing: A process that aims to keep down costs and reduce waste by producing items only when ordered.

Just transition: The concept of a just transition advocates for a fair and equitable shift to a low-carbon economy. It emphasises the protection of workers and communities affected by the transition away from fossil fuels, ensuring they have access to alternative livelihoods and social support during the process.

K.

Keynesian Consumption Theory: The Keynesian Consumption Theory, developed by John Maynard Keynes, focuses on the importance of people's disposable income in determining their spending behaviour. As real income increases, people tend to spend more, giving rise to the concept of the marginal propensity to consume.

Keynesian economics: John Maynard Keynes, a British academic and government official, changed the field of economics. Under classical economics, governments did little to manage the economic cycle, which they believed would right itself. But Keynes argued, in the face of the Great Depression, that a recession could dent the “animal spirits” of businesspeople and discourage consumers from spending. Governments, rather than balance their budgets, could borrow to spend money and this spending would revive demand. After 1945, many governments adopted a Keynesian approach and used fiscal policy to manage the economic cycle.

Knowledge-based industries: Knowledge-based industries primarily involve service-oriented businesses, such as communication, finance, and personal services. They also encompass high-tech manufacturing, like pharmaceuticals and computer hardware.

L.

Labour market incentives: Labour market incentives, such as income tax cuts and welfare benefit reforms, aim to encourage people to seek work and improve labour productivity. The goal is to create incentives for individuals to engage in productive activities.

Labour theory of value: This idea, developed by Adam Smith and championed by Karl Marx, that the value of a good depends on the labour put into it. The problem is that the value of a good is also dependent on demand; someone might put an enormous amount of effort into building a toy crane from Lego, but it will have little market value if no one wants to buy it.

Laffer Curve: An economic theory illustrating the relationship between tax rates and tax revenue, suggesting that there is an optimal tax rate that maximises revenue. At a 0% tax rate, revenue is zero; as the rate increases, so does revenue, but only up to a certain point. Beyond this point, further increases in tax rates can lead to a decrease in revenue due to decreased economic activity or increased tax evasion.

Lagged effect: The time taken for any economic policy changes to affect the economy. Changes in interest rates, for example, can take as much as 18 months to have their full impact, as rates may only change when loan terms are renegotiated. The problem is that, by the time the policy starts to work, economic circumstances have changed.

Laissez Faire: Laissez-faire is an economic philosophy advocating minimal government intervention in economic affairs, allowing free markets to operate with little interference, except when necessary.

Land: In economics, land refers to the natural resources available for production, such as land itself, the environment, the sea, minerals, and other resources. Some nations specialise in industries related to their abundant natural resources.

Latent demand: Latent demand exists when there is a willingness to purchase a good or service, but consumers lack the real purchasing power to afford the product. It can be influenced by persuasive advertising that aims to shape consumer tastes and preferences.

Law of demand: The law of demand states that there is an inverse relationship between the price of a good and the quantity demanded. As prices fall, consumers tend to demand more of the good, and vice versa.

Lender of last resort: A crucial role played by central banks, like the ECB, during financial crises, e.g. the 2008 banking sector collapse. There can be moments when depositors and creditors lose faith in the banking system, with the risk that the banks will collapse. By acting as lender of last resort a central bank can reduce the economic damage.

Leverage: Investing, or speculating, with borrowed money or by putting down only a small part of the purchase price. For example, a company may buy another using a small amount of its own cash, and a larger amount of debt in the form of bank loans or bonds; the greater the proportion of debt, the higher the leverage. Also known as gearing.

Liberalisation: In economic terms, this usually refers to reducing the role of the government, and the restrictions on the private sector, by privatising business and cutting regulations.

Limit pricing: This concept is similar to price fixing, where suppliers set the market price so low that it discourages new firms from entering he market.

Limited liability: This means that investors who own the equity of a company can only lose their initial stake if the business collapses.

Liquidity: The quality of being easily turned into cash. 

Liquidity trap: A liquidity trap occurs when interest rates are very low, close to zero, and monetary policy becomes ineffective in stimulating economic activity. People prefer to hold cash rather than invest or spend, leading to stagnant economic conditions.

Liquidity Ratio: Also known as the reserve requirement or required reserve ratio, the liquidity ratio is a bank regulation that sets the minimum reserves banks must hold against customer deposits and notes. These reserves are meant to satisfy withdrawal demands.

Liquidity Preference Theory: The liquidity preference theory (Keynes) refers to the motives for holding money in cash (liquid) form. These motives are precautionary, speculative and transactionary.

Live register: The Live Register provides a monthly count of individuals registering for various government entitlements, such as Jobseekers Benefit or Jobseeker's Allowance, at local offices of the Department of Social Protection, and as such is considered a measure of unemployment.

Living wage: This is the income level that is deemed sufficient to meet an individual or family's basic needs, including housing, food, healthcare, transportation, and other essential expenses, without the need for government assistance or relying on additional sources of income. Unlike the minimum wage, which is often set by government regulations and may not adequately cover living expenses in certain regions, a living wage is typically calculated based on the cost of living in a specific area. It aims to ensure that workers earn enough to maintain a decent standard of living and participate fully in society, and is often advocated for by labour rights organisations and social justice advocates.

Long run: In economics, the long run is a period of time in which all factors of production can be adjusted. Firms can change their scale of production, and if they experience economies of scale, their long-run average total cost decreases.

Long run aggregate supply: Long run aggregate supply (LRAS) represents the total planned output when both prices and average wage rates can change. It reflects a country's potential output and is connected to the concept of the production possibility frontier.

Loss aversion: A psychological trait, discussed in behavioural economics, that dislikes the acceptance of losses. Investors may hold on to losing positions, rather than sell them, because they are unwilling to recognise their mistake.

M.

M1 (narrow money): M1, also known as narrow money, includes physical currency (notes and coins) in circulation and banks' operational balances at the central bank. While M0 mostly consists of notes and coins used for transactions, changes in M0 have limited impact on overall national output and inflation, making it more of a coincident indicator for consumer spending and retail sales.

M3 (broad money): M3, or broad money, encompasses deposits held with banks and building societies, as well as money created through lending in the form of loans and overdrafts. It is calculated as M1 plus sight (current accounts) and time deposits (savings accounts). When a bank extends a loan to a customer, both bank liabilities and assets increase, leading to a rise in the money supply.

Macroeconomics: The analysis of how the overall economy works; how the decisions of consumers, business, investors and governments affect key measures such as inflation, unemployment and gross domestic product. Economists try to use macroeconomic analysis to forecast economic indicators but human behaviour is hard to predict, especially as forecasts can affect individual decisions. But macroeconomic policy tools include fiscal policy, monetary policy and changes in laws and regulations designed to change behaviour. 

Macroeconomic equilibrium: Macroeconomic equilibrium occurs when aggregate demand (AD) intersects with short-run aggregate supply (SRAS). At this point, the economy's output and the general price level will adjust towards equilibrium. If the price level is above the equilibrium, excess supply of output occurs, prompting producers to reduce production to avoid excessive inventories. Conversely, if the price level is below equilibrium, excess demand leads to inventory depletion, signaling producers to increase output.

Macroeconomic objectives: The main macroeconomic objectives pursued by governments are achieving low and stable inflation, low unemployment, sustained economic growth, maintaining a satisfactory balance of payments, and ensuring a reasonable distribution of income.

Managerial economies: Large manufacturers can achieve managerial economies by employing specialised staff to supervise production, reducing managerial costs per unit. Greater control over the workforce can raise labour productivity. Furthermore, large firms can use advanced administrative equipment, such as networked computer systems, for effective communication and cost reduction.

Marginal cost: Marginal cost represents the change in total costs resulting from an increase in output by one unit. It is applicable to variable costs only, as fixed costs do not change with the level of production in the short run.

Marginal cost-plus pricing: This is a pricing method where the selling price of a product is determined by adding a predetermined margin or markup to the variable costs of production.

Marginal efficiency of capital: The MEC is the net rate of return that is expected from the purchase of additional capital. It is calculated as the profit that a firm is expected to earn considering the cost of inputs and the depreciation of capital.

Marginal product: Marginal product (MP) is the change in total output resulting from adding one extra unit of labour.

Marginal propensity to consume: The marginal propensity to consume (MPC) represents the proportion of each extra pound of income that consumers spend. For example, if the MPC is 0.8, consumers spend 80c of every extra euro received.

Marginal propensity to import: The marginal propensity to import indicates the proportion of each extra pound spent by consumers that is directed towards imports. As consumers' real incomes rise, their spending increases, leading to higher demand for imports. This may result in a trade deficit if the corresponding increase in exports is insufficient.

Marginal propensity to save: The marginal propensity to save (MPS) is the change in saving divided by the change in income. It is an important component of the calculation used to determine the national income multiplier.

Marginal utility: Marginal utility refers to the change in total satisfaction resulting from consuming one more unit of a good. The law of diminishing marginal utility posits that as consumption increases, the additional satisfaction derived from each unit declines.

Market demand: Market demand represents the sum of individual demands for a product from all consumers in the market. An increase in the number of buyers entering the market leads to a rise in demand at each price level.

Market dominance: Market dominance occurs when a firm acquires significant market power, enabling it to influence or control the terms and conditions of goods or services bought and sold. Monopolies are one example of market dominance, where a single seller dominates a market or industry.

Market economy: A market economy encourages risk-taking, investment, and provides funds for expansion. It promotes self-interest and entrepreneurship through the profit motive, leading to optimal resource allocation.

Market equilibrium: Market equilibrium is established when the quantity demanded by consumers equals the quantity supplied by producers at a specific price level. In a market without shifts in demand or supply, there will be no change in price. Disequilibrium occurs when demand and supply are not balanced, leading to price adjustments.

Market failure: Market failure arises when free markets, without government intervention, fail to allocate resources efficiently, resulting in suboptimal economic and social welfare. This can occur due to externalities, public goods, information asymmetry, or the existence of market power. Market failure can be complete (no market exists) or partial (there is a mismatch between supply and demand).

Market power: Market power refers to a firm's ability to influence or control the terms of exchange in a market. Monopolies, for example, have significant market power as they are the sole sellers in their respective markets.

Market structure: Market structure characterises the degree of competition in a market based on the number of suppliers seeking consumer demand. It ranges from competitive markets with many sellers to monopolistic markets with only one seller dominating the market.

Market supply: Market supply is the total quantity of a product that producers are willing and able to sell at different prices over a given period, typically a month. In the context of an industry, the market supply curve is the horizontal summation of all individual firms' supply curves.

Marketable pollution permits: Marketable pollution permits grant firms the right to emit a specific quantity of pollution within a set time frame. The permits are allocated by regulators to limit pollution to an optimal level, and they can be bought and sold in the market.

Marketing economies: Large-scale manufacturers can achieve marketing economies by purchasing raw materials and inputs in bulk, negotiating lower prices. Additionally, large firms can spread advertising and marketing costs over a larger output and employ specialised sales and marketing personnel.

Maximum price: A maximum price is a legally imposed ceiling on the market price that suppliers cannot exceed. It is set below the free market price and aims to prevent prices from rising above a certain level, particularly during times of shortages.

Means-tested benefits: Means-tested benefits are welfare benefits provided to those with the lowest incomes and greatest need. The government uses means testing to target help to households on low incomes. However, means-tested benefits may create a poverty trap if high benefit withdrawal rates discourage individuals from seeking work.

Mercantilism: An economic school of thought, common in the 17th and 18th centuries, which argued that countries should focus on building up their supplies of gold and silver. This required nations to restrict imports and attempt to boost exports, and to restrict free trade. Mercantilists believed trade was a zero-sum game.

Mergers: Mergers occur when two businesses combine their operations and become one single company. It can take various forms, such as horizontal and vertical integration.

Merit goods: Merit goods are goods and services that society deems essential and believes everyone should have, regardless of individual preferences. They are often subsidised or provided free at the point of use because their consumption generates positive externalities, e.g. healthcare, education.

Microeconomics: Microeconomics focuses on the study of individual firms, industries, consumers, and households. It examines how prices are determined in markets, individual incomes, and the effects of government intervention on the prices and quantities of goods and services.

Milgram experiments: This was a series of social psychology experiments conducted by Yale University psychologist Stanley Milgram, who intended to measure the willingness of study participants to obey an authority figure who instructed them to perform acts conflicting with their personal conscience.

Minimum price: A minimum price is a legally imposed price floor set above the equilibrium price. It prevents the market price from falling below a certain level. For example, minimum wage legislation sets a floor for wages to protect workers' incomes.

Minimum wage: Minimum wage refers to the lowest legal wage that an employer can pay to their employees for their labour, as mandated by government regulations. It is intended to provide workers with a baseline level of income to support themselves and their families, and to prevent exploitative labour practices.

Mixed economy: A mixed economy combines elements of both a market economy and a centrally planned economy. While it allows for market forces to allocate resources, it also involves government intervention to provide public goods and correct market failures.

Modern monetary theory (MMT): A school of economic thought which argues that a government, which can borrow in its own currency, can issue as much debt, and run as large a deficit, as it likes, subject only to the constraint of higher inflation. The government does not have to worry about financing its deficit, since the central bank can buy the extra debt, or indeed just create the required money. Only if the economy is at full capacity will this credit creation lead to inflation. 

Modified Domestic Demand (MDD): Modified domestic demand is a measure that captures three things: 1) spending by Irish consumers, 2) government spending on goods and services, and 3) modified investment.

Modified Gross National Income: Modified Gross National Income is an indicator used to measure the economic performance of a country or region. Modified GNI is derived from Gross National Income (GNI) by incorporating certain adjustments to account for specific factors that can significantly affect a nation's economic well-being. The formula for Modified GNI is as follows: Modified GNI = GNI + (Net primary income from abroad) - (Net primary income to abroad) + (Net secondary income).

Monetarism: The belief that changes in the money supply are the main determinant of changes in inflation, associated especially with Milton Friedman of the Chicago School of Economics.

Monetary policy: Monetary policy involves using changes in interest rates to influence aggregate demand. Central banks, such as the European Central Bank (ECB), adjust interest rates to control consumer and investment spending.

Monetary policy asymmetry: Monetary policy asymmetry occurs when changes in interest rates affect different industries and regions of an economy unequally. Some sectors may be more sensitive to interest rate changes, leading to uneven effects on the economy.

Money: Money refers to any asset widely accepted as a medium of exchange for transactions of goods and services.

Monopoly: A monopoly occurs when a single seller, known as a pure monopolist, dominates a market or industry, holding a 100% market share. In a broader sense, monopolies may refer to firms with a large market share, exceeding 25% of total industry sales.

Monopsony: A monopsony refers to a market situation where there is only one buyer, giving that buyer significant power to influence prices and terms of purchases.

Moral hazard: There is a risk in economics that by doing something morally good for an individual you run the risk of negative behaviour by the masses. For instance, a bank may cancel the debt of a recently widowed woman with three children, but this could quickly lead to widespread mortgage defaults.

Mortgage arrears: When the holder of a mortgage begins to miss repayments they fall into arrears. This may result in repossession by the bank, and a downgrade of their credit rating.

Mortgage equity withdrawal: Mortgage equity withdrawal allows homeowners to borrow against the value of their homes for purposes other than investing in property. It refers to the amount withdrawn from the accumulated equity, which can contribute to increased spending.

Most-favoured-nation clause: The most-favoured-nation clause applies to countries outside existing trading blocs. It ensures that a country is not charged customs duties higher than those applied to the most-favoured-nation with which the trading bloc conducts business.

Multiplier effect: The multiplier effect describes how an initial change in aggregate demand can lead to a larger impact on equilibrium national income than the initial injection.

N.

National debt: National debt is the accumulated government debt resulting from government borrowing during periods of budget deficit. If the government achieves a budget surplus, it may be possible to repay some of the national debt.

Nationalisation: The takeover by the state of private businesses. 

Natural increase: This refers to the excess births over deaths in a country’s population.

National income: National income refers to the monetary value of economic activity in a country over a specific time period.

National Asset Management Agency (NAMA): The National Asset Management Agency (NAMA) is a body created by the government of Ireland in late 2009 in response to the Irish financial crisis and the deflation of the Irish property bubble. NAMA functions as a bad bank, acquiring property development loans from Irish banks in return for government bonds, with a view to improving the availability of credit in the Irish economy.

National Treasury Management Agency (NTMA): The Irish National Treasury Management Agency (NTMA) is responsible for managing the government's borrowing and debt, as well as advising on financial matters related to the government. It manages various financial aspects, including national debt and the sale of government bonds.

Natural rate of unemployment: The natural rate of unemployment represents the rate of unemployment present at full employment, where cyclical unemployment is absent, and only frictional and structural unemployment occur.

Natural monopoly: A natural monopoly is a market structure where a single firm can produce goods or services at a lower cost than multiple competing firms due to significant economies of scale, making it more efficient for one provider to dominate the market. Examples include utilities like water and electricity.

Natural wastage: Natural wastage in a business context, refers to the process of attrition or reduction in the size of a workforce due to factors such as retirement, resignation, or death, rather than through deliberate layoffs or redundancies. Natural wastage allows organisations to adjust their staffing levels over time without the need for involuntary terminations, and is often considered a more gradual and less disruptive way of managing workforce changes.

Nature-based solutions: Nature-based solutions involve using natural ecosystems to address environmental and climate challenges. These solutions include activities like afforestation, reforestation, and wetland restoration, which sequester carbon, enhance biodiversity, and provide ecosystem services.

Needs and wants: In economics, needs and wants refer to different types of desires and necessities. Economic focus centers on how material needs and wants are satisfied through the consumption of goods and services.

Negative equity: This arises when a borrower buys a property and the price falls sharply, so that the size of the loan is greater than the value of the property. Negative equity was a serious problem for Irish property owners who purchased their home prior to the market collapse in 2008.

Negative externalities: Negative externalities occur when production or consumption imposes external costs on third parties not involved in the market exchange.

Negative interest rates: Negative rates mean that investors are in effect charged for lending, or depositing, their money. They emerged in the wake of the 2007-09 financial crisis, as central banks tried to improve the flow of credit.

Neoclassical economics: A school of thought, associated with Alfred Marshall, an English economist, that developed in the late 19th and early 20th centuries. Rather than focus on the cost of production as the most important element in determining the price of a good or service (as did the classical school), neoclassical economists focused on the preferences of consumers, and the utility they attach to the product. The focus on both producers and consumers in maximising utility allowed the neoclassicists to build models of how the economy works.

Neoliberalism: term, often used by opponents, applied to the economic reforms pursued by Margaret Thatcher and Ronald Reagan in the 1980s. Essentially, the reforms included lower taxes, constraints on public spending, privatisation and deregulation. 

Net exports: Net exports (X-M) represent the net effect of international trade on aggregate demand. A positive value indicates a trade surplus, while a negative value indicates a trade deficit.

Net Factor Income from Abroad (NFIA): NFIA refers to the net flow of income to and from the rest of the world, (from foreign companies based in Ireland and Irish companies working abroad), i.e. GDP +/- NFIA = GNP.

Net investment: Net investment is calculated as gross investment minus depreciation.

Net migration: This is the difference between emigration from a country and immigration into a country.

Net National Product at Factor Cost: Net National Product at Factor Cost is calculated as Gross National Product (GNP) at Factor Cost minus depreciation.

Net secondary income: Net secondary income refers to transfers in the balance of payments related to goods, services, income, or financial items provided or received by an economy.

New paradigm: The new paradigm is an economic view that improvements in the supply-side performance of the economy can alter traditional trade-offs between macroeconomic objectives. It believes that technology advancements and efficiency gains can lead to sustained economic growth and employment without excessive inflation.

New classical economics: New classical economics emphasises the importance of competitive markets to improve economic welfare. It advocates limited government intervention and allows markets to function efficiently.

Nighttime economy: The nighttime economy refers to the range of economic activities that occur primarily during the evening and nighttime hours, typically between 6pm and 6am. This includes sectors such as hospitality (restaurants, bars, and nightclubs), entertainment (theaters, cinemas, live music venues), retail (late-night shopping), transportation (taxis, ride-sharing services), and public services (security, healthcare). The nighttime economy is significant in many urban areas, contributing to job creation, tourism, and local economic growth, while also posing challenges related to public safety, noise, and regulation.

NIMBY: Not-In-My-Back-Yard. This term characterises the opposition by residents to proposed developments or infrastructure projects in their local area, often due to concerns about the impact on their neighbourhood.

Nominal wages: This refers to the actual number, e.g. €450 per week, as opposed to real which refers to the purchasing power of wages.

Nominal interest rate: The official rate of interest, taking no account of inflation. A nominal return of 5% might sound good, but if inflation is 8%, then the purchasing value of the saver’s money is declining (by about 3%). Real interest rates adjust for actual, or expected, inflation.

Non-diminishability: In reference to public goods, non-diminishability means that one person benefiting from a good does not reduce the benefits available to others.

Non-excludability: Non-excludability, in the context of public goods, refers to the difficulty of preventing people from using a good, even if they have not contributed through taxation.

Non-government organisation (NGO): A non-governmental organisation (NGO) is an organisation that generally is formed independent from the government. They are typically nonprofit entities, and many of them are active in humanitarianism or the social sciences; they can also include clubs and associations that provide services to their members and others. 

Non-rivalry: Non-rivalry, concerning public goods, means that one person benefiting from a good does not diminish the benefits available to others. Also referred to as non-rivalrous consumption.

Normal goods: Normal goods have a positive income elasticity of demand, meaning that as consumers' income increases, demand for these goods also rises. Normal necessities have an income elasticity of demand between 0 and +1, while normal luxuries have an income elasticity of demand greater than +1.

Normative statements: Normative statements express opinions about what should be. They are subjective and carry value judgments, focusing on what policymakers or individuals believe ought to happen.

North American Free Trade Agreement (NAFTA): A deal signed in 1993 by America, Canada and Mexico to eliminate tariff barriers between the three countries by creating a free trade area. The agreement was disliked by many on both the left and the right of American politics and President Donald Trump renegotiated it during his term of office, renaming it the US-Mexico-Canada Agreement (USMCA). The main change was that a greater proportion of a car or truck’s components had to be manufactured in America to qualify for tariff exemption.

O.

Objectives: Objectives refer to the goals set by the government for its policies, while instruments are the tools used to achieve these goals. Targets are intermediate aims closely related to the final objective.

Occupational immobility: Occupational immobility occurs when factors of production, such as labour and capital, face barriers preventing their movement between different sectors of the economy. This can lead to unemployment or inefficient use of these resources.

Offshore haven: A jurisdiction which imposes little or no tax on transactions or profits and thus is chosen by financial and multinational companies as a hub for some of their activities. Wealthy individuals also hold money offshore, to reduce their tax liability.

Oligopoly: An oligopoly is a market dominated by a few large suppliers, where a small number of firms control a significant portion of total market sales.

Open economy: An open economy is one where a substantial portion of goods and services produced is involved in trade with other countries. It includes both imports and exports and is often characterised by high competition in international markets.

Opportunity cost: Opportunity cost is the concept that even when a good or service is obtained for free, there is an implicit cost involved—the value of the next best alternative that could have been produced using those resources.

Organic growth: Organic growth refers to a company's expansion and increased market share achieved through internal means, such as expanding operations and benefiting from economies of scale.

Organisation for Economic Co-operation and Development (OECD): The OECD was created in 1961 and has acted as a club for developed nations, compiling reports on individual economies and serving as a hub for research on policy options and economic data.

Organisation of Petroleum Exporting Countries (OPEC): OPEC is a producers’ cartel which attempts to influence both the supply and the price of oil. It was most effective in the 1970s, quadrupling the oil price and contributing to the stagflation of the era. Its influence waned after that era as new producers like Norway emerged and America developed its shale oil reserves.

Ostentatious consumption: Ostentatious consumption involves the purchase of luxury or veblen goods to showcase status and wealth, often driven by the desire to flaunt one's wealth to others.

Output gap: The output gap represents the difference between the actual level of national output and its potential level, indicating the economy's underutilisation of resources.

Output quotas: Output quotas occur when producers deliberately limit their supply to reduce market supply, aiming to raise prices.

Overheating: If an economy is growing too fast, companies may face bottlenecks in acquiring resources or hiring labour. This will lead to higher costs and wages, and thus rising inflation.

P.

Paradox of aggregation: The paradox of aggregation refers to the idea that while certain economic principles or behaviours may hold true at the individual level, they may not necessarily hold true when aggregated across a larger group or population. In other words, what is rational or effective for one individual may not be rational or effective when applied to the collective, e.g. if you stand up to get a better view of a football match, then the person standing behind you must do the same until everyone in the stadium is standing, yet no one has any better view of the game, and no one is sitting on the seat they paid for.

Paradox of choice: The paradox of choice suggests that while having more choices seems desirable, excessive options can overwhelm individuals, making it harder to make a decision and often resulting in less satisfaction with the chosen outcome.

Paradox of thrift: The paradox of thrift is an economic concept that posits an inverse relationship between individual savings and overall economic growth, particularly in times of recession or economic downturn. It suggests that while increased saving by individuals might be prudent on a personal level, if everyone saves more and reduces spending simultaneously, it can lead to decreased aggregate demand, thereby exacerbating economic downturns.

Paradox of value (Diamond-Water Paradox): The paradox of value, also known as the diamond-water paradox, highlights the seemingly contradictory situation where items with less practical use (such as diamonds) command a higher price in the market compared to essential items for survival (such as water). This paradox was famously articulated by economist Adam Smith, questioning the apparent mismatch between value in use (water, essential for life) and value in exchange (diamonds, non-essential but desirable luxury goods).

Pareto efficiency: Pareto efficiency occurs when resources are allocated in a way that no one can be made better off without making someone else worse off.

Participation rate: The participation rate measures the percentage of the working-age population actively engaged in the workforce, either employed or seeking employment.

Passive income: Passive income refers to earnings derived from sources that require minimal effort or active involvement once they have been established. This income is generated from assets or investments that continue to generate returns over time with little ongoing effort from the individual. Examples of passive income sources include rental properties, dividends from stocks, interest from savings accounts or bonds, royalties from intellectual property, and income generated from automated business systems.

Patents: Patents are government-enforced property rights that grant exclusive control over products, inventions, or processes, generally valid for a specific period.

Pent-up demand: Pent-up demand refers to a strong resurgence in consumer spending following a period of reduced spending, often observed after economic downturns or periods of restraint. This phenomenon was particularly evident in the United States after the Second World War.

Per capita income: Per capita income represents the average income per person in a country, calculated by dividing the total income by the population.

Perfect competition: A model that describes a market where there are numerous buyers and sellers, freedom of entry into the industry, and perfect knowledge of profit levels.

Petro-state: A petro-state is a country whose economy is heavily dependent on the extraction and export of oil or natural gas. These countries often have concentrated political and economic power, with wealth and influence typically held by a small elite

Philantro-capitalism: The practice of applying business principles and market-based approaches to philanthropic endeavours. It emphasises strategic investments, measurable outcomes, and leveraging the power of markets to address social and environmental challenges. Philantro-capitalists often seek to create sustainable solutions to societal problems while maximising the efficiency and effectiveness of their philanthropic efforts.

Pink tax: The pink tax refers to the phenomenon where products marketed towards women are priced higher than similar products marketed towards men, even though the products themselves may be nearly identical. This pricing disparity is often seen across various consumer goods and services, leading to women paying more for everyday items solely because they are marketed towards them.

Policy trade-offs: Policy trade-offs refer to the situations where achieving one economic objective may require sacrificing another due to conflicting policy goals.

Pollution permits: Pollution permits are tradable certificates given to companies that limit pollution, enabling them to sell their surplus permits to other businesses.

Pollution taxes: Pollution taxes are taxes imposed on polluting activities to internalise the external costs of pollution and discourage excessive pollution.

Positive externalities: Positive externalities occur when third parties benefit from the production or consumption of goods or services, leading to positive spillover effects.

Positive statements: Positive statements in economics are objective, testable statements that can be supported or rejected based on available evidence.

Potential output: Potential output represents the maximum level of production an economy can achieve in a given period using available resources and technology.

Poverty trap: The poverty trap refers to a situation where people on low incomes face disincentives to work more or earn higher wages due to high taxes and reductions in benefits.

Precautionary motive: Holding a proportion of assets in cash, so that the individual can bear the cost of an unexpected event. Keynes suggested there were three reasons to hang on to cash: the other two are the speculative motive and the transactions motive.

Predatory pricing: Firms may employ predatory pricing strategies by lowering prices to a level that forces new entrants to operate at a loss. An example is the high-profile case where News International was found guilty of using predatory pricing to reduce competition in the market for broadsheet newspapers.

Price constancy: Price constancy describes a situation where prices remain relatively stable over time despite changes in underlying economic conditions. While both price rigidity and price constancy entail stable prices in oligopoly, price rigidity often arises due to factors like fear of retaliation or brand image concerns, whereas price constancy may involve explicit collusion or tacit understandings among firms to keep prices unchanged for strategic reasons.

Price discrimination: Price discrimination occurs when goods or services are sold at different prices to different consumers or markets. There are three degrees of price discrimination, first, second and third.

Price elasticity of demand: Price elasticity of demand measures how sensitive the quantity demanded of a good or service is to changes in its own price.

Price elasticity of supply: Price elasticity of supply measures how responsive the quantity supplied of a good or service is to changes in its price.

Price fixing: Where firms (usually secretly) agree to charge customers a certain price. New firms are not free to set their own prices and decide to opt out of the market.

Price limit: The highest and lowest prices that a commodity or option is allowed to reach in a given trading session. Once reached, trading ceases until the following session. Also known as fluctuation limit or daily trading limit.

Price mechanism: The price mechanism refers to the forces of supply and demand in a market that determine the prices and quantities of goods and services exchanged.

Price psychology: Price psychology refers to the study of how consumers perceive and respond to prices, including factors such as pricing strategies, perceived value, emotional triggers, and cognitive biases that influence purchasing decisions. It is the reason my prices end in .99, e.g. €2.99 instead of €3.00.

Price rigidity: While both price rigidity and price constancy entail stable prices in oligopoly, price rigidity often arises due to factors like fear of retaliation or brand image concerns, whereas price constancy may involve explicit collusion or tacit understandings among firms to keep prices unchanged for strategic reasons.

Price stability: Price stability is a situation where the general price level experiences minimal changes, providing a stable environment for economic decision-making.

Price walking: Price walking refers to a strategy used by businesses to gradually increase the prices of their products or services over time. Instead of implementing significant price hikes all at once, companies employ small, incremental increases periodically. This approach allows businesses to mitigate customer resistance and minimise the risk of losing customers due to sudden price jumps.

Primary sector: The primary sector involves the extraction of natural resources, such as agriculture, forestry, fishing, quarrying, and mining.

Private sector: Those economic activities that are not controlled by the government, ranging from a plumber to giant corporations.

Privatisation: Privatisation involves the transfer of former state-owned businesses to the private sector, such as Telecom Eireann, Aer Lingus, and ACC Bank (sold to Rabobank). The aim is to break up state monopolies and foster more competition.

Privatising Profits and Socialising Losses: Privatising profits and socialising losses refers to the practice of treating company earnings as the rightful property of shareholders and company losses as a responsibility that society must shoulder. In other words, the profitability of corporations is strictly for the benefit of their shareholders. But when the companies fail, the fallout—the losses and recovery—is the responsibility of the general public.

Producer subsidy: Subsidies are payments by the government to suppliers that reduce their costs and encourage increased output. They lead to an increase in supply and a reduction in the market equilibrium price.

Producer surplus: Producer surplus is the difference between the price producers are willing to supply a good for, and the price they actually receive. It is depicted as the area above the supply curve and below the market price.

Product markets: Product markets encompass the trading of various commodities, such as airline travel, new cars, pharmaceutical products, and financial services like banking and occupational pensions.

Production: Production involves using scarce resources in nearly all cases. It ranges from primary industries extracting basic resources to manufacturing, construction (secondary industries), and the service sector (tertiary and quaternary industries).

Production possibility frontier (PPF): A production possibility frontier (PPF) represents combinations of goods and services that can be produced efficiently using available resources. A PPF is concave to the origin due to the principle of diminishing returns.

Productive efficiency: Productive efficiency occurs when a business in a market reaches the lowest point of its average cost curve, producing output at the minimum cost per unit and using resources efficiently.

Productivity: Productivity refers to how productive labour and other inputs into production are. Companies can increase productivity by investing in new capital machinery or adopting technological advancements.

Progressive taxation: Progressive taxation means the marginal tax rate rises as income increases. This leads to a higher average tax rate, as more income is subject to higher tax rates.

Proportional taxation: Proportional taxation maintains a constant marginal tax rate across all income levels. For example, an income tax system with a flat rate of 25% is proportional.

Property rights: Property rights confer legal control or ownership of goods. Clearly defined and protected property rights are essential for efficient market operations.

Protectionism: A policy that attempts to promote companies based in the home country and discriminate against those from abroad. This can be done via taxes or tariffs or via regulations that exclude or reduce imports. Protectionism is often politically popular because it appears to safeguard workers’ jobs, and many companies will lobby politicians to exclude foreign competitors.

Public bads: Public bads, like environmental damage and global warming, affect everyone, and no one is excluded from the adverse effects of others' polluting economic activity.

Public goods: Public goods have characteristics opposite to private goods. They are non-excludable, meaning non-payers can benefit without cost, and non-rivalrous, as consumption by one does not reduce availability to others. Examples include national defence and street lighting.

Public sector: That part of the economy which is controlled by, or owned by, the government, e.g. schools, hospitals, the army.

Public spending: The amount that the government spends on any area of the economy.

Public Sector Borrowing Requirement (PSBR): The PSBR represents the financing of the Exchequer Borrowing Requirement and borrowing by Semi-State bodies and Local Authorities.

Purchasing-power parity theory: Purchasing-power parity theory states that exchange rates between currencies are in equilibrium when their domestic purchasing powers at that rate are equivalent. It suggests that a bundle of goods should cost the same in different countries once exchange rates are factored in.

Q.

Quantitative easing (QE): This is a monetary policy action where a central bank purchases predetermined amounts of government bonds or other financial assets in order to stimulate economic activity.

Quantitative tightening (QT): This does the opposite of QE, where for monetary policy reasons, a central bank sells off some portion of its holdings of government bonds or other financial assets.

Quantity theory of money: A tenet of monetarism which holds that the money supply is the main driver of inflation. 

Quasi-public goods: Quasi-public goods have some characteristics of public goods, but they are partially rivalrous or partially excludable, e.g. roads, tunnels and bridges.

Quasi rent: Quasi rent is a temporary economic rent earned by labour in the short run when individuals possess unique talents or skills.

Quaternary sector: The quaternary sector involves information processing, such as education, research and development, administration, and financial services. It is the fourth sector of the economy after primary, secondary and tertiary.

Quiet hiring: This is the practice of companies discreetly recruiting from within their own ranks without advertising the job to the general public. It can also be where companies train existing staff into new roles rather than hiring new staff. 

Quiet quitting: Quiet quitting involves employees disengaging from their work, performing the bare minimum, and often doing so without overtly expressing their dissatisfaction or intent to leave. Also called silent quitting.

Quota: A trade barrier that limits the number, or monetary value, of goods that a country imports.

Quoted company: A business which has listed its shares on a stock exchange.

R.

Ratings: Measures of the riskiness of a financial instrument, provided by a ratings agency (such as Standard & Poor’s, Moody’s and Fitch). The higher the credit rating, the lower the risk, and when applied to debt instruments, the lower the interest rate the borrower has to pay. In the aftermath of the financial crash in 2008 Ireland endured a poor credit rating. Consequently our 10Y bond yields crossed 13%.

Ratchet economy: A ratchet economy is where certain factors, such as inflation or income inequality, lead to a pattern where economic conditions worsen for some groups creating a one-directional effect resembling a ratchet mechanism.

Rational consumers: Rational consumers are assumed to make choices that maximise their welfare, seeking the best allocation of their limited budget for their standard of living.

Rationing function of prices: Prices serve as a rationing mechanism when demand exceeds supply, allowing goods to be allocated to those willing and able to pay the market price.

Raw materials: Basic commodities, e.g. oil, metals and cotton that firms need to manufacture products.

Real income: Real income measures the quantity of goods and services that a consumer can afford to buy, taking into account changes in the general price level. Also referred to as real wages in the exam. See also nominal wages (above).

Real interest rate: The real interest rate is the nominal interest rate adjusted for inflation, representing the true cost of borrowing or the true return on savings.

Recession: A recession is an economic downturn characterised by two consecutive quarters of negative economic growth.

Redomiciled PLC’s: Beginning in 2008, in reaction to proposed changes to corporate tax rate changes in the United Kingdom and the United States, a number of multinational corporations relocated their group headquarters to Ireland. As far as tax authorities were concerned, they were then domiciled in Ireland. These were mainly public limited companies whose shares trade on international stock exchanges. These are the redomiciled PLCs in Ireland. The redomiciled PLC has a permanent office here, usually with a small staff. The governing board meets here. So these head offices meet the criteria for being Irish resident. However, the board members don't usually work in Ireland and the companies conduct little or no real activity in Ireland. The functions of management and leadership and other productive activities are mainly carried out elsewhere in the world. 

Regulation: Regulation involves setting rules and standards by the government to govern the operation of specific industries or activities.

Regressive taxation: Regressive taxation is a tax system where the rate of tax falls as income rises, resulting in higher-income individuals paying a lower percentage of their income in taxes. A TV licence is an example of a regrerssive tax as a wealthy person only pays a tiny fraction of their income compared with a poor person who pays a high percentage.

Relative poverty: Relative poverty measures the extent to which a household's financial resources fall below an average income threshold for the economy, relative to others.

Remittances: Money sent by migrants back to their home country, usually to support their families. 

Rent of ability: Rent of ability refers to the economic rent earned by labour in the long run when individuals possess exceptional talents or skills for which there is significant demand.

Rent Pressure Zone (RPZ): This is a designated area where rents cannot be increased by more than general inflation, as recorded by the Harmonised Index of the Consumer Price (HICP), or by 2%, if inflation is higher. Under Housing for All, the Government’s plan for housing to 2030, the operation of RPZs has been extended until the end of 2024.

Rent-seekers: Rent-seekers are individuals, groups, or organisations that attempt to gain economic benefits through the manipulation of existing laws, regulations, or economic conditions, rather than through productive activity or innovation. Rent-seeking behaviour typically involves seeking privileges, subsidies, tariffs, or other forms of government intervention to extract wealth from others without creating any corresponding value.

Rent supplement: This is a means-tested payment for certain people living in private rented accommodation who cannot provide for the cost of their accommodation from their own resources. It is a short-term income support for people in the private rented sector.

Reserve currency: A currency held by a central bank for use in emergencies. The central bank might need reserves to defend the currency of its home nation (by selling the foreign currency and buying the domestic one). The dominant reserve currency is the American dollar (around 60% of global reserves) but the euro and Japanese yen are also used.

Research and development (R&D): Research and development spending is heaviest in those industries that require a leading edge in the development of new projects and processes, and in industries and markets where there are high level gains from acquiring patents.

Resource allocation: Resource allocation refers to the distribution and use of factors of production, such as land, labour, capital, and entrepreneurs, to produce goods and services efficiently.

Resource degradation: Resource degradation is the decline in the quality, functionality, or ecosystem services of natural resources caused by human activities, pollution, or natural processes. It harms economic sectors reliant on these resources, like agriculture, fisheries, and tourism, and demands management to sustain the environment and economy.

Resource depletion: Resource depletion is the gradual, irreversible reduction in the quantity of natural resources, like minerals, fossil fuels, forests, or water sources, due to unsustainable use. It occurs when resource consumption exceeds the natural replenishment rate, posing economic and environmental challenges.

Retail price index: The Retail Price Index (RPI) measures domestic inflation and reflects the change in the prices of goods and services bought by the majority of households in the country.

Revenue: Revenue represents the income received by firms from the sale of their products or services.

Revenue buoyancy: This is when the actual tax revenue collected during the year is greater than what had been planned for. If revenue is greater than expenditure it has a deflationary effect on the economy, which is also known as fiscal drag.

Ricardian equivalence: The idea, suggested by David Ricardo, that debt-financed expansion of the public sector will not boost demand. This is because citizens will recognise that government debt will have to be repaid in the form of future taxes, and thus they will save money to meet that future tax bill. Thus Keynesian stimulus programmes will not work.

Risk-averse: A state of caution which can lead to subdued economic activity. Businesses are unwilling to invest in new production facilities; banks are unwilling to lend; investors prefer the safety of government bonds to equities.

Risk-bearing economies: Risk-bearing economies refer to large firms that sell in various markets and have a diverse product range, reducing risks and increasing resilience to market fluctuations.

S.

Saving: Saving is the act of setting aside a portion of current disposable income to postpone consumption. It provides financial security for households and allows them to sustain their spending during periods of income volatility.

Say’s law: The idea, coined in the 19th century by Jean-Baptiste Say, a French economist, that supply creates its own demand. Say was referring to aggregate demand, rather than that for individual products. In producing a good, a business will have paid wages to workers, bought raw materials from suppliers and so on. These wages and revenues will be used to buy other products.

Scarcity: Scarcity refers to the limitation of resources, such as land, labour, capital, and enterprise, in comparison to the unlimited desire for goods and services.

Seasonal adjustment: Some economic activity varies depending on the time of the year. Retail sales surge in the run-up to Christmas, for example. Statisticians adjust economic data to take account of these variations.

Seasonal unemployment: Seasonal unemployment occurs regularly due to changes in demand for specific types of labour during certain seasons, such as construction, hospitality, and agriculture.

Secondary Sector: The secondary sector involves the production of goods, where raw materials from the primary sector are transformed into finished products, including manufacturing and construction.

Securities: A catch-all term used to describe tradable financial instruments, such as bonds and equities.

Self-sufficiency: Self-sufficiency is when individuals or communities meet their needs without producing surplus goods for trade.

Seigniorage: This is the difference between the face value of money and the cost of producing it.

Shadow banking: Shadow banking is a term used to describe bank-like activities (mainly lending) that take place outside the traditional banking sector. It is now commonly referred to internationally as non-bank financial intermediation or market-based finance. Shadow bank lending has a similar function to traditional bank lending. However, it is not regulated in the same way as traditional bank lending.

Shadow economy: The shadow economy, also called the hidden economy, comprises unrecorded economic activities that escape taxation and do not contribute to the official GDP figures.

Short run: The short run is a period during which at least one factor of production remains fixed, typically capital inputs, while variable factors like labour and raw materials are used to increase output.

Short-selling: The practice of borrowing shares, then selling them, in the hope of buying them back at a lower price and making a profit. Short-sellers tend to be unpopular, on the grounds that they prosper from bad news, and the practice tends to be banned or restricted during crises, the very times when it is most profitable.

Signaling function of prices: Prices serve as signals to producers about changes in consumer demand, prompting them to adjust output levels accordingly.

Silent quitting: Silent quitting involves employees disengaging from their work, performing the bare minimum, and often doing so without overtly expressing their dissatisfaction or intent to leave. Also called quiet quitting.

Single market: A single market, as seen in the European Union, encourages free movement of goods, services, capital, and people among member countries.

Slow fashion: This is a movement and approach to fashion design, production, and consumption that prioritises sustainability, ethical practices, and longevity over rapid trends and mass production. It encourages thoughtful and conscious purchasing decisions, focusing on quality craftsmanship, durable materials, fair labour practices, and environmental responsibility. Slow fashion advocates for transparency in the fashion supply chain, promoting the appreciation of clothing as long-term investments rather than disposable commodities. This approach emphasises the importance of timeless designs, minimal waste, and the preservation of traditional artisanal techniques.

Smith, Adam: Adam Smith was a Scottish political economist and philosopher known for his influential work The Wealth of Nations (1776), which championed free trade, capitalism, and libertarianism.

Social efficiency: Social efficiency is achieved when social marginal benefit equals social marginal cost, maximising overall social welfare. Externalities may cause market failure and reduce social welfare.

Social policy: This refers to a government's strategies, actions, and regulations aimed at addressing societal issues and promoting social welfare. These policies encompass a wide range of areas, including healthcare, education, housing, employment, and social security. The primary goal of social policy is to improve the well-being of individuals and communities, reduce inequality, and ensure that basic needs are met for all members of society.

Socialising Losses and privatising profits: Socialising losses and privatising profits refers to the practice of treating company earnings as the rightful property of shareholders and company losses as a responsibility that society must shoulder. In other words, the profitability of corporations is strictly for the benefit of their shareholders. But when the companies fail, the fallout—the losses and recovery—is the responsibility of the general public.

Socialism: Socialists believe in some forms of collective ownership but not the near-complete abolition of the private sector imposed under communism. They will attempt to redistribute wealth through taxes on the rich and welfare for the poor, but not to eliminate all income differentials.

Sovereign risk: he risk that a government will default on a bond or a loan.

Sovereign-wealth funds: Investment pools accumulated by national governments, often from the proceeds of energy wealth. Among the largest are those of China, Norway, Abu Dhabi and Kuwait. These funds give countries a chance to diversify their assets, and thus to protect themselves against an economic downturn or a decline in a key industry.

Specialisation: Specialisation occurs when individuals, regions, or countries focus on producing specific goods or services in which they have a comparative advantage for trade.

Speculative demand: Speculative demand arises when potential buyers are interested in consuming a product because they expect a rise in its market price.

Speculative motive: One of three reasons suggested by Keynes for holding cash. An investor might hope that asset prices will fall and thus hangs on to cash in the expectation of buying the assets more cheaply. 

Spread: A common term in financial markets to describe the difference between two prices or interest rates.

Stagflation: This is a combination of high inflation and high unemployment. The Phillips curve suggests this should be rare, as high unemployment is associated with a shortage of demand, and high inflation with demand outstripping supply. But it happened in the 1970s after the supply shock of the OPEC oil embargo, and has also been a threat in the wake of the Covid-19 pandemic.

Stagnation: A prolonged period of little or no economic growth.

Stakeholders: Stakeholders are groups with interests in a business's activities, such as shareholders, employees, customers, government, and local communities, each having specific objectives.

Stakeholder capitalism: The idea that businesses should serve a wider community than just their shareholders, including their workers, suppliers and society at large.

Stakeholder conflict: Stakeholder conflict arises when different stakeholders have divergent objectives, and firms must make decisions that balance these interests.

Standard of living: Standard of living refers to the average per capita real GDP, representing the quantity of goods and services available to individuals in a country.

Sticky prices: Sticky prices refers to the tendency of prices to remain constant or to adjust slowly, despite changes in the cost of producing and selling the goods or services. The concept is particularly relevant to firms in Oligopoly.

Sticky wages: The sticky wage theory is an economic concept describing how wages adjust slowly to changes in labour market conditions. Unlike other markets where prices are dictated by supply and demand, wages tend to remain above equilibrium as employees resist wage cuts. Wages can remain sticky for a variety of reasons, such as trade union pressure or employment contracts. In economic downturns such as a recession, sticky wages can result in unemployment and disequilibrium in the labour markets, and slow economic recovery efforts.

Stock exchange: A formal market where shares, or equities, are traded.

Strategic industry: An industry that a government deems to be of special importance to the economy (e.g. defence, the supply of electricity) and hence deserving of special treatment, such as tax breaks, subsidies or protection from foreign competition.

Structural unemployment: Structural unemployment occurs when there is a mismatch between the skills of the unemployed and the skills required by employers, leading to job vacancies that remain unfilled.

Subprime mortgages: Home loans made to those with poor credit ratings. In the 2000s, some of these borrowers were dubbed “ninjas” i.e. no income, no job and no assets.

Subsidy: A subsidy is a sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive.

Substitution effect: The substitution effect refers to an increase in demand for a product due to its becoming cheaper relative to other substitutes.

Substitute goods: Substitute goods are competitive replacements for one another. A rise in the price of one substitute leads consumers to switch to the cheaper alternative.

Substitution in production: Substitution in production occurs when producers switch to producing one good instead of another in response to changes in relative prices.

Supply: Supply is the quantity of a good or service that producers are willing and able to offer for sale in the market at various price levels.

Supply curve: The supply curve illustrates the relationship between the price of a good and the quantity supplied by producers.

Supply price: The supply price of a factor of production is the minimum payment required to bring that factor into production.

Supply shocks: Supply shocks occur when unexpected events like wars or natural disasters disrupt the availability of essential inputs or introduce new technologies, affecting aggregate supply.

Supply-side policies: Supply-side policies aim to enhance the efficiency and productivity of an economy, contributing to sustainable economic growth.

Surge pricing: Also referred to as dynamic pricing, demand pricing, or time-based pricing, and variable pricing is a revenue management pricing strategy in which businesses set flexible prices for products or services based on current market demands. It usually entails raising prices during periods of peak demand and lowering prices during periods of low demand. Popular pubs engage in surge pricing when they charge more for drinks as the night progresses.

Sustainable development: Sustainable development refers to meeting present needs without compromising the ability of future generations to meet their own needs, including environmental protection.

SSIA (Special Savings Incentive Accounts): SSIA refers to the Special Savings Incentive Accounts established by the Irish Government in the early 2000's as a measure to reduce inflationary pressure in the economy. Investors received a 25% bonus on their invested funds, in addition to the prevailing market growth rate.

Sustainable investment rule: The sustainable investment rule aimed to maintain public sector debt as a percentage of GDP at a stable and prudent level throughout the economic cycle. The target is to achieve a debt ratio of 40% of GDP or lower.

T.

Tariff: A tariff is a tax imposed on imports, which can be used to restrict imports and generate government revenue. Its impact depends on the price elasticity of demand and the elasticity of supply for the goods. The World Trade Organisation (formerly GATT) aims to reduce average tariff barriers worldwide to foster trade between nations.

Tax avoidance: Tax avoidance involves arranging one's financial affairs within the legal framework to minimide tax liabilities.

Tax buoyancy: Refers to the relationship between changes in a country's tax revenue and the changes in its Gross Domestic Product (GDP). It is a measure of how responsive the growth of tax revenue is to the changes in GDP.

Tax evasion: Tax evasion involves reducing tax liabilities by making false or illegal tax returns or not reporting income at all.

Tax haven: A jurisdiction that imposes little or no tax on corporations and wealthy individuals.

Tax wedge: The tax wedge represents the deviation from equilibrium price and quantity caused by a tax, resulting in higher costs for consumers and lower revenue for suppliers.

Taxable income: Taxable income is the portion of earned income on which income tax is imposed. For individuals, it equals gross income minus the tax-free personal tax allowance. The government adjusts tax-free allowances annually to account for inflation and to avoid higher tax burdens.

Technical efficiency: Technical efficiency refers to producing goods and services using the minimum amount of resources.

Technological obsolescence: This refers to the state where a technology or product becomes outdated, no longer useful, or less efficient compared to newer innovations, e.g. when your phone no longer supports the latest updates effectively forcing you to buy a new one.

Terms of trade: The terms of trade refer to the rate of exchange when one country's goods are traded for another's, aiming to mitigate issues related to currency exchange rates.

Tertiary Sector: The tertiary sector provides services like banking, finance, insurance, retail, education, and travel and tourism.

Time-based pricing: Also referred to as dynamic pricing, demand pricing, or surge pricing, and variable pricing is a revenue management pricing strategy in which businesses set flexible prices for products or services based on current market demands. It usually entails raising prices during periods of peak demand and lowering prices during periods of low demand. Popular pubs engage in surge pricing when they charge more for drinks as the night progresses

Time lags: Changes in government policies (e.g., changes in direct taxation, interest rates, or investment tax allowances) operate with uncertain time lags. It takes time for these changes to affect the circular flow of income and spending and, eventually, impact GDP growth and inflation.

Total Revenue: Total Revenue (TR) represents the income a firm receives from selling a given level of output, calculated as the product of price (P) times the output (number of units sold) of the firm, i.e. TR = P x Q.

Trade: Trade involves the exchange of goods or services and enhances consumer choice and total welfare. It allows individuals, regions, and countries to specialize in the production of certain goods based on factors like skills and resources.

Trade bloc: A group of nations that have agreed terms to reduce tariffs, or other trade barriers, among them. The European Union is the most obvious example.

Trade-off: Economic choices often require deciding between more of one product for less of another, involving a sacrifice or exchange.

Trade in goods: Trade in goods includes exports and imports of tangible products such as oil, manufactured goods, foodstuffs, raw materials, and components.

Trade in services: Trade in services includes the exporting and importing of intangible products such as banking, insurance, shipping, air travel, tourism, and consultancy.

Transactions motive: One of three reasons for holding cash suggested by Keynes and the simplest, i.e. people need cash to buy things.

Transfer earnings: Transfer earnings refer to the amount of money a worker may earn in their next-best alternative employment. If a worker earns €550 per week as a carpenter and his next best offer of employment was to work in a factory for €400 per week, then €400 is his transfer earnings. Think of it as the amount he could earn if he transferred to the other job.

Transfer payments: Transfer payments are government welfare payments made through the social security system, including various benefits like Jobseekers' Allowance, Child Benefit, State Pension, Housing Benefit, Income Support, and Working Families Tax Credit. These payments are not included in the national income accounts as they are not payments for directly produced output.

Treasury bills: Short-term government debt with a maturity of less than a year. 

Trend growth: Trend growth is the long-run average growth rate for a country over a specific period. It requires a long-run series of macroeconomic data to identify different economic cycle stages and calculate average growth rates from peak to peak or trough to trough.

Trump Reciprocal Tariff Act: The Trump Reciprocal Tariff Act is a proposed legislation that would allow the President of the United States to impose tariffs on foreign countries if they apply higher tariffs or trade restrictions on U.S. goods than the U.S. applies to their goods. Essentially, it aims to create a system of "reciprocal" tariffs, where the U.S. responds in kind to the trade practices of other countries.

U.

ULEZ (Ultra Low Emission Zone): ULEZ refers to a specific area in a city where only vehicles that meet stringent emissions standards are allowed to enter. The goal of ULEZ is to reduce air pollution and greenhouse gas emissions by encouraging the use of low-emission or zero-emission vehicles within the designated zone.

Unanticipated inflation: Unanticipated inflation occurs when actual inflation deviates from what was expected, leading to resource misallocation.

Unemployment: Unemployment refers to individuals who are willing and able to work but are unable to find suitable employment despite actively seeking jobs.

Unemployment trap: The unemployment trap occurs when individuals believe that the loss of benefits and higher taxes make working less advantageous than remaining unemployed.

Unit labour costs: Unit labour costs combine wage costs and productivity levels to measure the cost of labour input required to produce a unit of output.

Universal Basic Income (UBI): Universal Basic Income (UBI) is a form of social security in which all citizens or residents of a country regularly receive a set amount of money from the government, regardless of their employment status or other factors. The idea behind UBI is to ensure that everyone has enough income to cover their basic needs, such as food, shelter, and clothing, without the need for means testing or other eligibility requirements.

Unrealised gain: An unrealised gain occurs when the current market value of an asset exceeds its original purchase price or book value, but the asset has not been sold. It is sometimes called a "paper" gain, since it only exists as an accounting entry until it is realized. A paper loss is similarly an unrealised loss.

Use value: This refers to the utility or satisfaction that a good or service provides to the person who uses it. It represents the inherent worth of a product based on its ability to satisfy human wants or needs. Essentially, use value is about the qualitative aspect of a commodity; how much it is worth in terms of its usefulness or the pleasure derived from its consumption. For example, a loaf of bread has use value because it can be eaten to satisfy hunger. Read also exchange value above.

V.

Value added: Value added is the difference between the cost of inputs and the revenue from outputs. It represents the increase in value that a firm creates during the production process.

Value Added Tax (VAT): This is a tax charged on the sale of goods or services and is usually included in the price of most products and services. If you order or bring goods into Ireland from outside the European Union (EU), you may be charged VAT when the goods arrive into Ireland.

Value of money: The value of money refers to the purchasing power of a currency, indicating the amount of goods and services that can be bought with a certain amount of money. It is inversely related to the rate of inflation; as prices rise, the value of money decreases.

Variable costs: Variable costs are expenses that fluctuate in direct proportion to the level of production. As a firm increases its output, variable costs also rise because additional resources are required, such as raw materials, labour, and consumables.

Veblen goods: Veblen goods, also known as snob goods, are products for which demand increases as their prices rise. They are often luxury, exclusive, high-quality items that serve as status symbols, such as designer jewelry, luxury cars, and yachts.

Venture capital: A branch of the investment management industry that invests in start-ups, or recently formed companies, with the hope that they will achieve long-term success.

Vertical equity: Vertical equity involves treating unequals differently to promote fairness. It often manifests in progressive taxation, where higher-income individuals are taxed at higher rates compared to those with lower incomes.

Vertical integration: Vertical integration occurs when a firm gains market dominance by acquiring or controlling different stages of production in an industry. It can involve merging with suppliers or retail outlets. For example, in the oil industry, companies may act as both producers and refiners of crude oil.

Vertical long run aggregate supply curve: In the long run, the aggregate supply is assumed to be independent of the price level. The long-run aggregate supply curve is depicted as vertical, indicating a maximum level of physical output that the economy can produce. According to neoclassical economists, this curve is perfectly inelastic and represents the economy's potential output.

Visible trade: Trade in physical goods, such as raw materials, components and manufactured articles, like cars.

Volatility: A measure of risk in the financial markets. In its simplest terms, it is how much an asset price tends to go up and down.

Voluntary unemployment: This refers to workers who have the time, opportunity and ability to take a job, but choose not to. This may be down to frictional unemployment; they have recently left their jobs and are looking for a post that pays better or suits their skills.

Vulture fund: A vulture fund is a non-bank entity or investment fund that buys non-performing loans from lenders. These are generally purchased at a lower value than the loan is worth. A non-performing loan is possibly in arrears or one the lender doesn’t consider sustainable or will be paid back in full.

W.

Wage drift: Wage drift refers to wages increasing beyond/above pre-negotiated levels.

Wage price spiral: The wage-price spiral occurs when demand-pull inflation leads to rising wages, contributing to cost-push inflation and a self-reinforcing cycle.

Wealth: Wealth represents the value of assets owned by individuals, such as property, shares, savings, and pensions.

Wealth effect: The wealth effect refers to changes in consumer spending due to fluctuations in household wealth, such as property or stock market gains or losses.

Welfare to work: Welfare to work programmes aim to transition individuals from state benefits to employment, often through schemes like the New Deal (USA) targeting the long-term unemployed.

Willingness to pay: Willingness to pay is the maximum price a consumer is willing to pay for a product rather than forgoing consumption altogether.

Windfall taxes: Levies imposed on companies that make large profits after an economic change. The most recent examples have been taxes on energy companies when their profits surged after Russia’s invasion of Ukraine in 2022.

Workforce: The workforce comprises individuals available and/or willing to participate in paid employment, including both employed and unemployed individuals.

Working capital: Working capital refers to stocks of finished and semi-finished goods held for future consumption or production.

Working from home (WFH): A phenomenon that took off during the Covid-19 pandemic when many offices were closed.

World Bank: An institution that was set up, like the International Monetary Fund, as part of the Bretton Woods agreement. The World Bank’s main activity has been to provide loans and advice to developing countries, but it also conducts research into issues such as poverty and migration.

World Economic Forum (WEF): The WEF is a research group that holds an annual meeting in Davos, Switzerland.

World Trade Organisation (WTO): The WTO governs international trade, setting and enforcing trade rules and resolving trade disputes among member countries. 

X, Y, Z:

Yield: The income from a bond or security, expressed as a proportion of its market price.

Zero coupon bond: A bond on which no interest payments are made. Instead, it is issued at a discount to its repayment value and the bondholder makes a capital gain if they hold it to maturity. In some jurisdictions, this may have tax advantages if capital gains are treated less harshly than interest income.

Zero-hour contract: This is a contract where the employee is contractually obliged to be ready for work even though no hours are guaranteed. Employers are not required to provide any hours of work in a given week.

Zero-sum game: A zero-sum game occurs when the gains made by winners in an economic transaction equal the losses suffered by the losers, resulting in no net gain.

Zohnerism: The use of true but misleading facts to lead the public to a false conclusion. Also known as the dihydrogen monoxide parody that involves calling water by its unfamiliar chemical systematic name "dihydrogen monoxide" (DHMO, or the chemical formula H2O) and describing some properties of water in a particularly concerning manner — such as the ability to accelerate corrosion (rust) and cause suffocation (drowning) — for the purpose of encouraging alarmism among the audience to often incite a moral panic calling for water to be banned, regulated strictly or labeled as a hazardous chemical.