Welcome to the SwiftEconomics.com Glossary! Each word will come to life using witty jokes, satire, and colorful examples. The glossary is meant to amuse and educate; not to be traditional or academic. The SwiftEconomics.com team wants to hammer home a few vital ideas throughout the vocabulary lesson. For example, keep an eye on asymmetric information’s effect on health insurance. Please share the SwiftEconomics.com Glossary with colleagues, friends, and family!
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Terms beginning with L
It just looks cooler with a “u.” One of the factors of production, labour comprises the workers in an economy. In order to have labour, an economy must have willing workers. Firms must agree on employment conditions with a worker.
Beatles fans unite: just let it be. No government interference in laissez-faire economics. Fans of this philosophy probably believe that Adam Smith’s invisible hand, individuals acting according to self-interest, produces the most efficient and prosperous economic outcomes. This is also thought of as liberal economics. Ironic if you consider how the definition of “liberalism” has morphed over the decades. Today’s liberals want nothing to do with liberal economics.
Yes, it is true real estate agent; they’re not making anymore of it. One of the factors of production, land sits underneath all of our buildings. We walk on it and grow plants underneath its soil, some to eat and some to enjoy. Without land we’d probably have gills and fins by now.
Named after a used-car “lemon” this problem arises from asymmetric information and adverse selection. In markets, the buyer and seller do not usually have the same information. Used car owners know if their car is a “lemon” while potential buyers have no idea. The seller may price the car in “excellent condition” even if they know it isn’t. The buyer’s best guess is that the car is in “average condition” and bids accordingly. If the seller really does have a car in “excellent condition,” they will want to sell the car at the higher price. The buyer isn’t willing to pay the higher price because he or she can’t be sure of the car’s condition. Furthermore, the buyer may suspect the seller is trying to rip him or her off or start at the higher price for negotiating purposes, leaving room to come down. Many transactions do not occur because of the lemons problem. Asymmetric information is a principle reason why markets can fail.
A financial backstop. Central Banks hold this purpose and will prevent large firms or important securities from going under. Who decides what is important enough to save? Good question. The hope is that a lender of last resort will minimize risk and increase credit creation. Moral hazard quickly rears its ugly head, though. We know that if people are insulated from risk and think they’ll be bailed out of bad business decisions, they may act irresponsibly and incompetently.
OPM; using other people’s money. How much a company is levered drives solvency concerns. Debt can help build wealth but it still isn’t all good. The U.S. government allows interest to be written off and encourages private industry to hold debt.
Life is valuable, but how much is it worth? Economists actually try to put a dollar figure on human life. Inhumane at first glance, they do this to run cost-benefit analysis and other fun math activities to see if safety prevention measures are worth taking. They also do this for legality issues like determining payouts for fatal injuries. Think about this: should the federal government buy a Bluetooth headset for every licensed driver? To decide you better have accurate estimates on how many licensed drivers would utilize the Bluetooth and how much of the time. Then you figure out how many accidents you believe it would prevent. Then next, the costs it would prevent, one of which being the value of human life in a fatal wreck. It might sound like a no-brainer…sure, the Feds should provide Bluetooth headsets because it would help accident rates and be freakin’ awesome! But this is economics, the allocation of scarce resources. If the government spends money on Bluetooth headsets, it can’t spend money on something else. There’s only so much to go around.
The ease of converting an asset into cold hard cash. If someone says “they’re liquid” they are probably holding a lot of their wealth in cash as opposed to illiquid assets like real estate.
Economics time frame of greater than one year.
Everyone pays the same amount of taxes. The rich are big fans and the non-rich/accountant contingent likely doesn’t care for it much.
Corporate getaways, golden parachutes, and the like. A lot of companies like AIG continue to purchase corporate spa getaways and other perks after receiving tax-payer bailout money. These goods and services are supposed to be highly responsive to price changes and income changes of their customers. That is to say, if the price of a spa treatment is jacked up, the spa trips demanded should fall. From the consumer’s point of view, if their income falls, they should demand fewer trips to the spa. Basic food items like milk and cereal will probably continue to be purchased at varying income levels and price fluctuations.