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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Pareto Efficient

Efficiency paradise; when no one party could be made better off without making another worse off.

Perfect Competition

When markets can’t go wrong. Unfortunately, perfect competition is likely impossible. For one, it requires perfect information held by all economic players involved. Best of luck kid, best of luck.

Perfect Information

The type of information in perfect competition. You know, the economic scenario where everyone acts rationally, collects and analyzes all information flawlessly and learns from their past mistakes.

Also used in game theory, perfect information says that all players in a game, know all the moves that have been made.

Positional Good

I have it and you want it. A positional good is a product or service people value based on how much others desire it, compared to substitutes. As Dr. Sheldon Cooper professed on The Big Bang Theory, it was coined by Fred Hirsch in 1976 to replace the more colloquial and less precise “neener-neener.” Think exclusivity: hot girls, hot clubs, luxury box seats, private islands, secret societies, high social status, etc.

Poverty Trap

When government policy encourages people to stay unemployed or work fewer hours. Welfare, while a noble idea, pays a group of people not to work. Leisure time alongside cashing government checks yields a lot of utility. Giving up the leisure time to go to work isn’t always worth it to some. Charity can have the same effect. If a person makes $1,000/day holding up a sign on the side of the road, what incentive do they have to get a job?

Predatory Pricing

The T-Rex on the prowl. Predatory lenders look to stick low-quality borrowers with huge interest rates hoping two-fold: 1) to collect exorbitant returns and/or 2) to take the asset away from the shaky borrower once they default on the loan. Predatory pricers look to drive competitors out of business. If the predator enjoys market supremacy they may choose to price a product or service below its cost of production until the competitor fails. Natural selection you see or something like that.

Tom Cruise’s hit-man character in Collateral opines on predatory pricing:

Vincent: Now we gotta make the best of it, improvise, adapt to the environment, Darwin, shit happens, I Ching, whatever man, we gotta roll with it.

Price Discrimination

Charging different customers different prices. Firms wish they could do this one hundred percent of the time. Everybody has a different willingness to pay for a given product. If a firm could get a customer to reveal their maximum willingness to pay and then charge them that price, they could maximize their profit. Take Starbucks. They allow you to choose a drink size, put additional flavors in your drink, add soy milk for a little extra, and probably provide many more options. Starbucks wants to give you every opportunity to reveal your maximum willingness to pay for their product. To maximize sales, Starbucks would sell a cup of coffee to every person off the street if they could; one for $0.20 and another for $7.00 as long as the price exceeded their cost of producing the coffee drink. It’s not quite that easy in the real world but their strategy of “add-ons” gets them as close as possible to this optimum.

Printing Press

Machines that make money out of thin air. Controlled by the Treasury, the printing press has the capability of instantly devaluing a person’s paycheck, bank account, and retirement by spewing more dollars into circulation. Some economists fear the printing press will eventually shatter the confidence in the dollar. The printing press is still only a machine, though. It does require someone to turn it on. If your assets are liquidated (you’re holding cash), pay close attention to the printing press’ operating hours.

Actually, in the digital age, most new money is created electronically. Bills and coins make up a very small percentage (less than 10 percent) of the “money supply.”

Prisoners’ Dilemma

Pitting two prisoners against each other in a game theoretical scenario. While in separate interrogation rooms, each outlaw is asked to rat the other out for better jail sentences. The prisoners’ dilemma sets up so that the best social outcome is for both prisoners to keep their mouths shut. The catch is that if the other prisoner rats them out, they’re stuck in jail for a long time. The rat is granted immunity and a light sentence.

Save yourself and be the rat or trust your partner in crime for the best social outcome.

Private Sector

“Oh, she’s working in the private sector now.” –a college graduate’s cousin describing her family member’s decision to work for a graphic design firm in Madison, Wisconsin.

Private club means private. No government allowed.

Progressive Taxation

Considered by most Western economies as being “fairest,” this system taxes wealthier people at higher rates.

Property Rights

The reason it’s my handcrafted seven iron and you can’t use it; what makes capitalism capitalism. The right to property ownership and a free society allows anybody to acquire assets and accumulate wealth. Rights to property must be easily provable to encourage transactions in a market economy. The title insurance industry is built on tracking and verifying real estate’s ownership chain; sensible considering it’s the largest purchase most people make in their lives.

Prospect Theory

People hate to lose more than they love to win. In fact, psychologists and behavioural economists have found people will put more effort into avoiding loss than pursuing gain.

Public Goods

Goods like roads and clean air shared by all. These goods are so easily consumed many people forget they still come at a price. It can be difficult to get people to ante up and pay for public goods.

Public Sector

When was the government part of the public? In economics. This sector describes government entities.

Purchasing Power

Money is only as good as its buying power. As prices rise, purchasing power shrinks. Purchasing power contributes to the money illusion.

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