E’s

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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Econometrics

A dreadful statistical practice which likely will prevent me from pursuing a post graduate degree in economics (see me hedge there). Words like ‘stochastic’ and ‘heteroskedasticity’ continue to haunt me in my dreams.


Economic Man

A name coined for the description of man’s behavior. Classic economic theory assumes “rational expectations” and it is considered rational for one to follow their self-interests. This seems to hold in many cases. Why, then, do people serve soup to the homeless under a bridge in the winter at 7:00 am Saturday morning? This doesn’t sound so self-interested. Behavioral economics and neuroeconomics try to bring a contemporary flare to describing the entire human being. People feed soup to the homeless early Saturday morning in the cold because it makes them happy to help. They are utility maximizers and pleasure centers in their brain light up when they do so.


Economies of Scale

Wal-Mart provides economies of scale to their customers. The smiley face people are so enormous they have great bargaining power with their suppliers. They get their products cheaper than competitors. Their massive supply chain allows them to distribute these products at a cheaper rate than competitors. If that weren’t enough, they have a million stores so collecting valuable information about customer preference is distributed to other outlets for duplication. Not to mention they can really stack it deep when they buy in bulk. Wal-Mart is an extremely efficient enterprise that delivers value to their customers through economies of scale. Their fixed costs like buildings and employees don’t change as they bring relevant products to the shelves at lower cost.

I wouldn’t mess with Texas but bigger isn’t always better. Diseconomies of scale can happen when a business swells. For example, a real estate business can acquire more properties but some properties require special treatment. You may find out that the new apartment building attracts low-quality tenants and has a cracking foundation a month after the deal closes.


Economic Sanctions

Game theory club to punish other countries in political negotiations. Also could be used to help solve moral dilemmas. If a country is violent and rife with terrorism it may be morally bankrupt to sell weapons and machinery to them. For example, GE has traded airplane parts with Iran through subsidiaries. In game theory to avoid war with a country, economic pressure can be applied. Trade refusal and the eminent crumbling of the country’s economy can be used as a bargaining chip.


Efficiency

Scarce resources need to be used wisely. When the most has been gained from the distribution of scarce resources, whalla, you have efficiency.


Elasticity

Sensitivity and responsiveness with respect to another variable. How sensitive are you to the price change in a pack of cigarettes? A lot of people are addicted to cigarettes and won’t change their consumption significantly when prices increase. Cigarettes are an inelastic good. That is to say the demand for cigarettes is not responsive to price changes.


Entrepreneur

See “About” section at SwiftEconomics.com. Entrepreneurs create the jobs that employ us and deliver the products and services to us we never knew we wanted or could have. Come on, you’re reading an economics blog.


Environmental Economics

An economic look at the environment so the distribution of scarce resources is hotly debated. Scarce resources coming from the earth are non-renewables. Therefore a move to renewable resources is a cornerstone of this discipline. Environmental economics brings a more balanced approach to examining economic output. Total GDP increasing is great but the costs of pollution are not factored in.


Equilibrium

A fairy tale land for economists where supply and demand touch amorously at an equilibrium price. Do unfettered markets really move towards an equilibrium point? The fact that free markets usually move in that direction is useful knowledge in and of itself.


Exchange Rate

The value of one currency, with respect to another. This is the rate, at which a person may exchange currency, at any one time. Currency analysis often uses exchange rates to describe which currencies are strong, and which are weak. If the currencies being compared have similar monetary policy, the analysis can be flawed. One currency might be strong compared to another, but if they both are rife with inflation, that’s not saying much. It is a rare case if mainstream media touches on this.


Expectations

People make decisions about the future based on these. Their actions should reflect feelings about their own economic prospects as well as the prospects of the greater economy.


Expected Value

The long-run average of an unknown variable tested into infinity. Economists take data and run regressions to find out numbers like this. In more short-term calculable terms, here’s a fun example:

If you have a 0.1% chance of choosing a winning lottery ticket worth $1 million and 99.9% chance of choosing a loser worth nothing, what is your expected value of purchasing one ticket?

EV = odds of winning * (payout of winning) + odds of losing * (payout of losing)
EV = 0.001($1 million) + 0.0999($0.00)
EV = $1,000

99.9% of the time you will buy worthless paper but your expected value going into the purchase is $1,000. If these odds and payouts were accurate, you should purchase lotto tix until you’ve spent $1,000 on them.


Exports

Trade terminology; products and services sold to country’s abroad.


Externality

Costs or benefits that affect those outside of an economic exchange. The publicizing of Britney Spears’ personal life falls under this category. For me, the release of most of her music, too. Externalities are not reflected in prices otherwise anything associated with Britney would be driven to zero.

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