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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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Imperfect Competition

Typical in real world markets and college football games matching the Big 10 against the SEC.

Some important features of perfect competition include perfect information to all producers and consumers, ease of entry and exit from the marketplace, and profit maximizing firms. Markets dominated by one (monopoly) or a few firms (oligopoly) certainly operate in markets with imperfect competition.


Imports

Trade terminology; products and services purchased from abroad.


Income Effect

Consumers demand different products and services in different quantities just as a result of changing income. Income goes up, the HBO cable package looks real appealing as an add-on. Income goes down, it may be time to sacrifice the HD channels. This is because consumers have a budget constraint whether they have a budget or not and deal in a world of scarce resources.


Income Tax

The taxman is coming. You are taxed a percentage of your earnings. Tax brackets are often graduated meaning the more money you make, the higher percentage you pay. Economic philosophies have waged battle over income tax for decades. Probably longer. People living under governments that levy taxes have detested the taxman dating back to documented Biblical accounts.


Incrue

A sick merger of incurring and accruing interest at once. A twisted mind came up with it…and you know who you are.


Indirect Taxation

A tax on something other than an individual’s income or wealth. A sales tax or flat tax is an example. It tends to be less noticeable by people and harder to avoid. Some believe it would cut down on the confusion of a complicated tax code, eliminate many lobbyists, and be a more efficient than direct taxation.


Inelastic

Unresponsive 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.


Inferior Goods

Beanie Babies come to mind. That’s a cheap shot. Actually, these are goods that people demand less as their income rises. One classic includes mac & cheese.


Inflation

When baskets of goods and services rise in prices. Our pal, Milton Friedman, said inflation is a monetary phenomenon. Monetary policy in the United States is controlled by the Fed, with help from the Treasury. The Fed pulls money in and out of the economy, while the Treasury prints new money to inject into the system.

Some say a little inflation is healthy for an economy. Others say inflation creates phony wealth; that to increase the amount of currency in circulation isn’t like increasing real infrastructure and production. Regardless, inflation eats away at the purchasing power of your currency.

Deficit spending by the U.S. government is financed by borrowing money from other nations, printing new money based on nothing and taxing somebody more. Making the tax code more progressive is an option to collect some additional revenue but the borrowing and printing causes inflation, which is an invisible tax to everyone. Invisible and silent.

A Hershey Bar cost $0.05 in 1968. It cost $0.60 in 2008. The number of ounces in the chocolate bar has fluctuated over time but it still begs the question: intuitively, can people pay $50.00 for a Hershey Bar and still live in a stable, thriving economy? The current system in the United States says “yes” and will reach the $50.00 Hershey Bar mark someday.


Information

It’s an information economy with infopreneurs and infomercials yet perfect information is likely impossible to achieve. Asymmetric information is a principle cause of market failure.

Opponents of socialist state planning argue that the state does not and cannot have anything resembling perfect information; and that information constantly changes as state’s plan, rubber stamp a plan and attempt to implement a plan.

Adam Smith’s Invisible Hand theory addresses how to most efficiently handle the limitless, constantly-changing information in the world. Smith proposed that individuals seeking their own self-interests will implement as much up-to-date information as possible into the economic fold.


Information Cascade

A process of revealing hidden or unknown information through signals. People choose certain actions based on their confidence of a signal’s accuracy and trustworthiness.

Say a person can’t recall or doesn’t know which day garbage pickup happens. They decide to keep a watchful eye on the neighbor’s driveways throughout the week to see when they wheel out their garbage. Surely some neighbors will forget or otherwise fail to wheel their garbage can to the street. But a person might have such confidence in the signal of a few garbage cans being wheeled out that they wheel theirs out on that day as well. They’ve chosen an action based on an information cascade. Signals can be made verbally and non-verbally.

Suppose it was a small street with four homes. Every neighbor is unsure what day garbage pickup happens. The first neighbor wheels his garbage can out on a whim. The second neighbor assumes the first neighbor knows when garbage day is and wheels her can out to the street. A false signal passes down the street and all four residents wheel their garbage out. Everyone has wasted their time. What if the first neighbor purposely tripped up his neighbors? Information cascades can turn bad if a player (yes, this is a game) purposely sends a wrong signal. However someone gets their jollies, right?


Infrastructure

I hear I-95 could use some maintenance. Apparently infrastructure in the United States is quite lackluster relative to other countries (insult to injury: countries generally “less wealthy” than the U.S. traditionally has been). Amtrak’s real impressive, though. Fiber-optic cable, cell towers, bridges, roads, and railways are some examples of moving people and goods in as efficient manner as possible.


Innovation

New, exciting frontiers that spark economic growth. Some contend that creative destruction is a must to achieve innovation. Capitalists likely agree and believe entrepreneurial spirit creates the greatest innovation.


Insider Trading

I know something you don’t know! This happens a lot when people own a company or sit atop a firm’s board of upper management. Stockholders are left in the dark about significant happenings in the company they own shares of. Martha Stewart dumped her shares famously before bad news hit the market. Martha was sentenced to house arrest at her millionaire estate. Rough.


Insolvency

Inability to pay debts and obligations as they come due. Insolvency is not a synonym for bankruptcy, but they’re siblings. There is balance sheet insolvency, which means your total liabilities exceed your total assets, and cash flow insolvency, which describes the failure to pay debts as they come due.


Institutional Investors

This is elephant money. I truly just wanted an excuse to use that term! These are huge pools of investor money in investment vehicles such as mutual funds, hedge funds, insurance funds, etc. When elephant money buys or sells an asset (stock anyone), this moves the price of the asset in a meaningful way. They are also called market movers.


Invisible Hand

Paging Mr. Smith; Scottish Economist Adam Smith’s calling card. The Invisible Hand is each individual pursuing their own self-interests with the motive of making a buck. Smith believed this would create the most efficient distribution of resources. Also, information could be more complete and up-to-date than it is in state planning.


Investment

Comes passively and direct, investment can be in infrastructure like factories and biology labs or in securities like stock.

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