Neo-classical growth theory (LATE 19TH CENTURY)

Forming part of the broader neo-classical theory, neo-classical growth theory is an analytical framework in which emphasis is placed on the easy substitution of labor and capital in the production function to generate a steady-state of growth, and where all variables are growing at a constant, proportionate, rate. This steady state eliminates the instability of

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Neo-classical theory (19TH CENTURY)

Influenced by classical economic theory, neo-classical theory developed after World War II in opposition to the Cambridge School. It focuses on micro-economic theory and explores the conditions of static equilibrium. Neo-classical theory is essentially concerned with the problems of an economy enjoying equilibrium at full employment. The neo-classical theory is also concerned with savings-determined

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Neo-Ricardian theory (1960S)

English economist David Ricardo (1772-1823) looked to labor theory in his unsuccessful search for an invariable measure of value. The Italian-born economist Piero Sraffa (1898-1983) attempted to solve the problems raised in Ricardo’s and Marx’s work by viewing prices in terms of wages, quantities of capital, and profits, rather than as labor time. He asserted that real prices (measured in

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New class (20TH CENTURY)

Theory of elites in state socialist (communist) societies of the Yugoslav writer MILOVAN DJILAS (1911-1997). Within state socialist societies a ‘new class’ of party officials – who exercise a command over resources similar to that exercised by capitalists – has arisen to frustrate the egalitarian intentions of the regimes’ founders. Source: Milovan Djilas, The

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New classical macroeconomics (1970S)

Developed by American economists Robert Lucas (1937- ) and THOMAS SARGENT (1943- ), and British economists PATRICK MINFORD (1943- ) and MICHAEL BEENSTOCK (1946- ). New classical macroeconomists argue that the economy will settle at a natural rate of unemployment and attempts to alter this equilibrium state will be counteracted by economic agents. When the Keynesian

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Non-competing groups

Identified by English economist John Stuart Mill (1806-1873), and named by Irish political economist JOHN CAIRNES (1823-1875), non-competing groups describes groups of individuals who are excluded from entering certain professions. Originally viewed as the result of disproportionate education opportunities, the analysis of non-competing groups has been extended to exclusion on the grounds of discrimination and trade

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Non-nested hypothesis (1960S)

Based on work by English statistician David Cox (1924- ), non-nested hypothesis refers to economic models or hypotheses which cannot be obtained from another model by the use of ‘appropriate parametric restrictions or as a limit of a suitable approximation’. Also see: economic methodology Source: D R Cox, ‘Tests of Separate Families of Hypotheses’, Proceedings

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Non-profit organization

Non-profit organization posits the existence of organizations pursuing different objectives (and working under different constraints) to the functional profit-making model. Usually supported by private/public grants or donations, such organizations are implicity or explicitly non-profit making. Examples include health foundations, charities, and clubs. Source: R S Gassier, The Economics of Non-profit Enterprise: A Study in

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Occupation segregation

Occupation segregation refers to an uneven distribution of male, female, ethnic, racial and religious groups in the labor force. The most common example is the heavy concentration of women in nursing, retailing, and low-paid office employment. Also see: crowding hypothesis, segmented labor market theory, dual labor market theory, labor market discrimination, non-competing groups, search theory, insider-outsider wage determination Source: J A

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Okun’s law (1970)

Named after American economist Arthur Okun (1926-1980), Okun’s law states that the elasticity of the ratio of actual to potential output, with regard to a change in the employment rate, is a constant of roughly three. Okun looked at the US GNP during the 1950s and 1960s and found that a one per cent rise in unemployment

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Oligopoly theory

First used by English humanist Sir Thomas More (1478-1535) in Utopia (1516), and later developed by the French economist Antoine Augustin Cournot (1801-1877), oligopoly theory is characterized by a few suppliers producing a heavily differentiated good (differentiated through advertising, marketing and so on). Cournot asserted that each firm set its price and output on the assumption that

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Opportunity cost

Opportunity cost is the sacrifice made when selecting one product or service over another. The popular political slogan ‘Guns or butter?’ suggests that national defence is the price to be paid for not fulfilling high consumer expectations, and vice versa. Also see: cost benefit analysis Source: J M Buchanan, Cost and Choice (Chicago, 1969) Types

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Optimal tariff theory (1906)

Originating in the work of English economist CHARLES BICKERDIKE (1876-1961), optimal tariff theory illustrates that it is possible for a country to improve its terms of trade by imposing a tariff or tax on certain imported goods. The effect of optimal tariff is, ceteris paribus, a fall in demand for the taxed good; the country

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Option pricing theory (1906)

Originating in the work of English economist CHARLES BICKERDIKE (1876-1961), optimal tariff theory illustrates that it is possible for a country to improve its terms of trade by imposing a tariff or tax on certain imported goods. The effect of optimal tariff is, ceteris paribus, a fall in demand for the taxed good; the country

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Organization theory (1970S)

Organization theory is a modern theory of the firm which states that the goals and activities of a firm are the results of its organizational structure. Organization theory challenges the traditional assumption of profit maximization by management, which is now seen as content to earn just satisfactory profits. Also see: theory of the firm, satisficing, agency theory, theory

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Own rate of interest (1932)

First outlined by the Italian-born economist Piero Sraffa (1898-1983), own rate of interest was later coined by English economist John Maynard Keynes (1883-1946) in his General Theory. It is defined as the percentage change in a current commodity price compared with its known future price in the market. Every commodity has its own rate of interest, be it oil,

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Paradox of thrift

The classical school of economists held the view that since what was saved was later invested, there could not be excessive saving. Paradox of thrift was revised by English economist John Maynard Keynes (1883-1946) in the 1930s, who asserted that thrift is virtuous only up to a point. If an individual increases the proportion of income

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Paradox of value

A long-established principle with its roots in Greek philosophy, paradox of value was popularized by Scottish economist Adam Smith (1723-1790). It states that price is determined by scarcity rather than usefulness. Water is an essential of life, but because of its abundance has a relatively low price. Diamonds, on the other hand, have little use in

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Paradox of voting (1950)

Also known as Arrow’s theorem. Developed by American economist Kenneth Arrow (1921- ), paradox of voting states that if there are more than two choices facing voters in a majority democratic selection process, a stalemate will result. Also see: impossibility theorem Source: K J Arrow, ‘A Difficulty in the Concept of Social Welfare’, Journal of Political Economy, vol.

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Pareto efficiency (1906)

Named after Italian sociologist and economist Vilfredo Pareto (1848-1923), Pareto efficiency is defined as the efficiency of a market which is unable to produce more from the same level of inputs without reducing the output of another product. Source: V Pareto, Manuale d’economia politico (Milan,1906) Pareto efficiency or Pareto optimality is a situation where no individual or preference criterion

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