Theory of clubs

Based on work by American economists Charles Tiebout (1924-1968) and James M. Buchanan (1919- ), theory of clubs studies the optimal size of groups of people with a shared consumption (pools, clubs, museums), and the optimal provision of the goods or services. A club good is excludable in that it is possible to prevent its consumption by entire

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Theory of consumer demand (20TH CENTURY)

Theory of consumer demand is the analysis of demand with regard to consumer behavior and rationale when changes occur in variable factors such as price, income, substitute goods. Choice and revealed preference are two important factors affecting consumer demand. Also see: axiomatic theories Source: P Newman, The Theory of Exchange (Englewood Cliffs, N.J., 1965) The

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Theory of income determination (20TH CENTURY)

Based on the income-determination model developed by English economist John Maynard Keynes (1883-1946), and later modified by American economist Paul Samuelson (1915- ), theory of income determination postulates that the level of national income is determined where aggregate demand equals aggregate supply. The crucial component of aggregate demand is the consumption function. Keynes asserted that his theory was different from those of

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Theory of income distribution (18TH CENTURY- )

Developed over a 250-year period by a wide variety of economists including Adam Smith (1723-1790) and Karl Marx (1818-1883), theory of income distribution analyzes the pattern of payment to the factors of production; namely rent, wages, profit and interest. Source: C J Bliss, Capital Theory and the Distribution of Income (New York, 1975) Measurement Main article: Income inequality metrics

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Theory of production (18th century- )

Analysis concerned with transforming factor inputs into outputs according to a production function. Production is dependent on technology, the mix of factor inputs, factor prices and marginal productivity. The Modern Cambridge School envisages an economic model which encompasses sociological, historical and psychological factors as well as pure economic ones. It attacks neo-classical economics for

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Theory of second best (1956)

Proposed by Canadian economist RICHARD LIPSEY (1928-1980) and Australian economist KELVIN LANCASTER (1924-1999), theory of second best assumes that if one of the conditions necessary to achieve Pareto-optimality is missing then the ‘second best’ position can only be reached by departing from all the other Paretian conditions. Also see: pareto efficiency Source: R G Lipsey and K

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Theory of the core (1881)

Developed by Irish-born economist and statistician Francis Edgeworth (1845-1926), theory of the core analyzes those parts of the economy which cannot be improved upon by individual or concerted action. Theory of the core is a fundamental equilibrium aspect of modern macroeconomics, the core coinciding with a set of price equilibria under perfect competition. Source: F Y Edgeworth,

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Tiebout hypothesis (1956)

Tiebout Hypothesis is named after American economist Charles Tiebout (1924-1968), who proposed that if public goods/services were provided by a large number of local governments, consumers would have a greater diversity of choice. Also see: social welfare function Source: C Tiebout, ‘A Pure Theory of Local Government Expenditure’, Journal of Political Economy, vol. LXIV (1956), 416-24 Overview

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Time preference theory of interest (1871)

Developed first by Austrian economist CARL MENGER (1840-1921), time preference theory of interest is the analysis of how individuals or firms will sacrifice present utility in the hope of greater future returns. The expected rate of return is highly subjective. Also see: term structure of interest rates, random walk hypothesis Source: C Menger, Principles of Economics,

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Trade cycle

First observed by the English economist Sir William Petty (1623-1687), trade cycle is defined as the existence of fluctuations in national income over a variable timespan. Government policy is used to dampen the magnitude of the fluctuations in order to maintain stability in the economy. Petty’s findings were later developed by English economists THOMAS MALTHUS (1766-1834) and John Stuart

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Trickle down theory

A theory of economic development that claims higher standards of living for the poor will develop gradually and not at the overt expense of the more affluent. Also see: dual economy theory “Trickle-down theory” can refer to two different but related concepts: Trickle-down effect, a model of product adoption in marketing Trickle-down economics, a theory

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Turnpike theory (1958)

Named by the American economists ROBERT DORFMAN (1916-2002), Paul Samuelson (1915- ) and Robert Solow (1924- ); turnpike theory asserts that it is sometimes better to adopt a maximum or near maximum possibility balanced growth-path to allow an economy to move to a more satisfactory state quickly, even if consumption is lower in the interim than at the

Uncertainty

The element of risk that is unpredictable and has no measurable probability. Profit is usually regarded as the reward a company earns for enduring uncertainty in business activity. Also see: bounded rationality Source: K H Borch, The Economics of Uncertainty (Princeton, N.J., 1968) Although the terms are used in various ways among the general public,

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Underconsumption theory (20TH CENTURY)

Analysis of how total output fails to be sold at the cost of production plus normal profit. Such insufficient consumption within a depressed economy aggravates the economic decline of the state. A further theory suggests that when there is inadequate buying power in an economy, the government should give periodic injections of money to consumers.

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Unemployment

The underutilization of labor in the creation of wealth. Unemployment can take many forms (such as voluntary, involuntary, frictional, structural or demand deficient) and it can be measured both as a stock and a flow. Classical economists saw unemployment as a temporary phenomenon until price flexibility restored an economy to full employment. Later theorists,

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Verdoorn’s law (1948)

Named after Dutch economist PETRUS JOHANNES VERDOORN, Verdoorn’s law relates to the long-term dynamic relationship between the rate of growth in output and the growth of productivity due to increasing returns. Source: P J Verdoorn, ‘Verdoorn’s Law in Retrospect: A Comment’, Economic Journal, vol. xc (June, 1980), 382-85 Verdoorn’s law is named after Dutch economist

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Vent for surplus (18TH, 20TH CENTURIES)

Originally formulated by Scottish economist Adam Smith (1723-1790), vent for surplus is an explanation of why nations export goods, thereby creating international trade. Domestic economies often are too small to absorb all the output of their markets, thus generating a surplus. Vent for surplus theory has been developed by Burmese-born British economist HLA MYINT (1920- )

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VRIN model or VRIO framework of Sustained Competitive Advantage of the Firm

We review the main contents of the VRIN model or VRIO framework, developed from the research of Barney, published in Journal of Management in 1991. This framework focuses on the attributes of resources that allow firm generating its sustainable competitive advantage. Four attributes of such resources include value, rareness, imitability, and non-substitutability or so-called

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Wages fund doctrine

A precept held by the classical school of economists, wages fund doctrine states that an employer uses a fund of money, or fixed amount of capital, to pay workers; so, if employees demand higher wages, unemployment of some workers will be necessary. Wages fund doctrine was also extended to a macroeconomic scale, but was

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Wagner’s law

Named after German economist ADOLPH WAGNER (1835-1917), Wagner’s law states that the development of an industrial economy will be accompanied by an increased share of public expenditure in GNP. Wagner’s law of state , is known as the law of increasing state spending, is a principle named after the German economist Adolph Wagner (1835–1917).[1] He first observed it for his

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