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| Term | Definition |
|---|---|
| Paradox Of Thrift | An individual household, business, or government may attempt to save money by reducing their current expenditures. However, those attempts to save, once amalgamated at the level of the overall economy, may reduce aggregate spending levels and hence output and employment, thus undermining overall growth or even causing a recession. If this occurs, the revenue of households, businesses, and governments will decline, and overall saving may end up no higher (and potentially be even lower) than before the effort to boost savings. Because of this paradox, it is not usually possible to improve economic performance by boosting saving. |
| Pareto Efficiency | Pareto efficiency or Pareto optimality is a situation where no individual or preference criterion can be better off without making at least one individual or preference criterion worse off or without any loss thereof. |
| Participation Rate | The proportion of working-age individuals who decide to “participate” in the labour force, by either being employed or actively seeking work. The precise definition of what constitutes “actively seeking work” varies from one country to another, and this can affect measurements of the labour force and unemployment. |
| Pay-As-You-Go Pension | A pay-as-you-go pension plan sponsor simply pays for pension benefits to retired plan members out of its current incoming revenues. Many government pension plans are funded on a pay-as-you-go (or “paygo”) basis, with pension benefits financed directly from current taxes. It is difficult for private companies to pay for pensions on this basis, however, since their long-term revenue streams are not as reliable as governments’. For this reason, many private employers use (or are required to use) pre-funded pensions. |
| Payroll Tax | A tax levied on current employment or payrolls (collected either as a fixed amount per employee, or as a percentage of total wages and salaries paid). Payroll taxes are most commonly used to finance employment-related social programs, such as pension or unemployment insurance programs. |
| Pensions | Pension benefits are paid to individuals who have retired from active employment, in order to support themselves in the last years of their lives. Pension programs can be sponsored by governments or by individual employers; they can be based on pre-retirement years of service and wage levels, or paid on a universal per-person basis. |
| Per Capita | A unit of account per person, usually placed at the end of an economic indicator. |
| Perfect Competition | A situation where numerous small firms producing identical products compete against each other in a given industry. Perfect competition leads to firms producing the socially optimal output level at the minimum possible cost per unit. |
| Personal Property | Possessions such as jewelry, furniture, and real estate that people can amass through time. |
| Physical Capital | A tangible tool, building, machine, or other productive asset which is used to produce other goods or services. |
| Physiocrats | A very early school of economics (originating in France in the 18th Century) which likened the interactions between different sectors and classes of the economy, and the monetary flows between them, to the circulation of blood through the human body. |
| Pollution | Many economic activities involve the discharge of waste products (including solid waste, air pollution, and water pollution) into the natural environment, as a negative side-effect of production. |
| Post-Keynesian Economics | A modern heterodox school of economic thought which emphasizes the more non-neoclassical or radical aspects of John Maynard Keynes’ theories. Post-Keynesians pay primary attention to the monetary system, and the impact of monetary behaviour and policies on employment, output, and other economic indicators. |
| Poverty | A state of having inadequate income or other resources to support a household or group of households at a basic standard of living. Poverty can be measured in absolute or relative terms. |
| Poverty Rate | The proportion of individuals or households in a jurisdiction which are defined as poor, according to either absolute or relative definitions of poverty. |
| Preferences | According to neoclassical economic theory, individuals’ preferences regarding the sorts of consumer goods they most enjoy will exercise an ultimate influence on both the composition of output in the economy, and the prices paid for final products and factors of production. |
| Pre-Funded Pension | A pension plan in which funds are accumulated and invested throughout an individual’s working life in order to pay for the subsequent disbursement of pension benefits after that person has retired. Pre-funded pensions can be individual or collective (ie. pooled) in nature; individual pre-funded pensions are similar to individual savings accounts. |
| Price | The amount of money it takes to buy a product or produce a product. |
| Price Ceiling | A market intervention in which the government ensures that the price of a good or service stays below the free market price. |
| Price Controls | Price controls are restrictions set in place and enforced by governments, on the prices that can be charged for goods and services in a market. |
| Price Elasticity of Demand | A good’s price elasticity of demand is a measure of how sensitive the quantity demanded of it is to its price. When the price rises, quantity demanded falls for almost any good, but it falls more for some than for others. |
| Price Elasticity of Supply | The price elasticity of supply (PES or Es) is a measure used in economics to show the responsiveness, or elasticity, of the quantity supplied of a good or service to a change in its price. |
| Price Floor | A market intervention in which the government keeps the price of a good or service above its free-market price. |
| Price Index | A normalized average of price relatives for a given class of goods or services in a given region and during a given period of time. It is a statistic designed to help to compare how these price relatives, taken as a whole, differ between geographical locations or time periods. Notable price indices include consumer price index, producer price index, and GDP deflator. |
| Price Level | The overall average level of nominal prices in the economy can be calculated, most often as a weighted average of the prices of individual goods and services (with weightings reflecting the importance of each product in overall spending or output). Price levels can be calculated for consumer spending, for wholesale trade, for producer inputs, or for any other category of production. The most common measures of the overall price level are the consumer price index and the gross domestic product deflator. |
| Primary Products | Products which are harvested directly from the natural environment, with minimal subsequent processing, are considered primary products. These typically include agricultural, fishing, forestry, mineral, and energy products. |
| Prime Rate | Also called the prime lending rate. The interest rate at which a bank will agree to lend to customers with good credit. Floating interest rates are often expressed as a percentage above or below the prime rate. |
| Private Equity | A form of business in which the company’s entire equity base is owned by one or a small group of individual investors. Under the private equity model, the company does not issue shares onto the stock market, and hence is not usually required to release public financial statements or comply with other securities regulations. Private equity firms are generally considered to be more ruthlessly focused on generating shorter-term cash profits from their operations than joint stock companies. |
| Producer Price Index | A producer price index (PPI) is a price index that measures the average changes in prices received by domestic producers for their output. |
| Producer Surplus | The gain that producers receive when they can sell their output at a price higher than the minimum amount for which they are willing to make it. |
| Product Differentiation | In economics product differentiation (or simply differentiation) is the process of distinguishing a product or service from others, to make it more attractive to a particular target market. This involves differentiating it from competitors’ products as well as a firm’s own products. |
| Product Markets | The markets where produced goods and services are bought and sold (distinguished from markets for factors of production). |
| Production | Production is a process of combining various material inputs and immaterial inputs (plans, know-how) in order to make something for consumption (output). It is the act of creating an output, a good or service which has value and contributes to the utility of individuals. |
| Production | The process by which human labour (or “work”) is applied, usually with the help of tools and other forms of capital, to produce useful goods or services. |
| Production Possibilities Curve | A graph showing the maximal combinations of goods and services that can be produced from a fixed amount of resources in a given period of time. |
| Production Set | In economics the production set is a construct representing the possible inputs and outputs to a production process. |
| Production, For Profit | Under capitalism, most production is undertaken by private companies (of various forms), with the goal of generating a profit to the company’s owners. Profit is attained when the company’s output is sold, generating revenue that exceeds the costs of production (including labour). |
| Productive Efficiency | A term describing firms that produce goods and services at the lowest possible cost. |
| Productivity | In general, productivity measures the effectiveness or efficiency of productive effort. Productivity can be measured in many different ways. Physical productivity measures the actual amount of a good or service produced (eg. tons of steel, or number of haircuts). Productivity can also be measured in terms of the value of output. Most commonly, productivity is measured as the amount of output produced over a certain period of work (eg. output per hour); this is considered a measure of labour productivity. But other approaches are also possible, including measurements of capital productivity (output relative to the value or physical quantity of invested capital) and “total factor productivity” (which is an abstract statistical measurement of the overall effectiveness of production). |
| Profit | This is the surplus left over after a company sells its output, and pays off the cost of production (including labour costs, raw materials, and a proportional share of its capital equipment). Its calculation is: revenue – cost = profit. |
| Profit Motive | In economics, the profit motive is the motivation of firms that operate so as to maximize their profits. Mainstream microeconomic theory posits that the ultimate goal of a business is “to make money” – not in the sense of increasing the firm’s stock of means of payment (which is usually kept to a necessary minimum because means of payment incur costs, i.e. interest or foregone yields), but in the sense of “increasing net worth”. |
| Program Spending | Government spending which is undertaken to provide useful public programs. Program spending includes both direct government production of services (like health care or education), and transfer payments which are intended to supplement the income of households (through programs like unemployment insurance or public pensions). Program spending does not include government debt service charges. |
| Progressive Tax | A tax is considered progressive if a larger proportionate share of its total burden falls on individuals with higher average incomes. |
| Progressive Tax | A tax schedule that states that the more income one earns, the higher the tax rate will be. |
| Proportional Tax | Also called a flat tax. A tax schedule that states that regardless of income, the same tax rate will be applied to all income earners. |
| Proxemics | Proxemics is the study of human use of space and the effects that population density has on behaviour, communication, and social interaction. |
| Public Economics | Public economics or economics of the public sector, is the study of government policy through the lens of economic efficiency and equity. Public economics builds on the theory of welfare economics and is ultimately used as a tool to improve social welfare. |
| Public Good | Goods or services that cannot be profitably produced by private firms because they are impossible to provide to just one person; if you provide them to one person, you have to provide them to everybody. Public goods non-excludable (you can’t prevent anyone from consuming them) and non-rival (it costs no extra to supply one extra person). |
| Public Goods | True public goods are those which cannot be provided to one group of consumers, without being provided to any other consumers who desire them. Thus they are “non-excludable.” Examples include radio and television broadcasts, the services of a lighthouse, national security, and a clean environment. Private markets typically underinvest in the provision of public goods, since it’s very difficult to collect revenue from their consumers. More broadly, public goods can refer to any goods or services provided by government as a result of an inability of the private sector to supply those products in acceptable quantity, quality, or accessibility. |
| Public Investment | Real investment spending by government or public institutions on structures, infrastructure, machinery and equipment, and other real capital. |
| Public-Private Partnerships (Ppps) | A form of financing public investment, and sometimes the direct provision of public services, in which finance is provided by private investors (in return for interest), and private firms are involved in the management of the construction or operation of the publicly-owned facility. PPPs have been heavily criticized for increasing the cost of public projects and generating undue profits for private investors. |
| Purchasing Power Parity (PPP) | Purchasing power parity (PPP) is a measurement of prices in different countries that uses the prices of specific goods to compare the absolute purchasing power of the countries’ currencies. |
| Pure Competition | In economics, specifically general equilibrium theory, a perfect market, also known as an atomistic market, is defined by several idealizing conditions, collectively called perfect competition, or atomistic competition. Perfect Competition: A market structure characterized by a large number of small firms, homogeneous products, free entry and exit, and perfect information. In perfect competition, no single firm has the power to influence the market price. |
| Price Elasticity of Demand | A measure of how much the quantity demanded of a good or service responds to changes in its price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. |
| Producer Surplus | The difference between the price a producer is willing to accept for a good or service and the actual market price. Producer surplus represents the benefit producers receive when they sell a product at a price higher than their minimum acceptable price. |
| Productivity | The measure of output produced per unit of input, such as labor, capital, or time. Higher productivity indicates efficient use of resources in the production process. |
| Public Goods | Goods and services that are non-excludable and non-rivalrous, meaning that individuals cannot be excluded from using them, and one person’s use does not diminish their availability to others. Examples include national defense and clean air. |
| Progressive Tax | A tax system in which the tax rate increases as the taxable income of the taxpayer increases. Progressive taxes are designed to impose a greater burden on higher-income individuals. |
| Price Floor | A government-imposed minimum price set above the equilibrium price in a market. Price floors are often used in agricultural markets to ensure that farmers receive a certain minimum price for their products. |
| Price Ceiling | A government-imposed maximum price set below the equilibrium price in a market. Price ceilings are implemented to protect consumers from high prices, but they can lead to shortages. |
| Purchasing Power Parity (PPP) | A theory that suggests exchange rates between two currencies should equalize the prices of a basket of identical goods and services in both countries. PPP is used to compare living standards and inflation rates across countries. |
| Profit Maximization | The objective of a firm to produce at a level where marginal cost equals marginal revenue, resulting in the maximum possible profit. Profit maximization is a key goal for many businesses. |
| Public Debt | The total amount of money that a government owes to external creditors and domestic lenders. Public debt is the accumulation of past government borrowing. |
| Portfolio Diversification | The strategy of spreading investments across different assets to reduce risk. Diversification aims to minimize the impact of poor-performing assets on an overall investment portfolio. |
| Price Discrimination | The practice of charging different prices to different customers for the same product or service. Price discrimination is often based on factors such as willingness to pay, location, or quantity purchased. |
| Producer Price Index (PPI) | A measure of the average change over time in the selling prices received by domestic producers for their output. The PPI is used to gauge inflationary pressures at the producer level. |
| Phillips Curve | A graphical representation that shows an inverse relationship between inflation and unemployment. The Phillips Curve suggests that there is a trade-off between inflation and unemployment in the short run. |
| Public Sector | The portion of the economy that is controlled and operated by the government. It includes government agencies, services, and public enterprises. |
| Perfectly Inelastic Demand | A situation where the quantity demanded remains constant regardless of changes in price. The price elasticity of demand is zero in a perfectly inelastic scenario. |
| Price Index | A measure that reflects the average change in prices of a basket of goods and services over time. Common price indices include the Consumer Price Index (CPI) and the Producer Price Index (PPI). |
| Principal-Agent Problem | A situation in which one party (the principal) delegates decision-making authority to another party (the agent), and there is a potential conflict of interest between their objectives. |
| Product Differentiation | The strategy of creating unique characteristics or features in a product to make it distinct from competitors’ products. Product differentiation aims to make a product more attractive to consumers. |
| Political Economy | An interdisciplinary field that combines economics, political science, and sociology to study the relationship between political and economic institutions and how they influence policy outcomes. |
| Per Capita GDP | The measure of a country’s economic output per person, calculated by dividing the gross domestic product (GDP) by the population. It provides insights into the average standard of living in a country. |
| Positive Economics | The branch of economics that focuses on objective analysis and the description of economic phenomena as they are, without making normative judgments or value-based statements. |
| Pigou Effect | An economic theory that suggests that lower prices during deflation can increase real wealth and consumer spending. Named after economist Arthur Cecil Pigou. |
| Perfectly Competitive Market | A market structure where there are many buyers and sellers, homogeneous products, perfect information, and ease of entry and exit. No single firm has the power to influence the market price. |