A term denoting lost profits (in a particular case, profit, income) as a result of choosing one of the alternative options for using resources and, thereby, refusing other opportunities. The amount of lost profit is determined by the utility of the most valuable of the discarded alternatives. Opportunity costs are an inseparable part of any decision making. The term was introduced by the Austrian economist Friedrich von Wieser in his monograph The Theory of Social Economy in 1914.
The theory of opportunity cost is described in the monograph "The Theory of the Social Economy" in 1914. According to her:
The contribution of von Wieser's opportunity cost theory to economics is that it is the first description of the principles of efficient production.
Opportunity costs are not expenses in the accounting sense, they are just an economic construct for accounting for lost alternatives.
Example
If there are two investment options, A and B, and the options are mutually exclusive, then when assessing the profitability of option A, it is necessary to take into account the lost income from not accepting option B as the cost of a missed opportunity, and vice versa.
A simple example is given by the well-known anecdote about a tailor who dreamed of becoming a king and at the same time "would be a little richer, because he would sew a little more." However, since being a king and a tailor simultaneously impossible, then the profits from the tailoring business will be lost. This should be considered lost profit upon ascension to the throne. If you remain a tailor, then the income from the royal position will be lost, which will be opportunity cost this choice.
Notes
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See what "opportunity cost" is in other dictionaries:
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opportunity cost- Income lost by the economic agent as a result of his decision (although it could be otherwise). The opportunity cost of a good or service is the value of the goods or services that had to be given up in order to ... ... Technical Translator's Handbook
- (opportunity costs) Benefit lost due to non-use of an economic resource in the most profitable of all possible areas and economic sectors. For example, for a self-employed owner, the opportunity cost is the highest ... ... Glossary of business terms
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opportunity cost- see Alternative costs ... Terminological dictionary of a librarian on socio-economic topics
opportunity cost- (OPPORTUNITY COST) economic costs of any type of activity, the value of which is determined by the size maximum income from the most effective alternative activity… Modern Money and Banking: A Glossary
opportunity cost- The difference between the effectiveness of real and desired investments, taking into account fixed costs and transaction costs. The efficiency differential represents the consequences of not being able to execute all desired trades. The most valuable of ... ... Investment dictionary
opportunity cost- income possible in an alternative option, but lost due to the fact that these resources are used in accordance with another option ... Glossary of terms for the examination and management of real estate
opportunity cost, opportunity cost- [(opportunity cost] Costs (often called imputed) that the owner of the resource can incur by choosing a specific option for its use and - thereby - rejecting all available alternatives. Numerically defined as ... ... Economic and Mathematical Dictionary
Expected return on the best investment alternative that is given up for the sake of this project (See RATE OF RETURN) Glossary of business terms. Akademik.ru. 2001 ... Glossary of business terms
Books
- The economic mindset, Heine P., Bouttke P., Prychitko D.. The economic mindset is one of the world's most popular courses on economic theory. 15 of the book describes not only the basic principles of micro- and macroeconomic analysis, but also ...
Opportunity cost is the term for lost profits when one of the existing alternatives is chosen over another. The amount of lost profits is measured by the utility of the most valuable alternative that was not chosen to replace the other. In this way, opportunity cost occur wherever a rational decision is needed and there is a need to choose between available options.
The term was first introduced by Austrian school economist Friedrich von Wieser in 1914 in his work The Theory of the Social Economy.
Thus, the opportunity cost is the cost of any, measured in terms of the value of the next best alternative, that is withheld. it key concept in the economy, providing the most rational and efficient use of limited resources. These costs do not always mean financial costs. They also signify the real value of the forgone product, lost time, pleasure, or any other benefit that provides utility.
There are many examples of opportunity costs. Every person is faced daily with the need to make a choice between available options. For example, a person who wants to watch two interesting television programs on TV at the same time on different channels, but does not have the opportunity to record one of them, will be forced to watch only one program. Thus, his opportunity cost would be not being able to watch one of the programs. Even if he were to be able to record one of the programs while watching the other, even then there would be an opportunity cost equal to the time spent watching the program.
Opportunity costs can also be assessed in the decision-making process in economic activity. For example, if a farm can produce 200 tons of barley or 400 tons of rye, then the opportunity cost of producing 200 tons of barley is 400 tons of wheat, which has to be abandoned.
To see how the opportunity cost can be estimated, let's take Robinson on a desert island as an example. Suppose that near his hut he grows two crops: potatoes and corn. Land plot limited: on one side - the ocean, on the other - the jungle, on the third - rocks, on the fourth - Robinson's hut. Robinson decides to increase corn production. And he can do this in only one way: to increase the area allocated for corn by reducing the area occupied by potatoes. The opportunity cost of producing each subsequent cob of corn in this case can be expressed in terms of potato tubers that Robinson did not receive by using the potato land resource to grow corn.
But this example is for two products. But what if there are dozens, hundreds, thousands of them? Then money comes to the rescue, by means of which all other goods are commensurate.
Opportunity cost can be the difference between the profit that could be obtained with the most profitable of all alternative ways use of resources, and actual profits.
But not all entrepreneurial costs act as opportunity costs. In any way of using resources, the costs that the manufacturer bears in an unconditional manner (for example, registration of an enterprise, rent, etc.) are not alternative. These non-opportunity costs do not participate in the process of economic choice.
Opportunity costs faced by firms include payments to workers, investors, and owners. natural resources. All these payments are made in order to attract factors of production, diverting them from alternative uses.
From the point of view of economics, opportunity costs can be divided into two groups: "explicit" and "implicit".
Explicit costs are opportunity costs that take the form of cash payments to suppliers of factors of production and intermediate products.
Explicit costs include: wage workers (cash payment to workers as suppliers of the factor of production - labor force); cash costs for the purchase or payment for the lease of machine tools, machinery, equipment, buildings, structures (monetary payment to suppliers of capital); payment of transport costs; utility bills (electricity, gas, water); payment for services of banks, insurance companies; payment of suppliers material resources(raw materials, semi-finished products, components).
Implicit costs are the opportunity costs of using resources owned by the firm itself, i.e. unpaid expenses.
Implicit costs can be represented as:
- 1. Cash payments that the firm could receive with a more profitable use of its resources. This can also include lost profits ("opportunity costs"); the wages that an entrepreneur could have earned by working elsewhere; interest on capital invested in securities; land rents.
- 2. Normal profit as the minimum remuneration to the entrepreneur, keeping him in the chosen branch of activity.
For example, an entrepreneur engaged in the production of fountain pens considers it sufficient for himself to receive a normal profit of 15% of the invested capital. And if the production of fountain pens gives the entrepreneur less than a normal profit, he will transfer his capital to industries that give at least a normal profit.
3. For the owner of capital, implicit costs are the profit that he could receive by investing his capital not in this, but in some other business (enterprise). For the peasant - the owner of the land - such implicit costs will be the rent that he could receive by renting out his land. For an entrepreneur (including a person engaged in ordinary labor activity), the implicit costs will be the wages that he could receive (for the same time) while working for hire at any firm or enterprise.
Thus, in the cost of production, Western economic theory includes the income of the entrepreneur (Marx called it average profit on invested capital). At the same time, such income is considered as a payment for risk, which rewards the entrepreneur and encourages him to keep his financial assets within the limits of this enterprise and not divert them for other purposes.
Examples of opportunity costs:
A person who has $15 can buy a CD or a shirt. If he buys the shirt, the opportunity cost is the CD and if he buys the CD, the opportunity cost is the shirt. If there are more choices than two, the opportunity cost is still just one item, never all of them.
When a person comes to the store and is forced to choose between a steak that costs $20 and a trout that costs $40. By choosing the more expensive trout, the opportunity cost is two steaks that could have been purchased with the money spent. And, on the contrary, choosing a steak, the cost will be 0.5 servings of trout.
Opportunity costs are assessed not only in monetary or essential conditions, but also in terms of anything that matters. For example, a person who wishes to watch each of two television programs broadcast at the same time and is unable to record one of them, and therefore can watch only one of the desired programs. Of course, if a person records one program while watching another, then the opportunity cost is the time the person spends watching the first program rather than the second. In the shop-to-customer situation, the opportunity cost of ordering both meals could be double - an extra $40 to buy a second meal, and his reputation as he might be thought of as wealthy enough to spend that much on food . Also as an option. The family might decide to use the short vacation period to visit Disneyland instead of making home improvements. The opportunity cost here is covered by having happier children, so the bathroom renovation will have to wait another hour.
The consideration of opportunity costs is one of the main differences between the concept economic value and accounting cost. Estimating opportunity costs is fundamental to assessing the true cost of any course of action.
Note that the opportunity cost is not the sum of the available alternatives if these alternatives are, in turn, mutually exclusive.
Opportunity costs are sometimes difficult to imagine as a certain amount of rubles or dollars. In a widely and dynamically changing economic environment, it is difficult to choose The best way use of the available resource. In a market economy, this is done by the entrepreneur himself as the organizer of production. Based on his experience and intuition, he determines the effect of a particular direction of resource use. At the same time, income from lost opportunities (and hence the size of opportunity costs) are always hypothetical.
The accounting concept completely ignores the time factor. It estimates the costs based on the results of already completed transactions. And when determining the costs of lost opportunities, it is important to understand that the effect of any option for using a resource can manifest itself in different periods. The choice of an alternative is often associated with the answer to the question, what to prefer: quick profit at the cost of future losses or current losses for the sake of profit in the future? On the one hand, this complicates the assessment of costs. On the other hand, the complexity of the analysis turns into a plus for a more detailed consideration of all aspects of the future project.
The concept of opportunity cost is an effective tool in making effective economic decisions. Resource cost estimation is done here on the basis of a comparison with the best of competing, the most efficient method of using rare resources. The centrally controlled system has deprived business entities of independence in making strategic decisions. And that means the possibility of choosing the best alternatives. The central authorities themselves, even with the help of computers, were unable to calculate the optimal structure of production for the country. They could not find answers to the two main questions of the economy "what to produce?" and "how to produce?". Therefore, under these conditions, the result of opportunity costs was often a shortage of goods and low-quality products.
For market economy Choice and alternativeness are inalienable features. Resources must be used in an optimal way, then they will bring maximum profit. Saturation with the goods and services that consumers need is a persistent outcome of the opportunity cost of the market system.
Workshop.
Suppose you have 800 rubles. If you decide to spend these 800 rubles. for a football ticket, what is your opportunity cost of going to a football match?
Opportunity costs, costs of lost profits or costs of alternative opportunities - a term denoting lost profits (in a particular case - profit, income) as a result of choosing one of the alternative options for using resources and, thereby, rejecting other opportunities. The amount of lost profit is determined by the utility of the most valuable of the discarded alternatives.
So in order to know the value of the opportunity cost, you need to know possible options use of these 800 rubles. For example, this amount could be spent on clothes worth 800 rubles, or on products, the total cost of which is also 800 rubles, etc. In this situation, we are faced with a choice and decided to spend 800 rubles. for a football ticket. The cost of purchased goods is the opportunity cost, equal to the cost of services that we sacrifice for the sake of choosing other services. opportunity cost in this example is the cost of goods and services that we gave up in order to purchase a ticket for football.
choice limited resource economic
The value of lost profits depends on the benefits that could have been brought by the most valuable of the discarded options for spending resources.
Opportunity costs are used in financial planning and investment analysis. When a company has two mutually exclusive options for investing money, the choice of the optimal one occurs by comparing the cost of lost benefits of each of the options.
From point of view financial analysis, the lost profit may have a material (monetary) expression or be reflected in hypothetical calculations (modelling). According to this principle, costs can be explicit and implicit.
Explicit Opportunity Costs
A set of monetary payments that a business makes to suppliers, employees, and regulators to support the production process. Explicit costs are divided into three groups.
- Payment of direct production costs: purchase of equipment, technologies, raw materials and materials, remuneration of employees, the cost of introducing new production technologies.
- Payment of associated production costs: transport and customs costs, utilities, accounting and banking services.
- General business expenses: tax and insurance payments, loan repayments, rent payments, additional contributions to state organizations, participation in the creation of infrastructure facilities.
The set of explicit opportunity costs reflects the profitability of the current business model and is used for investment assessment, optimization of the tax burden, selection of optimal suppliers and distributors.
Implicit Opportunity Costs
Implicit opportunity costs are a set of financial benefits that a business could receive with a different capital investment scheme, they are calculated hypothetically and are divided into three groups.
- The profit that could be obtained from the most profitable investment of capital. The total income that a similar amount could bring when investing in the most efficient business sector allows us to assess the demand for the industry and its development potential.
- The difference between the current income of the enterprise and the size of normal profit shows the efficiency of the business relative to competitors: the greater the amount of costs, the less stable the company.
- The profit that could be made by investing factors of production in any other industry. This is money that could be received by employees in another company, business owners - when opening a company in another area, owners of capital - when investing in any other project.
To respond to a headhunter and give more detailed answers. Suddenly someone will come in handy.
- The concept of opportunity cost means:
- conditionality of any financial or investment decision rejection of any alternative
- the need to commensurate the costs of the enterprise with industry averages
- the objective need to use situational modeling in investment analysis
- possibility of implicit costs
Opportunity cost - economic term, denoting the loss of profit as a result of choosing one of the alternative options for using resources and, thereby, forgoing other options. (c) wiki
- direct and indirect;
- constants and variables;
- production and marketing;
- reimbursable and non-reimbursable
"Analysis of the break-even point" is a system for managing the financial result through the break-even point, i.e. the point at which the costs of production and sale of products are fully offset by income. When using a formula to find the number of units of a product or service, constants and variable costs. The formula itself can be seen, for example.
- the difference between non-current and current assets;
- the amount of cash and receivables;
- the difference between current assets and short-term liabilities;
- amount of receivables and payables
According to wikipedia, for example.
- placement of ordinary shares;
- placement of preferred shares;
- placement of bonds;
- financing from retained earnings
The placement of shares increases equity. The placement of shares increases borrowed capital.
- Debts to participants (founders) for payment of income
- Financial investments
- Deferred tax liabilities
Financial investments are one of the ways to increase net assets.
- Low economic efficiency of the enterprise
- Impossibility of profitable operation of the enterprise
- High risk of loss of liquidity by the enterprise
- All of the above
A negative net working capital indicates an inability to repay all short-term liabilities on time
- The difference between the duration of the operating cycle and the time of circulation of receivables
- The sum of the circulation time of receivables and payables
- The sum of the duration of the turnover of inventories and the time of circulation of receivables
- The difference between the duration of the operating cycle and the time of circulation of accounts payable
Financial cycle = operating cycle- time of circulation of accounts payable (s)
- The period of cash turnover will increase;
- The cash flow period will not change;
- The period of cash turnover will decrease;
- can't say for sure
the cash turnover ratio is calculated as the ratio of revenue to the amount of cash according to the formula
Ko (DS) \u003d V / DS
where Co(DS) is the cash turnover ratio
AT - is the revenue
DC - is money
The value of the indicator shows how many times during the period, the organization's funds have made turnovers. The duration of cash turnover is calculated by the formula:
To(DS)=360/Ko(DS) where To(DS) - turnover period
Therefore, if the coefficient turnover will be lower, the turnover period will increase.
- cash turnover period;
- duration of the operating cycle;
- the duration of the financial cycle;
- payables turnover period
By the "opposite" method: of all of the above, only the duration of the financial cycle can have a negative value. The negative value of the duration of the financial cycle means the availability of temporarily free cash.
- there is a direct relationship;
- there is an inverse relationship;
- there is no dependency
According to the formula for calculating the coefficient of current liquidity.
- 42 days
- 98 days
- 36 days
- 58 days
Duration of the financial cycle = Duration of inventory turnover + Duration of accounts receivable turnover - Duration of accounts payable turnover
CCC = DIO + DSO - DPO
Cash conversion cycle = Days inventory outstanding + Days sales outstanding – Days payable outstanding (s)
- 10%
Within one measured period, we divide the profitability of sales in this period (20%) by the asset turnover ratio (1/2), obviously :)
- production budget;
- sales budget;
- business expenses budget
- cash flow budget
The preparation of the overall budget begins precisely with the operating budget, the first step in the development of which is the sales budget.
- market value of the company
- difference between discounted cash inflows and cash outflows from project implementation
- estimated cost of the project
- the cost of the project minus the profit of investors
See what is net present value.
- Average level of profitability of an investment project
- The minimum level of expenses for the investment project
- Predictive assessment of changes in the economic potential of the organization
- The discount rate at which the net present value of the project becomes zero
See what is the internal rate of return.
- Increases net present value
- Reduces net present value
- Does not change net present value
- Can't say for sure
See what NPV is and how it can be affected by inflation.
- is increasing
- Decreases
- Increases in the case of a long-term financial transaction and decreases in the case of a short-term financial transaction
- May change in any direction depending on the type of discount rate
See the discounted value calculation formula.
- Determined internal documents organizations
- Characterized by the price of the enterprise
- Directly depends on the structure of the organization's assets
- Shows the relative level of expenses for servicing the total (own and borrowed) capital
Method of Exceptions: Turning to Concepts prices and capital structures. On the one hand, the capital of the enterprise is formed due to various financial sources, attracting these sources is associated with certain costs incurred by the enterprise. The totality of these costs, expressed as a percentage of the amount of capital, is the price (cost) of the firm's capital. (it turns out that the 3rd option is correct)
On the other hand, the entire set of financial resources of an enterprise that forms its capital can be conditionally divided into two blocks: own and borrowed capital. The ratio of own and borrowed capital is characterized by the concept of "capital structure".
- increase in cash outflow from core activities;
- increase in cash inflow from core activities;
- increase in cash outflow from investment activities;
- increase cash flow from financing activities
An increase in receivables leads to the diversion of working capital directly from turnover
- capital growth rate > (profit growth rate = sales growth rate);
- profit growth rate > sales growth rate > capital growth rate;
- profit growth rate > (sales growth rate = capital growth rate)
It is necessary to evaluate the dynamics of the main indicators of the company's activity by comparing the rates of their change. If profits increase at a faster rate than sales, then costs may decrease. If the volume of sales increases faster than the assets of the enterprise, then there is an efficient use of the resources of the enterprise, then the economic potential of the enterprise increases compared to the previous period.
- 45
From February 50 we take 10%, from March x60 we take 20% and from April 40 we take 70%, it turns out (50 * 0.10) + (60 * 0.20) + (40 * 0.70) = 45.
- 2 million rubles
- 3 million rubles
- 1 million rubles
Current liquidity ratio = current assets/ Current responsibility
Net Working Capital = Current Assets - Current Liabilities.
Substitute a ratio of 2 to 3 in relation to 5 million.
- RUB 333.33 thousand
- 250 thousand rubles
- 3000 thousand rubles
3 months = 1/4 of a year. Substitute the value of annual sales.
- main activity;
- financial activities;
- investment activity;
- lending activities
- Opportunity costs, costs of lost profits or costs of alternative opportunities (English opportunity cost) - an economic term denoting lost profits (in a particular case - profit, income) as a result of choosing one of the alternative options for using resources and, thereby, rejecting other opportunities . The amount of lost profit is determined by the utility of the most valuable of the discarded alternatives. Opportunity costs are an inseparable part of any decision making. The term was introduced by the Austrian economist Friedrich von Wieser in his monograph The Theory of Social Economy in 1914.
Opportunity costs can be expressed both in kind (in goods, the production or consumption of which had to be abandoned), and in the monetary equivalent of these alternatives. Also, opportunity costs can be expressed in hours of time (lost time in terms of its alternative use).
The theory of opportunity cost is described in the monograph "The Theory of the Social Economy" in 1914. According to her:
productive goods represent the future. Their value depends on the value of the final product;
the limited resources determine the competitiveness and alternative ways of their use;
production costs are subjective and depend on the alternative possibilities that have to be sacrificed in the production of a certain good;
the real value (utility) of any thing is the lost utility of other things that could be produced using the resources spent on the production of this thing. This provision is also known as Wieser's Law;
imputation is carried out on the basis of opportunity costs - the costs of lost opportunities. The contribution of von Wieser's theory of opportunity costs to economics is that it is the first description of the principles of efficient production.
Opportunity costs are not expenses in the accounting sense; they are just an economic construct to account for lost alternatives.
Related concepts
Smith's dogma is one of the fundamental theses of classical political economy, formulated by Adam Smith, according to which the price (exchange value) of the annual product of a society is calculated as the sum of the incomes of all members of society. "Smith's dogma" is studied in the program of the modern course of the history of economic doctrines, along with other provisions of classical political economy.
The costing argument is one type of criticism of the planned economy. It was first proposed by Ludwig von Mises in 1920 and later studied in detail by Friedrich Hayek.
Profit is the positive difference between total income (which includes proceeds from the sale of goods and services, received fines and compensation, interest income, etc.) and the costs of production or acquisition, storage, transportation, and marketing of these goods and services. Profit \u003d Revenue - Costs (in monetary terms).
References in literature
The economic cost is opportunity cost enterprises. They include accounting (explicit) and implicit (internal) costs that are owned by the enterprise, for which it does not pay. Therefore, internal costs include income on own resources within a nominal percentage, that is, if they were leased, and normal profit, determined by the wages and remuneration of the entrepreneur, as if he were employed. Economic costs are used to decide whether to continue the adopted business policy or change it.
The counterargument to the benefits of diversification is based on the assumption that diverging asset classes can lead to significant opportunity cost. Naturally, this argument relies on knowledge of past results. Diversification is about the future and its uncertainty, which we cannot predict. This is a counterargument we hear all the time from serious gold bugs (investors who deal exclusively in gold). We, in turn, could look at the lost opportunities they suffered in 2010 due to investments in gold, which returned a measly 30%, while silver rose by 70%. If you recalculate the price of gold in terms of the price of silver, it has lost 23% of its value. A similar argument can be made for the benefits of investing in residential real estate, which has outperformed gold over the past 15 years, despite falls in 2007 and 2008. These are, of course, extremes, but we think they only emphasize that investing everything in gold is just as unwise as giving it up completely.
In the absence of clear and detailed information about new financial instruments their use can be at least useless for business. In odious cases, unmanaged supply in the technology market can harm consumers by provoking abuse by better-informed market participants. The legal and informational vacuum thus becomes a risk factor. The guiding criterion for mastering innovations is opportunity cost determined by the ratio of industrial applicability/novelty of the technology and the costs of its implementation, including due to the lack of legal certainty.
Under opportunity cost are understood as those that must be introduced when assessing the future situation, when there is an alternative for making various decisions. The use of opportunity costs is justified in the analysis based on insufficient (scarce) resources. When analyzing the situation on the basis of excess resources, the opportunity cost is zero.
Curve production possibilities has several levels, each of which is represented by a new type of combination of goods in their monetary terms. Through technological innovations, the development of scientific and technical progress products, the discovery of qualitatively different ways of extracting natural resources, progress in the economy is quite real, which is marked by a transition to a new, higher level of the transformation curve. In this connection, the concept opportunity cost: these are non-produced goods, i.e. those that were discarded as a specialization option at an early stage of production.
This inverse relationship is also increasing: the minimum price for producing and selling more of the same product always increases, mainly due to the increase in opportunity cost. The relationship between the direct and inverse functions of the proposal can similarly be considered using the example of linear dependence.
1) explicit (external). Explicit costs are the firm's payments to suppliers of inputs and intermediate products. They are paid in cash when the factors of production are not owned by the firm. Explicit costs include: wages paid to workers; managers' salaries; commission payments to trading firms; payments to banks and other financial service providers; fees for lawyer consulting, shipping costs and more. Explicit costs do not exhaust all types opportunity cost, which is carried by the firm in the production process;
However, as a financial asset, money only retains value (and even then only in a non-inflationary economy), but does not increase it. Cash has absolute (100%) liquidity, but zero profitability. At the same time, there are other types of financial assets, such as bonds, which generate income in the form of interest. Therefore, the higher the interest rate, the more a person loses by holding cash and not buying interest-bearing bonds. Consequently, the determining factor in the demand for money as a financial asset is the interest rate. At the same time, the interest rate is opportunity cost storage of cash. A high interest rate means high bond yields and high holding costs, which reduces the demand for cash. With a low rate, i.e., low costs of holding cash, the demand for it increases, because with a low return on other financial assets, people tend to have more cash, preferring its property absolute liquidity. Thus, the demand for money depends negatively on the rate of interest. The negative relationship between the speculative demand for money and the interest rate can be explained in another way - from the point of view of people's behavior in the securities (bonds) market.
Related concepts (continued)
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Conspicuous consumption (eng. conspicuous consumption, prestigious, ostentatious, status consumption) - wasteful spending on goods or services with the primary goal of demonstrating one's own wealth. From the point of view of the conspicuous consumer, such behavior serves as a means of achieving or maintaining a certain social status.
Reproduction is the constant renewal of the production process. It has several models: simple (constant), extended (increasing), narrowed (decreasing).
Prediction markets are a type of speculative markets; their purpose is to make predictions. In such markets, assets are created whose ultimate monetary value is tied to a certain event (for example, whether the next American President will be a Republican) or a parameter (for example, what sales will be in the next quarter). Thus, current market prices can be interpreted as a forecast of the probability of a certain event or parameter value. We can say that the markets ...
The broken window metaphor (sometimes translated as "the parable of the broken window") is a metaphor given by the economist Frédéric Bastiat in his essay Ce qu'on voit et ce qu'on ne voit pas ("On what is seen and what what is not visible"), 1850. According to Henry Hazlitt, this metaphor illustrates one of the common misconceptions about economics, namely that any disaster can contribute to economic development.
Velocity of money (velocity of circulation) - the average frequency with which the monetary unit is used to purchase new domestic goods and services for certain period time. The velocity of money circulation largely depends on the volume of economic activity for a given money supply. If a period of time is stated, the speed may be represented by a number. Otherwise, the measure must be given in the form of a number over a period of time.
Rational ignorance is a term often used in economics, sometimes in public choice theory, and also in other disciplines that study rationality and choice, including philosophy (epistemology) and game theory.
General utility theory is an attempt to substantially generalize most of the classical and modern theories that relate the concept of utility to decision making under uncertainty.
Microeconomics (ancient Greek μικρός - small; οἶκος - house; νόμος - law) is a section of economic theory that studies the functioning of economic agents in the course of their production, distribution, consumer and exchange activities.
Technological unemployment is the loss of jobs caused by technological change. Such changes usually include the introduction of labor-saving machines or more efficient production processes. A well-known historical example of technological unemployment is the impoverishment of artisan weavers after the introduction of mechanized looms. Modern example technological unemployment is the reduction of cashiers in stores retail after the introduction of self-checkout...
The problem of transformation is one of the central problems of Marxist political economy, which consists in the contradiction between the labor theory of value and the tendency to equalize the rate of profit in various industries. labor theory value implies that labor is a source of value and surplus value (or profit), profit depends on the amount of labor. But at the same time, in "capital-intensive" industries, the rate of return is higher than in "labor-intensive". Marx tried to explain it...
Risk Management - Acceptance and Execution Process management decisions aimed at reducing the likelihood of an adverse outcome and minimizing possible project losses caused by its implementation.
The Lucas critique, named after Robert Lucas of macroeconomic policy research, is based on the claim that it is naïve to try to predict the effects of economic policy changes only on the basis of interrelationships in available historical data, especially highly aggregated historical data.
The Imperfect Information Model, also known as The Lucas-Islands model, is an economic model developed by Robert Lucas that aims to model the relationship between changes in money supply, price, and output in a simplified economy using rational expectations theory.
The theory of imputation is a theory stating that the quantitatively determined parts of the product and its value owe their origin to labor, land and capital (identified with the means of production). Supporters of the imputation theory see its main task in finding out what part of the value creation can be attributed (imputed) to labor, land and capital.
Mandatory disclosure is a government policy implemented to avoid inconsistent incentives or information asymmetries between seller and buyer. Its important advantage over other methods of market regulation lies in its flexibility and non-interference with perfect competition.
Prospect theory is an economic theory that describes the behavior of people when making decisions related to risks. This theory describes how people choose between alternatives for which the probabilities of the various outcomes are known. Each possible outcome has a certain probability of occurrence and a value that a person determines in a subjective way. Values can be both positive and negative. In the second case, values are losses for a person. Prospect theory makes...
The downward trend in the rate of profit (in the original by Marx: Gesetz vom tendenziellen Fall der Profitrate) is a thesis formulated by Karl Marx in Volume III of Capital. It consists in the fact that, according to the laws of the capitalist economy, that is, because of the very properties of the capitalist economy, there is a tendency for the rate of profit to decrease on a general economic scale.
Consumption - the use of a product in the process of satisfying needs. In economics, consumption is equated with the acquisition of goods or services. Consumption becomes possible as a result of earning income or spending savings.
A poverty trap is any self-sustaining mechanism by which there is no way out of poverty. From generation to generation, the level of poverty only increases if measures are not taken against the trap.
Keynesian economics is a macroeconomic movement that emerged as a reaction of economic theory to the Great Depression in the United States. John Maynard Keynes's General Theory of Employment, Interest and Money, published in 1936, was a seminal work; scientific works J. M. Keynes, where his theory is developed, have been published since the early 1920s, influenced by the lessons and consequences of the First World War. In The Economic Consequences of the World, J. M. Keynes puts forward ...
The minimum acceptable rate of return (MARR) is the minimum rate of return on a project that a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of other projects in the business and engineering. A synonym seen in many contexts is the minimum attractive rate of return.
“There are no free breakfasts"(Eng. There ain" t no such thing as a free lunch) - a catchphrase implying that obtaining any benefit is always associated with costs, even if these costs are not visible at first glance. Original See also There's no such thing as a free lunch, or as the acronyms TNSTAAFL, TANSTAAFL, or TINSTAAFL. Translations into Russian also include “there are no free breakfasts”, “there are no free snacks”, “there are no free lunches”.
The Pigou effect is a macroeconomic effect of GDP and employment growth caused by an increase in consumption due to an increase in real wealth, in particular during deflation.
The informal economy is a sector of the economy, an area of human activity aimed at obtaining benefits, the main regulation in which occurs with the help of dominant informal norms, can be defined as all economic activity, for various reasons (non-monetary turnover, high taxes, legislative prohibitions, etc.) .) not taken into account by official statistics and not included in GDP. The term itself is an example of a “negative” definition, that is, a definition from the contrary, among ...
Unconditional (guaranteed) basic income (unconditional basic income, UBI) is a social concept that involves the regular payment of a certain amount of money to each member of a certain community by the state or other institution. Payments are made to all members of the community, regardless of income level and without the need for work.
Fundamental analysis is a term for methods for predicting the market (stock) value of a company based on an analysis of the financial and performance indicators of its activities.