Economics is the study of how people choose to allocate scarce resources. Every resource is limited in some way – wood , metal, food, even your time – and economics is the study of how people distribute these resources. Modern economics is broken into microeconomics (study of individuals) and macroeconomics (the study of large-scale economies).
Archive for the ‘Daily Definition’ Category
Economics is…
Thursday, July 21st, 2011To Commoditize is…
Thursday, July 21st, 2011To commoditize is to treat something like a commodity. When you commoditize, you take a set of similar products and treat them as indistinguishable. Imagine printer paper: you don’t care which brand you get; all that matters is getting the best price. Printer paper is a commoditized market. However, the laser printer market is not a commoditized market because the different brands and their respective features matter more to you.
Commoditization takes differentiated products and transforms them into a uniform commodity market.
The Debt Ceiling is…
Thursday, July 21st, 2011The debt ceiling is the established limit on how much outstanding debt the United States government can owe. The government is allowed most types of borrowing under the condition that it stays below the debt ceiling.
Previously, Congress had to give the okay for each separate debt issuance that the federal government requested. However, during World War I, it became tiring for the federal government to constantly ask for approval. The debt ceiling emerged so that the government did not have to repeatedly seek permission and could manage its borrowing more freely.
Tax-deferred is…
Thursday, July 21st, 2011Tax-deferred is when you don’t have to pay taxes on a particular account as long as your money remains in it. You wait to pay the tax until you take the money. Once you withdraw your money, it’s up for grabs and the IRS can begin to tax it.
Retirement plans are a great example. Money stashed away in annuities, 401(k)s, and IRAs is tax-deferred to varying degrees and can grow for decades until you reach your retirement age.
Administrative Expenses are…
Thursday, July 21st, 2011Administrative expenses include the part of a company’s budget spent on its wellbeing or upkeep, but which don’t directly relate to the sales efforts of the company. For example, administrative expenses include costs associated with administrative staff, food and drinks for meetings, paperclips, and utility bills.
Liquid Assets are…
Thursday, July 21st, 2011Liquid assets are assets (things you own or are owed) that can be easily converted into cash.
The money in your checking account is a liquid asset – it can be accessed any time at the bank or by using an ATM. On the flip side, a house isn’t liquid at all. You may have sunk a million into purchasing it, but if someone asks you for that same million in cash tomorrow, you won’t be able to hand it over.
The Cash Price is…
Thursday, July 21st, 2011The cash price is the price a seller charges a customer given that they plan on paying immediately in cash. Credit card companies charge retailers a commission (a small percentage of the sale), so some stores will charge a different price for people who use credit cards versus cash to make up for the difference.
You may have noticed that gas stations sometimes advertise “$2.50 per gallon–cash || $2.53 per gallon — credit.” $2.50 is the cash price.
NAFTA is…
Thursday, July 21st, 2011NAFTA is the North American Free Trade Agreement. In the 1990′s the United States, Canada, and Mexico negotiated NAFTA, which removed tariffs and other barriers to trade. The agreement makes trade between the three nations of North America mega-easy and is intended to generate trillions of dollars of revenue every year.
A Performance Fee is…
Thursday, July 21st, 2011A performance fee is an additional payment based on success. For example, a hedge fund manager might receive a performance fee (like a bonus) based on the profitability of his fund. Ideally, the promise of this fee will encourage the manager to make the best possible investments.