Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. For example, a person's income in an economic sense may be different from their income as defined by law.
A tax is a mandatory financial charge or levy imposed on a taxpayer by a governmental organization to support government spending and public expenditures collectively or to regulate and reduce negative externalities. Tax compliance refers to policy actions and individual behavior aimed at ensuring that taxpayers are paying the right amount of tax at the right time and securing the correct tax allowances and tax relief. The first known taxation occurred in Ancient Egypt around 3000–2800 BC. Taxes consist of direct or indirect taxes and may be paid in money or as labor equivalent.
In economics, utility is a measure of the satisfaction that a certain person has from a certain state of the world. Over time, the term has been used in at least two different meanings.
In economics, deadweight loss is the loss of societal economic welfare due to production/consumption of a good at a quantity where marginal benefit does not equal marginal cost – in other words, there are either goods being produced despite the cost of doing so being larger than the benefit, or additional goods are not being produced despite the fact that the benefits of their production would be larger than the costs. The deadweight loss is the net benefit that is missed out on. While losses to one entity often lead to gains for another, deadweight loss represents the loss that is not regained by anyone else. This loss is therefore attributed to both producers and consumers.
In economics, an externality or external cost is an indirect cost or benefit to an uninvolved third party that arises as an effect of another party's activity. Externalities can be considered as unpriced components that are involved in either consumer or producer market transactions. Air pollution from motor vehicles is one example. The cost of air pollution to society is not paid by either the producers or users of motorized transport to the rest of society. Water pollution from mills and factories is another example. All (water) consumers are made worse off by pollution but are not compensated by the market for this damage. A positive externality is when an individual's consumption in a market increases the well-being of others, but the individual does not charge the third party for the benefit. The third party is essentially getting a free product. An example of this might be the apartment above a bakery receiving some free heat in winter. The people who live in the apartment do not compensate the bakery for this benefit.
In sociology and in economics, the term conspicuous consumption describes and explains the consumer practice of buying and using goods of a higher quality, price, or in greater quantity than practical. In 1899, the sociologist Thorstein Veblen coined the term conspicuous consumption to explain the spending of money on and the acquiring of luxury commodities specifically as a public display of economic power—the income and the accumulated wealth—of the buyer. To the conspicuous consumer, the public display of discretionary income is an economic means of either attaining or of maintaining a given social status.
A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. "Regressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from high to low, so that the average tax rate exceeds the marginal tax rate.
A Pigouvian tax is a tax on any market activity that generates negative externalities. A Pigouvian tax is a method that tries to internalize negative externalities to achieve the Nash equilibrium and optimal Pareto efficiency. The tax is normally set by the government to correct an undesirable or inefficient market outcome and does so by being set equal to the external marginal cost of the negative externalities. In the presence of negative externalities, social cost includes private cost and external cost caused by negative externalities. This means the social cost of a market activity is not covered by the private cost of the activity. In such a case, the market outcome is not efficient and may lead to over-consumption of the product. Often-cited examples of negative externalities are environmental pollution and increased public healthcare costs associated with tobacco and sugary drink consumption.
Welfare economics is a field of economics that applies microeconomic techniques to evaluate the overall well-being (welfare) of a society.
In economics, goods are items that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not transferable.
Utility maximization was first developed by utilitarian philosophers Jeremy Bentham and John Stuart Mill. In microeconomics, the utility maximization problem is the problem consumers face: "How should I spend my money in order to maximize my utility?" It is a type of optimal decision problem. It consists of choosing how much of each available good or service to consume, taking into account a constraint on total spending (income), the prices of the goods and their preferences.
Club goods are a type of good in economics, sometimes classified as a subtype of public goods that are excludable but non-rivalrous, at least until reaching a point where congestion occurs. Often these goods exhibit high excludability, but at the same time low rivalry in consumption. Thus, club goods have essentially zero marginal costs and are generally provided by what is commonly known as natural monopolies. Furthermore, club goods have artificial scarcity. Club theory is the area of economics that studies these goods. One of the most famous provisions was published by Buchanan in 1965 "An Economic Theory of Clubs," in which he addresses the question of how the size of the group influences the voluntary provision of a public good and more fundamentally provides a theoretical structure of communal or collective ownership-consumption arrangements.
Positional goods are goods valued only by how they are distributed among the population, not by how many of them there are available in total. The source of greater worth of positional goods is their desirability as a status symbol, which usually results in them greatly exceeding the value of comparable goods.
In economics, the excess burden of taxation is one of the economic losses that society suffers as the result of taxes or subsidies. Economic theory posits that distortions change the amount and type of economic behavior from that which would occur in a free market without the tax. Excess burdens can be measured using the average cost of funds or the marginal cost of funds (MCF). Excess burdens were first discussed by Adam Smith.
In behavioral economics, rational addiction is the hypothesis that addictions can be usefully modeled as specific kinds of rational, forward-looking, optimal consumption plans. The canonical theory comes from work done by Kevin M. Murphy and Gary Becker.
An internality is the long-term benefit or cost to an individual that they do not consider when making the decision to consume a good or service. One way this is related to behavioral economics is by means of the concept of hyperbolic discounting, in which immediate consequences of a decision are disproportionately weighed compared to the future consequences. A potential cause is lack of access to full information regarding the associated costs and benefits prior to consumption. This contrasts with traditional economic theory, which makes the assumption that individuals are rational decision makers who take all personal costs into account when paying for goods and services.
An excise, or excise tax, is any duty on manufactured goods that is normally levied at the moment of manufacture for internal consumption rather than at sale. It is therefore a fee that must be paid in order to consume certain products. Excises are often associated with customs duties, which are levied on pre-existing goods when they cross a designated border in a specific direction; customs are levied on goods that become taxable items at the border, while excise is levied on goods that came into existence inland.
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. Welfare can be defined in terms of well-being, prosperity, and overall state of being.
The economics concept of a merit good, originated by Richard Musgrave, is a commodity which is judged that an individual or society should have on the basis of some concept of benefit, rather than ability and willingness to pay. The term is, perhaps, less often used presently than it was during the 1960s to 1980s but the concept still motivates many economic actions by governments. Examples include in-kind transfers such as the provision of food stamps to assist nutrition, the delivery of health services to improve quality of life and reduce morbidity, and subsidized housing and education.
This glossary of economics is a list of definitions of terms and concepts used in economics, its sub-disciplines, and related fields.
