A

Anti-trust laws - Legislation to control monopoly and other market-based restrictive practice in order promote competition. It applies not only to the amalgamation of firms (that is, trust) but also for restrictive practices of single companies. The Antitrust legislation originated, in its modern form in the United States. The Sherman Act (1980) made monopoly or the restraint of trade illegal. The Clyaton Act (1914) clarified earlier legislation and prohibited specific activities. Anti-trust policy is over-seen by the Federal Trade Commission (FTC), a federal government agency created in 1914 which cooperates with, but is independent of, the Anti-Trust Division of the Department of Justice (Bannock et. Al, 1992, 15).

Averch-Johnson effect - Harvey Averch and Leland Johnson published in 1962 a critique on the system of rate of return ("cost plus") regulation. In a paper they published they suggested that profit-motivated firms under regime of rate of return regulation have interest to maximize their costs in order to maximize returns. This is the basic problem of rate-of-return regulation that led to the promotion of different forms of incentive regulation. See Averch, Harvey and Johnson, Leland, "Behavior of the Firm Under Regulatory Constraints", American Economic Review, 1962, Vol 52, pp. 1053-1069.

Avoided Costs - A regulatory term for the amount of money that an electric utility would need to spend for the next increment of electric generation that it instead buys from "new independent producer of electricity" (Smellof and Asmus, 1997,209).

B

Bretton Woods - An international conference that was held at Bretton Woods, New Hampshire, USA, in July 1944 to discuss alternative proposals relating to post-war international payments problems put forward by the US, Canada, and UK governments. The agreement resulting from this conference led to the establishment of the International Monetary Fund and the International Bank for Reconstruction and Development. (Bannock et Al., 1992, 47).

Brussels Conference - An international conference at Brussels (1920) which, with that at Genoa in 1922, obtained agreement that every country should have a central bank through which to control its financial affairs. This was a necessary preliminary to the establishment of the Bank for International Settlements at Basle (Bannock, 1997, 47).

C

Capitalism - A social, political and economic system in which individuals are free to own the means of production and maximize profits and in which resources allocation is determined by the price system.

Capture ("Regulatory Capture)" -

Cartel - An association of producers to regulate prices by restricting output and competition. Cartels are illegal under many anti-trust laws. Some governments however promotes cartels for various reasons, notably, promoting export (Bannock et Al., 1992, 62).

Central Bank - A bankers' bank and lender of the last resort. Almost all countries have a central bank that is the instrument of the government's function of controlling the Credit System. Since the 1980s the central banks became to acquire more independence as well as more control over the direction of national economic policy.

Closed economy - An economic system with little or no external trade, as opposed to an open economy, in which a high proportion of output is absorbed by exports and similarly domestic expenditure by import (Bannock et. Al., 1992, 71).

Collusion - Cooperation between independent firms so as to modify competition. Collusion may be tacit or explicit and may involve fixing prices (Bannock et Al., 1992, 74).

Company law - The law governing the establishment and conduct of incorporated business enterprise. It originally developed from the "Partnership", and has its origins in common law and, from the eighteenth century onwards, in a series of company and other Acts. The first companies were created by Royal Charter, and the whole basis of company law is that certain benefits are conferred (in many of these first instances, that of a MONOPOLY) in return for certain obligations. The Act of 1720 created the Statutory Company with limited liability, making possible, for example, the establishment of the early British railway companies. By 1825 the expansion of business had made the creation of companies by separate Acts of Parliament too cumbersome, and in that year a new Act made it possible to form JOINT-STOCK COMPANIES by registration with a Registrar of Companies. It was not until 1862, however, that limited liability was extended to certain private as well as public companies. Company law has continued to evolve under successive Acts as the needs of business have developed and altered. The 1907 Act introduced the distinction between the PRIVATE COMPANY and the PUBLIC COMPANY. Other laws such as the Prevention of Fraud Act also apply to companies. Under present British law (deriving principally from the 1948, 1967, 1976, 1980 and 1981 Companies Acts which were repealed and consolidated in the Companies Act 1985 and the Companies Act 1989) there are three classes of company: (a) limited and (b) unlimited private companies; and (c) public limited companies (plc). Compared with the two other forms of business unit, the SOLE PROPRIETOR and the partnership, Incorporation confers advantages for financing and in certain circumstances taxation, in addition to limited liability where appropriate. (An unlimited private company does not have limited liability, i.e. its owners are responsible for company debt to the full extent of their fortune.) However, companies, unlike individuals or partnership, are obliged to make public certain information about their business. Both private and public limited companies are obliged to file certain information for public inspection and to circulate accounts to their shareholders. Until 1967 certain private companies, 'exempt private companies', were not obliged to comply with all of the accounting and disclosure requirements and under present legislation there are exemptions for small and medium-sized companies which are not public companies.

The amount of information which larger companies are required to publish has increased in successive Companies Acts, and the directors' report must now cover such matters as employment, exports, employee aggregate remuneration and donations to political causes or charities. The 1976 Companies Act contained provisions to speed up the publication of accounts and covered the appointment and removal of auditors and other matters. The 1981 Companies Act allowed companies to acquire their own shares under certain circumstances and required them to publish details of such transactions. That Act also, in a major departure, laid down detailed schedules for the form and content of the BALANCE SHEET and profit-and-loss account to give effect to the EC Fourth Directive harmonizing company law in the community. All these provisions remained essentially the same in the 1985 Act. Among other provisions, the 1989 Act requires companies to disclose a holding of more than 3 per cent in another company. A public company may have an unlimited number of shareholders and may offer SHARES for public subscription (Bannock et al., 1992, 77).

Comparative Advantage - The idea that economic agents are most efficiently employed in activities in which they perform relatively better than in others. The importance of comparative advantage is that it suggests that, even if someone is very bad at some activity, perhaps even worse than anyone else at it, it could still be efficient fro him to pursue it if he is even more inept at other activities. The idea is particularly important in international trade, where it is suggested that countries should specialize in areas in which they have a comparative advantage (Bannock et Al., 1992, 79).

Contestable Markets (Theory) - government regulation of a natural monopolies may not be necessary, if there is no need for significant "sunk" investments to enter the industry. With low entry barriers, the market becomes contestable in the sense that higher prices may attract the entry of new competitors. See, Baumol, W., Panzer, J. and Willig, D., Contestable Markets and the Theory of Industrial Structure, New York, Harcourt Brace Jovanovich, 1982.

Convergence - The tendency of societies/states/regimes to grow more alike, to develop similarities in structures, processes and performances (Kerr, 1983, 3).

D

Devaluation - The reduction of the official rate at which one currency is exchanged for another. Governments regard devaluation as a means of correcting a balance-of-payment deficit. Devaluation may generate inflation and is usually perceived as a temporary tool for curing the economic ills of a country.

Deregulation -

Diminishing returns (law of) - A law that states that as extra units of one factor of production are employed, with all others held constant, the output generated by each additional unit will eventually fall. In effect, that the marginal product of factors declines when they are employed in increasing quantities. For example, a farmer with one field might find that one man could produce two tons of grain. Two men five tons of grain- more than twice as much; but three mend only seven tons of grain. The extra production gained from adding a worker started at two, rose to three, then fell back to two. (Bannock et Al., 1992, 114).

Division of Labor - The allocation of labor such that each worker specialize in one or a few functions in the production process. Adam Smith illustrated the principle in the different stages of pin-making: drawing the wire, cutting, head-fitting, sharpening. The division improved labour productivity (a) by the more efficient acquiring of specialist skills and (b) through the saving of time because workers did not have to move from one operation to another. Through the division of labor economics of scale could be achieved. The exchange economy was essential to its operation. Each worker could so specialize as long as he was assured that he could exchange his output for other to satisfy his needs. The principle of division of labor applies to firms and countries also: similar benefits may be achieved by the specialization in those activities in which the firm or country has a comparative advantage (Bannock et. Al, 1992, 121)

Dumping - Strictly, the sale of a commodity on a foreign market at a price below marginal cost. An exporting country may support the short-run losses of this policy in order to acquire markets (and hard currency) abroad. Alternatively, it may dump in order to dispose of temporary surpluses in order to avoid a reduction in home prices and therefore producers' incomes. (Bannock et Al., 1992, 122-3).

Duopoly - Two sellers only of a good or service in a market

E

Economies of Scale - Factors which cause the average cost of producing a commodity to fall as output of the commodity rises (Bannock et Al., 1992, 130).

Economies of Scope - Factors which make it cheaper to produce a range of related products than to produce each of the individual products on their own (Bannock et Al., 1992, 131).

Externality - Any cost or benefit not accounted for in the price of goods or services.

F

Federal Energy Regulatory Commission (FERC) - An independent federal commission that has jurisdiction over energy producers that sell or transport fuels for resale in interstate commerce. See its web-site

Fiscal Policy - The budgetary stance of central government. Decision to lower taxation or increase public expenditure in the interests of stimulating aggregate demand are referred to as losing fiscal policy. Higher tax rates or reductions in public expenditure will tighten fiscal policy. There is often considerable controversy about the appropriate stance of fiscal policy and the balance between fiscal and monetary policies, the two main tools of government to influencing the general level of economic activity (Bannock et Al., 1992, 164).

Free-trade area - A customs-defined area in which goods or services my be processed without attracting taxes or duties or being subjected to certain government regulations. A special case is the free-port, into which goods are imported free of customers tariffs or taxes (Bannock et Al., 1992, 172).

G

General Agreement on Tariffs and Trade (GATT) - An international organization with a secretariat in Geneva which came into operation in January 1948 as a result of an agreement made at an international conference the previous year, which also included plans for an international trade organization. Nothing came of the latter, but GATT has proved a useful body for international tariff bargaining. There have been successive negotiation between the countries on tariffs, the abolition of quotas and preferential trade agreements. The negotiations are organized in rounds in talks. The first meeting was in Geneva in 1947. Sometimes negotiations takes years. In the Tokyo round started in 1974 and was concluded only in 1979. GATT focus on commodities was extended in the 1980s to services. In the mid 1990s GATT was reorganized as the World Trade Organization [WTO]

Gold Standard - A country is said to be on the gold standard when its central bank is obliged to give gold in exchange for any of its currency presented to it. When the UK was on the gold standard before 1914, anybody could go to the Bank of England and demand gold in exchange for bank-notes. The fact that each currency was freely convertible into gold fixed the exchange rates between currencies and all international debts were settled in gold. A balance of payment surplus caused an inflow of gold into the central bank's reserves. This enabled the central bank to expand the money supply without fear of having insufficient gold to meet its liabilities. The increase in the quantity of money raised prices, resulting in a fall in the demand for exports and therefore a reduction in the balance of payment surplus. The reserve happened in the event of deficit. The UK came off the gold standard in 1914, partly returned to it in 1925, but was forced to abandon gold finally in 193. The USA was on the old standard from 1879 to 1933, although gold was officially required in bank deposits to support a percentage of the currency in circulation until 1968. For overseas monetary authorities only, the dollar was convertible into gold until 1971. Switzerland, which abandoned gold convertibility in 1954, still requires a percentage of its currency to be supported by gold (Bannock et al., 1992, 184).

Gross Domestic Product [GDP] - A measure of the total flow of goods and services produced by the economy over a specified period, normally a year.
Because income arising from investments and possessions owned abroad is not included, only the value of the flow of goods and services produced in the country is estimated. Hence the word 'domestic' to distinguish it from the Gross National Product (Bannock et al., 1992, 186).

Gross National Product [GNP] - Gross domestic product plus the income accruing to domestic residents arising from investment abroad less income earned in the domestic market accruing to foreigners abroad (Bannock et al., 1992, 187).

H

Hard Currency - A currency traded in a foreign-exchange market for which demand is persistently high relative to the supply (Bannock et al., 1992, 190).

Holding Company - A company that controls one or more other companies, normally by holding a majority of the shares of these subsidiaries. A holding company is concerned with control, and not with investment, and may be economically justifiable where one holding company can perform financial, managerial or marketing functions for a number of subsidiaries (Bannock et al., 1992, 196).

Horizontal Integration - (see also vertical integration)

Human Capital - The skills and knowledge embodied in the labor force. A metallurgists can expect to earn more than a laboratory assistant because he has invested more in education and training and these higher earnings are a return on the investment he (or his parents, or the state) have made in school fees and foregone earnings (Bannock et al., 1992, 198).

I

Incentive Regulation

Industrial Democracy - The participation of employees in decision-making in industrial organizations. There are several ways in which workers' participation can be organized. In Tito's Yugoslavia employees elected their management and determined both their own and the managers' remuneration by free vote. In Western Germany larger companies are obliged to have a two-tier board system consisting of a supervisory board and management board. Employees in works councils elect the same number of representatives to the supervisory board as share-holders and these two groups together co-opt the remaining board members (Bannock et al., 1992, 211). .

Infant industry - An argument in support of the retention of a protective import tariff. An industry does not operate at an optimum least-cost output until it has reached a sufficient size to obtain significant economies of scale. A new industry, therefore, in, say, a developing country, will always be in a competitively vulnerable position vis-a-vis an established industry in an advanced country (Bannock et al., 1992, 211).

International Bank for Reconstruction and Development (IBRD) - Also known as the World Bank, the establishment of the IBRD, like the International Monetary Fund, was agreed by the representatives of forty-four countries at the UN Monetary and Bretton Woods in July 1944. It began operation in June 1946, and has it head office in Washington. The purpose of the Bank is to encourage capital investment for the reconstruction and development of its member countries, either by channeling the necessary private funds or by making loans from its own resources. Two per cent of each member's subscription is paid into the Bank's funds in gold or dollars, 18% in the country's own currency, and the remainder is retained but available for call to meet any of its liabilities if required. The Bank also raises money by selling bonds on the world market. Generally speaking, the Bank makes loans either direct to government or with governments as the guarantor. Contributions of member countries to its capital are made in proportion to that member's share in world trade. Members' voting rights are allocated in the same way. In 1988 the capitalization of the Bank was increased to $171 billion. China became a member in 1990. Loans committed to the developing countries totalled $21 billion in the year ending June 1990 (Bannock et al., 1992, 220).

International Monetary Fund (IMF) - The IMF was set up by the Bretton Woods Agreement of 1944 and came into operation in March 1947. The fund was established to encourage international cooperation in the monetary field and the removal of foreign exchange restrictions, to stabilize exchange rates and to facilitate a multilateral payments system between member countries. In 1990 the fund had 152 members.

Invisible Hand - Adam Smith believed that society was such that, although individuals pursued their own advantage, the greatest benefit to society as a whole was achieved by their being free to do so. each individual was 'led by an invisible hand to promote an end which was no part of his intention" (Bannock et al., 1992, 232).

J

Joint-stock company - A now virtually obsolete term for a business enterprise in which the capital is divided into small units permitting a number of investors to contribute varying amounts to the total, profits being divided between stockholders in proportion to the number of shares they own. The joint-stock company developed, from the seventeenth century onwards, out of the need for increasingly large amounts of capital by certain types of enterprise, such as overseas trading companies. By 1720, abuse of the join-stock system (culminating in the South See Bubble crisis) made it necessary to control business more closely, and the statutory company has its origins in the Act of that date (Bannock et al., 1992, 237).

K

Keynesianism - The branch of economic theory, and the doctrines, associated with Keynes. In general, Keynesian economics tends to support the following propositions:
(a) aggregate demand plays a decisive role in determining the level of real output
(b) Economies can settle at position with high unemployment and exhibit no natural tendency for unemployment to fall
(c) Governments, primarily through fiscal policy, can influence aggregate demand to cut unemployment (Bannock et al., 1992, 243).

L

"Laissez-faire" - Laissez-faire, laissez-passer was the term originally taken up the physiocrats. They believed that only agriculture yielded wealth. Consequently they condemned any interference with industry by government agencies as being inappropriate and harmful, expect in so fare as it was necessary to break up private monopoly. The principle of the non-intervention of government in economic affairs was given full support by the classical economists, who took up the theme from Adam Smith: "The Statesman, who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it" (Bannock et al., 1992, 250).

M

Marginal analysis - The study of variables in terms of the effects that would occur if they were changed by small amount. For example, rather than analyze whether or not is is in the interest of an individual to spend money on food at all, attention can sensibly be focused on whether or not welfare could be enhanced by spending more or less on food. Nothing better demonstrates the concept than the Paradox of Value: although water is more necessary to man than diamonds, it has a much lower price. This is because man usually has so much of it that extra water is worthless. This is not true of diamonds. The marginal value of a variable is equivalent to its rate of change.
The margin is important in economics as it is the impact of small changes in variables rather than their level per se that determines whether rational economic agents change them. It is the average level of utility, costs or revenues that tends to determine whether things are consumed or produced at all. Yet, it is the marginal utility, costs or revenues that determine how much is consumed or produced once a decision to do so at all has been taken (Bannock et al., 1992, 268-9).

Marginal Cost - The increase in the total costs of a firm caused by increasing its output by one extra unit. If all costs are fixed, the marginal cost of the first unit of output will be very high, but all subsequent units can be made for nothing. Economists normally assume firms to be producing at a point at which marginal costs are positive and rising (Bannock et al., 1992, 269).

Market failure - a situation in which economic efficiency has not been achieved through market mechanism. Market failure may manifest itself either in the inability of the system to produce goods which are wanted or by a maldistribution of resources which could be improved in such a way that some consumers would be better off and worse off. Market will fail where important costs, such as pollution, are not reflected in prices or where there is monopoly or oligopoly or where government actions, for example the imposition of taxation, distort markets (Bannock et al., 1992, 274).

Market power - The degree to which a firm exercises influence over the price and output in a particular market. Under prefect competition, all firms are assumed to have zero market power. Where market power exists, the producer affects the market price, and so price is not equivalent to marginal costs (Bannock et al., 1992, 274-5).

Marshall Aid - At the end of the Second World War, only the USA had the necessary productive capacity to make good the losses experienced by other countries. European countries had heavy balance of payments deficit vis-a-vis the USA. In 1946, in order to alleviate the resultant shortage of dollars, the USA and Canada made substantial loans, including 1,000 million pounds to the UK. It was expected that these loans would be sufficient to cover requirements over the short period which was all that was expected to be necessary for the world economies to recover. However, in 1948 a general liquidity crisis was avoided only by further loans made under the European Recovery Programme, though which the UK received loans amounting to 1,500 million pounds between 1948 and 1950. This programme was called Marshal Aid, after the secretary of State, General Marshall. The loans were allocated under the direction of the Organization for European Economic Cooperation set up for this purpose (Bannock et al., 1992, 277).

Mercantlism - The growth of international trade and the establishment of the power of the merchant after the medieval era led to the emergence of a body of though, between the mid sixteenth and late seventeenth centuries, which was primarily concerned with the relationship between a nation's wealth and its balance of foreign trade. The mercantilists recognized the growing power of the national economy and were in favour of the intervention of the state in economic activity to maximize national wealth. Partly because the monetary system was very primitive in relation to the growing needs of economic expansion, mercantilists writing was often overburdened with the identification of national wealth with precious metals. But its leading writers did make important progress in developing economic thought and made significant contributions to the analysis of international trade problems (Bannock et al., 1992, 282).

Mercosul - Association of Brazil, Argentina, Uruguay and Paraguay. By the Treaty of Ascuncion in 1991 they agreed to establish the Mercosul or Southern Cone common market between their four countries by 1995. The first tariff reduction of 47% would be introduced following the ratification of the Treaty (Bannock et al., 1992, 283).

Mobility of Capital - The ability of investment funds to flow across international borders. Impediments to capital mobility may take the form of restrictions on the inflow of investment funds to a country (restrictions on the rights of foreigners to buy property or companies for example) or exchange control, limiting the ability of domestic citizens to invest overseas. If capital is mobile, investors can lend money to those borrowers who are willing to pay the highest rate of return (after taking to account any expected changes in exchange rates)(Bannock et al., 1992, 287).

Monetarism - the name applied to a theory of macroeconomics which holds that increase in the money supply are necessary and sufficient conditions for inflation. Several strands of though underlie this doctrine and distinguish it from its main theoretical antagonist, Keynesian economics. Two main beliefs dominant the monetarist doctrine:
(a) The first is that changes in the money supply have a substantial effect on aggregate demand.
(b) The second tenet of monetarism is that any change in aggregate demand the government succeeds in bringing about will manifest itself in the long run in higher prices and not higher output.

Monetarism advocates supply-side economics; and denies a role for stabilization policy. Instead, greatest stability can be achieved by adhering to a rule for money-supply growth in line with the growth of real output (Bannock et al., 1992, 289-90).

Monetary Policy - Central government policy with respect to the quantity of money in the economy, the rate of interest and the exchange rate. The importance of monetary policy is much disputed - monetarism as a doctrine holds that is the determinant of aggregate demand, in the short run. Keynes on the other hand held that Fiscal Policy is important, and that monetary policy matters only in as far as it affects fiscal variables, like the public-sector borrowing requirements. (Bannock et al., 1992, 290).

Monopoly - A market in which there is only one supplier. Three features characterize the market. First, the firm in it is motivated by profits. Secondly, it stands alone and barriers prevent new firms from entering the industry. Thirdly, the actions of the monopolists itself affect the market price of its output - it is not a price-taker.
Monopoly is inefficient because, under it, price will be higher than marginal cost, so that even if some consumers value an item more than it costs to make, they may not choose to buy it. Moreover, in the long term there is no tendency for costs to be at their lowest possible level, because the pressure of more efficient, incoming competitors does not exist. It is not surprising given these results that most nations choose to control monopolies, which are usually defined as any firm dominant in a particular industry. (Bannock et al., 1992, 294).

Monopsony - A market in which there is only one buyer of the item sold. Unlike individual consumers in most markets, a monopsonits will have an impact on the market price. When he purchases an extra unit of the item, market demand perceptibly increases and the market price rises. (Bannock et al., 1992, 295).

Moral Hazard - The presence of incentives for individuals to act in ways that incur costs that they do not have to bear. A typical case is that of insurance, because once someone has insured their house against burglary they do not have the incentive to be careful to protect their property (Bannock et al., 1992, 295).

Most favored nation clause - The clause in an international trade treaty under which the signatories promise to extent to each other any favorable trading terms offered in agreements with third parties (Bannock et al., 1992, 295).

Multilateralism - International trade and exchange between more than two countries without discrimination between those involved. In contrast to bilateralism (Bannock et al., 1992, 296).

Multinational Corporation - A company, or more correctly an enterprise, operating in a number of countries and having production or service facilities outside the country of its origin. A commonly accepted definition of an MNE is an enterprise producing at least 25% of its output outside its country of origin. There are over 10,000 corporations with direct investments outside their headquarters country, with over 80,000 affiliates over which they have effective control, but fewer than 500 MNEs account for three-quarters of foreign affiliates and only 200 of these derive 25% or more of their sales from foreign activities. The multinational corporation takes its principal decisions in a global context and thus often outside the counties in which it has particular operations. The rapid growth of these corporations since the Second World War and the possibility that conflicts might arise between their interests and those of the individual countries in which they operate has provoked much discussion among economists in recent years. MNEs possibly account for one-quarter of world trade, but earlier fears that they would come to dominate the world economy now seem misplaced. bartlett and Ghoshal make distinctions between three types of business which builds cost advantages through centralized production (global) or exploit the parent company's Research and Development and systems capability (international) are now sufficient to maximize competitiveness: These authors claim that the translational company which somehow blends these approaches by differentiating contributions by national units to a none the less highly integrated worldwide operation has most successful approach (Bannock et al., 1992, 297).

N

Nationalized industries - State-owned enterprises in the market sector of an economy, such as a post office, as distinct from states acitivty in public goods, such as defence. In Britain, most nationalzied industry was literally private industry that was taken into public ownership, i.e., nationalized; for example, British Steel, British Leyland and Rolls-Royce. In the UK as in other European countries most of the public utilities, electricity, water, coal, transport and communications undertakings are, or were, in state ownership, although several countries, led by Britain, have engaged in a programme of Privatization. The growth of nationalization largely began after the Second World War and has always been a subject of controversy in Britain: the steel industry was nationalized in 1951, de nationalized in 1953 and re-natioanlized in 1967 (Bannock et al., 1992, 304).

Natural Monopoly - An industry in which technical factors preclude the efficient existence of more than one producer. Examples are the public utilities such as water, gas and electricity, where there is a requirement for a network of pipes or cables. In order to device the efficient results of perfect competition from a market which is necessarily monopolistic various suggestions of control have been made: notably, government regulation if the firm is in private ownership, public ownership and franchising. Under any of these, control is enhanced if the monopoly can be regionally divided, allowing performance comparison between different regions. Alternatively, licensing arrangements can be set up so that a dominant supplier runs a network (e.g. piper or cables), but is obliged to lease the use of it to competing suppliers (Bannock et al., 1992, 304).

New Deal - The US Federal government under President Roosevelt began, in 1933, a number of projects designed to give financial assistance and work to the large number of people thrown out of employment by the great depression, which followed the stock-market collapse on Wall Street in 1929. This change of policy was called the New Deal. It met with opposition of right wing politicians and ideologist, because it led to budget deficit and growth of government intervention (Bannock et al., 1992, 307).

Newly Industrialized Countries [NIC] - A country which is not a developing country but has not yet achieved the status of the advanced countries. Singapore, Greece and Mexico, for example, are usually counted as NICs (Bannock et al., 1992, 308).

Non-Tariff Barriers [NTBs] - Obstacles to imports other than quotas or tariffs. Examples include safety or construction and use of regulations which favor domestic over imported products; legal requirements that providers of insurance services should be domiciled within national boundaries; and deliberate delay or obstruction at customs facilities (Bannock et al., 1992, 309).

O

Oligopoly - A market which is dominated by a few large suppliers.

Open Economy - A situation in which foreign trade (exports and imports) and payments and movements of labour and capital into and out of a country are unrestricted. The term is also used to refer to countries for which foreign trade is a large percentage of the Gross Domestic Product. The degree of openness of an economy may act as a constraint on the freedom of governments to pursue particular types of economic policy, for example the reduction of interest rates to stimulate expansion may in an open economy lead to a flight of capital to other countries, depressing the exchange rate with adverse consequences for exports and the price level (Bannock et al., 1992, 313).

Opportunity cost - The value of that which must be given up to acquire or achieve something. Economists attempt to take a comprehensive view of the cost of an activity. If a firm invests undistributed profits to spen $1,000 on new machinery which required less electricity to run that he equipment it replaces, the cost of that machinery is not the outlay of 1,000 alone: what could be earned from the best alternative use of the money also has to be taken into account (Bannock et al., 1992, 314).

Organization for Economic Corporation and Development [OECD] - The organization that came into being in September 1961, renaming an extending the Organization for European Economic Cooperation. It was based on the convention signed in Paris in December 1960 by the 16 original member countries of OEEC, plus Spain, the USA and Canada. Later other developed countries joined. The aims of the OECD are (a) to encourage economic growth and high unemployment with financial stability among the member countries, and (b) to contribute to the economic development of the less advanced member and non-memebr countries and the expansion of multilateral trade. See the OECD Web-Site(Bannock et al., 1992, 317).

Organization of petroleum Exporting Countries [OPEC] - A group of thirteen countries which are major producers and exporters of crude petroleum. The organization, set up in 1960, acts as a forum for discussion of and agreement on the level at which the member countries should fix the price of their crude petroleum exports by production quotas. The 13 member countries are: Algeria, Ecuador, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Quatar, Saudi Arabia, the United Arab Emirates and Venezuela. these countries accounted for about 60% of the total world crude-oil production and about 90% of total world exports in the early 1970s. However, their high oil prices led to substitution by other fuels, and by the expansion of supplies from non-OPEC producers. As a result, OPEC share of world exports fell to about 40% by 1990 (Bannock et al., 1992, 318).

P

Pension funds - Sums of money laid aside and normally invested to provide a regular income on retirement, or compensation for disablement, for the reminder of a person life. Nearly all developed countries have state pension schemes, e.g., the British National Insurance Scheme, but unlike these schemes,, private pension schemes for which contribution receive favorable tax treatment are usually funded, i.e., placed in managed invested funds. Many private pension schemes are based upon assurance (that is, payments are made till death). Occupational pension schemes may be contributory or non-contributory by the employees. The benefits of private schemes are normally related to the length of service of the employee and the level of his salary or contributions. Pension schemes began with the Civil Service of 1832, and later spread to salaried persons in other occupations and, more recently, to wage earners (Bannock et al., 1992, 325).

Perfect Competition - A model of market in which many small firms compete in the supply of a single product. Three primary features characterize a perfectly competitive industry: (1) There is a multitude of firms (buyers as well as sellers) all to small to have any individual impact on market price; (2) All firms aim to maximize profit; (3) Firms can costlessly enter and exist the industry (Bannock et al., 1992, 325).

Phillips Curve - In an article in 1958 Professor Phillips set out empirical evidence to support the view that there was a significant relation between the percentage of change of money wages and the level of unemployment: THE LOWER UNEMPLOYMENT, THE HIGHER THE RATE OF CHANGE OF WAGES. This relationship, which became known as the Phillips Curve, has attracted considerable theoretical and empirical analysis. Its main implication is that the aims of low unemployment and a low rate of inflation may be inconsistent. The government must then choose between the feasible combinations of unemployment and inflation (Bannock et al., 1992, 329).

Physiocrats - A group of 18-century French economist, led by Quesnay, who later became known as the Physiocrats. They believed in the existence of a natural order and regarded that state's role as simply that of preserving property and upholding the natural order. In this, and in their advocacy of free trade, their views were directly opposed to those of the mercantilists. In their believe in Laissez-faire, they had much in common with, and certainly influenced, British classical economics, and especially Adam Smith (Bannock et al., 1992, 329).

Planned Economy - An economy in which state authorities rather than market forces directly determine prices, output and production. Although planned economies can take a variety of forms, their most important features usually include (a) production targets for different sectors of the economy, that determine the SUPPLY of different commodities; (b) rationing of certain commodities, to determine DEMAND for them; (c) Price- and wage- fixing by state bodies; (d) sometimes, a conscripted labour market in which workers take jobs assigned to them (Bannock et al., 1992, 331).

Polluter-pays principle - The idea that polluting emissions should be taxed in order that those who create them bear the costs of their actions. The principle of allowing pollution to occur, but taxing it, derives from Pigou in 1932. It is an approach which contrasts with banning pollution outright or allowing it within certain limits. The advantage of taxing it is that if the tax rate covers the damage or suffering caused by the pollution, it will pay firms to pollute only if the benefits of them doing so outwieght the costs. (Bannock et al., 1992, 331-2).

Predatory pricing - Setting prices at very low levels with the objective of weakening or eliminating competitors or to keep out new entrants to a market. Since prices will be raised again once these objectives have been achieved, there is no permanent benefit to the consumer. Predatory pricing is a means of establishing or maintaining monopoly power Bannock et al., 1992, 335).

Principal-agent problem - The problem that arises in many spheres of activity, when one persons, the principal, hires an agent to perform tasks on his behalf but cannot ensure that the agent performs them in exactly the way the principal would like. the efforts of the agent are impossible or expensive to monitor and the incentives of the agent differ from those of the principal. Examples of the problem include the management of assets on behalf of investors; the management of companies on behalf of shareholders by executives; and the running of public services by private firms under regulation by government authorities. The principal-agent relationships are characterized by asymmetric information (Bannock et al., 1992, 340).

Privatization - Principally, the sale of government owned equity in nationalized industries or other commercial enterprises to private investors, with or without the loss of government control in these organizations (Bannock et al., 1992, 341-2).

Productivity - The relationship between the output of goods and services and the inputs of resources (factors of production) used to produce them (Bannock et al., 1992, 344).

Protection - The imposition of tariffs or quotas to restrict the inflow of imports. Arguments in favor of protectionism and against free trade have their origin in the earliest periods of economic discussion (mrcantilism). The arguments take many forms. Domestic industries, especially agriculture, must be maintained at a high level in case foreign sources are cut of during war. Similarly, key industries which have significant defence role should be port4acted to avoid reliance on foreign supplier. In conditions of excess capacity, protection increases employment by switching demand away from foreign to domestic production, and, through an increase in the surplus on the balance of payments, enable aggregate income to be raised through the multiplier effect. Protection also enables new industries to develop to an optimum size - the infant industry argument. protection can be used as a counter to Dumping and as a retaliatory measure against other countries' restrictions. The case for protection for the developing countries was put forward by Raul Prebisch. The developing countries have experienced a long-run decline in their terms of trade. Their demand for imported industrial goods grows much more rapidly than does the advanced countries' demand for their exports, with a consequent pressure on their balance of payments. Protection can improve their terms of trade by causing a reduction in the price of their imported manufacturers arising from their reduced demand (Bannock et al., 1992, 348).

Public-choice theory - The area of welfare economics concerned with the ways in which society can and should make decisions. For economics efficiency, it is important that there is an appropriate level of public goods, and it is appropriate that those who value them most should pay most towards them. It is not possible for individual consumers to make decisions on how much defence, for example, to consume. At the same time, it is not easy to turn everybody's individual preferences for defence into a single figure for society as a whole, or to charge people for defence in proportion to their strength of preference [free rider problem]. The concern of public choice theory is how different alternative should be ranked, and how voting systems or other mechanisms can be devised to obtain honest reflections of people's desires (Bannock et al., 1992, 344).

Public goods - Commodities of which the consumption has to be decided by society as a whole, rather than by each individual. Public goods have three characteristics. The first is that they yield non-rivalrous consumption: one person's use of them does not deprive others from using them. The second is that they are non-excludable - if one person consumes them it is impossible to restrict others from consuming them: public television is non-excludable, although if devices are made for scrambling television pictures, except to those who own picture- decoding cards, television becomes an excludable service. Thirdly, public goods are often non-rejectable - individuals cannot abstain from their consumption even if they want to. National defense is a public good of this sort, although television is not. Non-excludability and non-rejectability mean that no market can exist and provision must be made by government, financed by taxation. Many items are partly public and partly private goods. A developed patent system, for example, has public-good properties, benefiting not only the community as a whole, but especially inventors who take out patents(Bannock et al., 1992, 350).

Public Utilities - An industry supplying basic public services to the market and possibly enjoying monopoly power. Usually, electricity, gas, telephones, postal services, water supply and rail and often other forms of transport are regarded as public utilities. These services all require specialized capital equipment and elaborate organization (Bannock et al., 1992, 351).

R

S

Separation of ownership from control - The situation where the owners of a corporation do not actively participate in its management. In its earliest form, business was owned and managed by the same people. Economic and technological development led to the advent of the joint-stock company in the seventeenth century to meet the need for larger amounts of capital. This began the process of the separation of ownership from control that continued with the introduction of limited liability for both public and private companies, and the gradual emergence of the modern giant corporation in which none of the directors or managers have more than a minority financial interest.This process has given rise to the possibility that the interests of those who control business and those who own it may conflict, a subject of continuing controversy among economists since the publication of The Modern Corporation and Private Property by A. A. Berle and G. C. Means in 1932 (Bannock et al., 1992, 388).

Sherman Antitrust Act -

Social Capital - The total stock of a society's productive assets, including those that allow the manufacture of the marketable outputs that create private-sector profits, and those that create non-marketed outputs, such as defence and education (Bannock et al., 1992, 396).

Social security - A system of government-financed income transfers designed to effect a distribution of income considered desirable. The main component of most social-security systems is welfare benefits, given to those in poverty. This can be done in two ways: (a) by identifying groups that are likely to be poor, and giving benefits to them (e.g. the unemployed, the elderly and the disabled) irrespective of their actual income; (b) by identifying, thorough means tests, people who are poor. The second of these approaches is a less expensive method of eradicating poverty, but leads to the problem of the poverty trap (Bannock et al., 1992, 397).

Soft currency - A currency whose exchange rate is tending to fall because of persistent balance of payments deficits or because of the building up of speculative selling of the currency in expectation of a change in its exchange rate. Governments are unwilling to hold a soft currency in their foreign-exchange reserves (Bannock et al., 1992, 398).

Spot market - A market in which goods or securities are traded for immediate delivery, as distinct from a forward market. "Spot" in this context means 'immediately effective", so that spot price is the price of immediate delivery (Bannock et al., 1992, 402).

Spillover effect - see, externalities

Stagflation - The simultaneous existence of unemployment and inflation. In the early post-war era, it was believed that Stagflation would never occur. Either there would be an inflationary gap or a deflationary gap, with inflation or unemployment respectively; but never the two together. In the 1970s the problem emerged, largely as the natural rate of unemployment rose with strong wage pressures. The idea that there cannot be Keynesian unemployment at the same time as inflation is still credible (Bannock et al., 1992, 404).

Sterling area - The sterling area has its origins in the supremacy of the UK in the international trade and finance of the 19th century. The pound sterling became the most convenient currency in which to settle international exchange, and London the leading center for finance. The sterling are remained only a loose association of countries until the UK went off the Gold Standard in 1931. At that time, these countries has to choose between linking their currencies to gold to to sterling. With the outbread of the Second World War in 1939, the area became more formalized by the acceptance of exchange control in respect of transactions with non-sterling-area members. The Exchange Control Act of 1947 defined the sterling area as a list of "scheduled territories", and the area discriminated against trade with "hard currency" areas, particularly the USA, against the background of the inconvertibility of sterling (Bannock et al., 1992, 405).

Supply-side economics - The study of the factors affecting and the policies appropriate for influencing the real economy, that is, the physical behaviour of economic agents, and its response to changes in the structure of relative PRICES rather than nominal prices. Supply-side economics is roughly based on a positive and negative thesis. On the negative side, supply-side economists tend to deny a role to a STABILIZATION POLICY. Because, they believe, economic agents are only concerned with their real income and because markets have a tendency to clear at their EQUILIBRIUM levels, an artificial increase in AGGREGATE DEMAND cannot achieve anything. When demand is boosted, the price of all goods rises, and out of a desire to feed the extra demand, more labour will be sought, requiring an increase in wages. Out of all this, nothing changes in real terms: REAL WAGES are the same as they were, as are relative prices; all economic agents behave in the same way as they did before, even though the absolute price level might have changed, and possibly some temporary aberration from market equilibria occurred. The positive views of such economists relate to the policies that they believe can be effective in influencing the performance of an economy. Anything that attempts to influence the supply of LABOUR or the supply of goods can be called a supply-side measure. Such policies could include: (a) cutting taxes to improve incentives (affecting people's personal trade-off between going out to work and staying at home); (b) heavily legislating against MONOPOLY in order to encourage free competition, low prices and incentives to be efficient; (c) diminishing the ability of trade unions to inhibit the workings of a free labour market; (d) restricting the growth of the money supply to control inflation, improve economic stability and encourage investment; (e) measures to increase the mobility of labour; (f) cutting the benefits available to those out of work to improve their incentive to take on work.

It would be wrong, however, to believe that supply-side measures are only the concern of free-market economists. State interference in the economy can be classed as on the supply side, and measures of this sort might include: (g) increases in spending on education to retrain employees; (h) the introduction of PROFIT-SHARING as a means of removing industrial conflict; (i) the establishment of a state investment bank for subsidizing high-risk, new-technology firms. In general, supply-side measures can be justified in terms of the findings of microeconomics, which is concerned with the behaviour of individual workers and firms rather than with the behaviour of economic aggregates. Free-market supply-side economics emerged as a body of thought in the early 1980s as a doctrine complementary to MONETARISM, which first provided a macroeconomics case against demand-management (Bannock et al., 1992, 414-5).

Stranded Costs -

Substantive Legitimacy of Regulation - "relates to such features as policy consistency, the expertise and problem-solving capacity of the regulators, their ability to protect diffuse interests and, most important, the precision of the limits within which regulators are expected to operate" (Majone, 1996, 291). See also procedural legitimacy, Administrative Procedure Act

Sunk Costs - costs incurred in the past which are irretrievable and therefore not relevant to current decisions. For example, a small bakery might buy an over at a fixed cost, but which it could sell at some future date should it want to. It also might pay out a large amount in advertising its services. However, this latter cost could not be recovered later on - once paid for, the advertising has gone, whether or not the promotion is successful. Sunk costs represent a barrier to entry in an industry because they scare potential entrants from entering - should they fail, they would have wasted all the sunk costs (Bannock et al., 1992, 412).

T

Take-over - the acquisition of one company by another. Take-overs are sometimes financed by paying cash at an offer price but also by exchange of shares. The term take-over is normally used to imply that the acquisition is made on the initiative of the acquire and often without the full agreement of the acquired company.

Taxation - A compulsory transfer of money (or goods) from private individuals, institutions or groups to the government. It may be levied upon Wealth or Income, or in the form of a surcharge on prices. In the first case, it would be called a direct tax; in the latter, an indirect tax. Taxation is one of the principle means by which a government finances its expenditure (Bannock et al., 1992, 419).

Trade Barriers - A general term covering any government limitation on the free international exchange of merchandise. These bariers may take the form of, for instance, tariffs, quotas, import deposits, restriction on the issue of import licences or stringent regulation relating to health or safety standards (Bannock et al., 1992, 424).

Transaction costs - The costs associated with the process of buying and selling. These are small frictions in the economic sphere that often explain why the price system does not operate perfectly. Transactions costs may affect decisions by an organization to make or buy and the study of transaction-costs, associated notably with Oliver Williamson, has implications for a wide range of issues affecting the economic and economic policy (Bannock et al., 1992, 426).

Transfer payments - Grants or other payments not made in return for a productive service, for example, pensions and unemployment benefits. Transfer payments are a form of income redistribution, not a return to the factors of production. Current grants to the personal sector represented 29% of the total current revenue of British government in 1989. Subsidies which are paid by government to producers are not counted as transfer payments(Bannock et al., 1992, 427).

Trust - A very large amalgamation of firms or a money vested with an individual or group of individuals to administer in the interest of others (Bannock et al., 1992, 429).

U

Unemployment - The existence of a section of the labour force able and willing to work, but unable to find gainful employment. Unemployment is measured as the percentage of the total labour force out of work. Historically, it was very high in the 1930s; it fell to its lowest level in the 1950s and re-emerged as a worsening phenomenon in Western economies, after the oil crisis of 1973, for the first time simultaneously appearing with high inflation.
Four distinct causes of unemployment can be distinguished: (a) FRICTIONAL UNEMPLOYMENT is caused by people taking time out of work being between jobs or looking for a job.
(b) CLASSICAL UNEMPLOYMENT is caused by excessively high wages.
(c) STRUCTURAL UNEMPLOYMENT refers to a mismatch of job vacancies with the supply of labour available, caused by shifts in the structure of the economy,
(d) KEYNESIAN UNEMPLOYMENT results from the existence of a deficiency of aggregate demand which is simply not great enough to support full employment. A fall in wages - which should cause an increase in the demand for labor - merely reduces aggregate demand further because it reduces the spending power of the employed, and thus fails to clear the excess supply of workers. Much economic debate has centred on whether, in the long term, cuts in wages cannot in fact increase demand, and thus whether Keynesian unemployment is not just a special case of classical unemployment in which workers are simply pricing themselves out of jobs.
Monetarist and neo-classical economists have tended to argue that all unemployment is either classical or voluntary. Either, they assert, the market fails to clear because wages are artificially held too high; or, if the market does clear, the unemployed have chosen not to take a job at the going rate. However, in particular circumstances it has been shown to be possible for the economy to stick at a less than true employment equilibrium, the only way out of which is to boost aggregate demand. The labour market is widely recognized as being slower to adjust than any other; excess supply in this market persists in a way that it could not elsewhere, despite the high social and human costs of unemployment(Bannock et al., 1992, 432).

United Nations Conference on Trade and Development (UNCTAD) - The conference first convened in 1964 in response to a growing anxiety among developing countries over the difficulties they were facing in their attempts to bridge the standard-of-living gap between them and the advanced nations. Since then full conferences have been held every three or four years. UNCTAD VIII was held in 1991. The first Director-General of UNCTAD, Professor R. D. Prebisch, summarized the problem in his report Towards a New Trade Policy for Development. The growth rate of 5 per cent per annum which was required for the developing countries to make progress in terms of real income per head implied a required import growth of 6 per cent. However, the trend rate of growth of their EXPORTS had been only about 4 per cent in value, and this had been reduced to the low figure of 2 per cent because of the deterioration in their terms of trade, If this relationship continued, they would suffer chronic deficits which would lead to a worsening in their economic welfare. The problem could be tackled on two fronts: through measures (a)to offset the deterioration in the terms of trade and (b) to promote their exports. The terms-of-trade approach could be through international commodity agreements, which would be designed to prevent primary prices from falling, and through compensatory finance arrangements. Professor Prebisch suggested that the developed countries which benefited from the terms-of-trade shift should contribute to a fund which would be used to reimburse the losers.

He had suggested that the developing countries should be free to combine to discriminate against imports of manufactures from the developed countries, and at the same time the latter should give preferences (INFANT-INDUSTRY ARGUMENT). The distaste felt by the developing countries for the MOST-FAVOURED NATION CLAUSE of the GENERAL AGREEMENT ON TARIFFS AND TRADE was recognized by that institution. A new chapter to the GATT was added in 1965 on trade and development, which called for the reduction of TARIFFS and QUOTAS on developing countries' exports. It became possible for preferential duties to be given to imports from developing countries without having to extend these preferences to all the contracting parties of the GATT. In 1970 agreement was reached by which the developed nations in Europe, as well as the USA, gave preferences in specified manufactured goods to the developing countries. The fourth conference in 1976 agreed to negotiate a 'Common Fund' to finance an integrated commodity price scheme, but it was not until 1989 that such a Fund came into force. In that year, 104 contracting countries contributed funds to the scheme amounting to US $546-7 million. The Fund will assist international commodity agreements to finance their buffer stocks and contribute to research and development expenditure, quality and productivity improvement schemes, export promotion, and market development for primary commodities. UNCTAD has a permanent secretariat based in Geneva and publishes regularly papers on development problems and an annual report. See, also their web-site (Bannock et al., 1992, 434).

Utilitariansim - The philosophy by which the purpose of government is the maximization of the sum of utility, defined in terms of pleasure and pain, the the society. The maxim is the 'greatest happiness of the greatest number'. (Bannock et al., 1992, 436-7).

V

Value-added - The difference between total revenue of a firm, and he cost of bought-in raw materials, services and components. It thus measures the value which the firm has 'added' to these bought-in materials. (Bannock et al., 1992, 438).

Value-added tax (VAT) - A general tax applied at each point of exchange of goods or services from primary production to final consumption. It is levied on the difference between the sale price of the goods or services (outputs) to which the tax is applied and the cost of goods and services (INPUTS) bought in for use in its production.

The cost of these inputs is taken to include all charges, including all taxes except VAT itself. The method of payment and collection in the UK is as follows. Each registered trader sells his outputs at a price increased by the appropriate percentage of VAT. He is then liable to Customs and Excise for the payment of the tax so obtained from his customers, but can claim a refund of any VAT included in the invoices for the inputs which he himself purchased from his suppliers. His customers do likewise, and so on down to the final consumer. At each point of exchange the tax is passed on in the form of higher prices. Being at the last point in the chain of exchange, the final consumer bears the whole tax. The traders within the chain act as collecting agencies, although they may lose out from the existence of the tax. Traders with a small turnover of taxable supplies need not register with tax authorities. VAT was introduced in the UK in 1973 because it is the form of INDIRECT TAXATION applied in the EUROPEAN COMMUNITY and is the basis of contribution to the community budget. It replaced existing indirect taxes such as PURCHASE TAX. Basic foodstuffs, housing, books, most financial services, education, health and EXPORTS are excluded from the tax. VAT may be applied to different goods or services or in different industries at different rates, including zero and exempt. The difference between the latter two is that only with the former can refunds be claimed. In the UK the standard rate of tax was 8 per cent from July 1974 until June 1979, when it was raised to 15 per cent. In April 1991 VAT was raised to 17-5 per cent. Some other countries have several rates including a low rate for basic necessities and a higher rate for luxury goods (Bannock et al., 1992, 439).

Variable costs - Costs which vary directly with the rate of output, e.g., labour costs, raw material costs, fuel and power (Bannock et al., 1992, 440).

Vertical Integration - Concentration of control (and/or ownership) over various phases of production or supply under a single entity. In electricity, for example, this means that a single entity controls generation, transmission and distribution (see also horizontal integration).

Vertical restraints - Restrictions or conditions imposed on the seller or buyer of an item. Common restraints are resale price maintenance and tie-in sales. They are usually either structured to extend a natural monopoly in one market to a more competitive market or they designed to affect the retail conditions in which a product is sold. Competition authorities have been concerned to limit the application of these restrictions, although more recently it has been argued that in most cases vertical restraints are as much against the producer's interest as the public interest where they are against the public interest at all (Bannock et al., 1992, 441-2).

Voluntary export restraint - An agreement to restrict the number of exports in a particular sector that one country makes to another. VERs are beyond the terms of the GATT and grew in the 1980s as tariffs generally fell (Bannock et al., 1992, 442).

W

Welfare economics - The study of the social desirability of alternative arrangements of economic activities and allocations of resources. It is, in effect, the analysis of the optimal behaviour of individual consumers at the level of society as a whole. Just as, at the level of the individual, there is a need for a subjective ranking of bundles of goods dependent on the consumer's taste, at the level of a society there is a need for a ranking of economic states, and this will usually rely on subjective or normative criteria: judgements of taste about how society should look.
The study of welfare economics consists of the following: first, the determination of efficient states in which no individual can be made better off without an offsetting loss to another individual; secondly, the choice between the many efficient states that can exist, either through a decision imposed by a dictator, or through democratically determined decisions; thirdly, coverage of a number of other smaller topics like the optimal provision of public goods, externalities, and the theory of the second best. All these topics share the common aim of helping to show when it is desirable to move from one economic state to another.(Bannock et al., 1992, 446).

World Trade Organization -

Y

Yardstick regulation - When markets are divided between regional monopolies the regulators may use the performances of the best performing monopolies to set a general performance target (such as prices and tariffs). Another formulation of the meaning of yardstick regulation is that of Franklin D. Roosevelt who justified the establishment of government owned electricity enterprises arguing that their performances may serve as a yardstick for the regulation of private electricity companiess.

Sources:

Bannock, Graham et al., The Penguin Dictionary of Economics, London, fifth edition, 1992.

Cosmo Graham and Prosser Tony, Privatizing Public Enterprises: Constitutions, the State, and Regulation in Comparative Perspective, Clarendon Press, Oxford, 1991.

Kerr Clark, The Future of Industrial Societies: Convergence or Continuing Diversity?, Cambridge, Harvard University Press, 1983.

Majone Giandomenci, Regulating Europe, Routledge, London, 1996.

Smelloff Ed and Asmus Peter, Reinventing Electric utilities, Safe Energy Communication Council, Island Press, Washington, 1997.

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