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ECONOMIC TERMS AND CONCEPTS
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PART 3B
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ECONOMIC TERMS AND CONCEPTS PART 3B

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Dissaving:

The situation of higher current consumption over current disposable income by the
households—the difference is met by withdrawals from the past savings (i.e., decrease in
saving).

Domino effect:

An economic situation in which one economic event causes a series of similar events to
happen one after the other. For example, experts believe that the falling of share indices
around the world in early-2008 was a domino effect of the subprime crisis faced by the US
economy. A similar case is cited from the mid-1996 when all major stock markets crashed
around the world due to the domino effect emanating from the South East Asian currency
crisis.

Drug price control:

Drug price control, as the term suggests, means a mechanism or a policy that ensures that
essential and life-saving medicines are available at reasonable prices. Control over cost of
medicines to the consumer exists in one form or the other in most countries.

Dumping:

Exporting a good at a price lower than its price in the domestic market.
To neutralise the effects of dumping the importing country may impose surcharge anti-
dumping on such imports which is known as the anti-dumping duty.

Dutch Disease:

When an increase in one form of net exports drives up a country's exchange rate, it is
called the Dutch Disease. Such instances make other exports non-competitive in the world
market and impairs the ability of domestic products to compete with imports. The term
originated from the supposed effect of natural gas discoveries on the
Netherlands economy.

ECONOMIC TERMS AND CONCEPTS PART 3B

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In economics, the Dutch disease is the apparent causal relationship between the increase in
the economic development of a specific sector (for example natural resources) and a decline
in other sectors (like the manufacturing sector or agriculture). The putative mechanism is
that as revenues increase in the growing sector (or inflows of foreign aid), the given nation's
currency becomes stronger (appreciates) compared to currencies of other nations (manifest
in an exchange rate). This results in the nation's other exports becoming more expensive for
other countries to buy, and imports becoming cheaper, making those sectors
less competitive.

ECONOMIC TERMS AND CONCEPTS PART 3B

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Duty drawback scheme:

The Duty Drawback Scheme (DDS) is provided by the Government of India as a part of
export incentives to make exports competitive. Exporters get refund of the central excise
and custom duties on the inputs they use in manufacturing the exportables.

Economies of scale:

The long-run reduction in average/unit cost that occurs as the scale of the firm's
output increases. The opposite situation is known as diseconomies of scale.
Economies of scale refer to reduced costs per unit that arise from increased total output of
a product. For example, a larger factory will produce power hand tools at a lower unit price,
and a larger medical system will reduce cost per medical procedure.

Economies of scope :

The long-run reduction in average/unit cost that occurs as the scope (diversification) of the
firm's activities increase.
a proportionate saving gained by producing two or more distinct goods, when the cost of
doing so is less than that of producing each separately.

ECONOMIC TERMS AND CONCEPTS PART 3B

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ECONOMIC TERMS AND CONCEPTS PART 3B
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Edgeworth box:

A concept for the purpose of analysing possible relationships between two individuals or
countries. It is done using indifference curve. The concept was developed by Francis Ysidro
Edgeworth (1845—1926) who is also credited for analytical tools of indifference curves and
contract curves.

study of the interaction of two individuals trading two different commodities. This type of
analysis draws on the use of indifference curve analysis to analyze this trading behavior.

Moving to the right means that person 'A' has more of commodity 'X' and person 'B' has less
of that commodity. Moving upwards means that person 'A' has more of commodity 'Y' and
person 'B' has less. Moving in the northeast direction makes person 'A' better off. Moving in
the southwest direction makes person 'B' better off.

Rather than introduce budget lines for the two consumers, the Edgeworth box uses the
concept of initial endowments. An initial endowment 'w' represents the amount of
commodities X & Y individuals A & B have available before trade. Thus (XA ,YA ) = wA and
(XB , YB ) = wB where wA and wB represents A's and B's initial endowments (or income).

ECONOMIC TERMS AND CONCEPTS PART 3B

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Effective revenue deficit:
Effective Revenue Deficit is the difference between revenue deficit and grants for the
creation of capital assets. In other words, the Effective Revenue Deficit excludes
those revenue expenditures which were done in the form of grants for the creation of
capital assets .

Engel's law:

The law which says that people generally spend a smaller part of their budget on food
as their income rises. The idea was suggested by Ernst Engel, a Russian statistician in 1857.

ECONOMIC TERMS AND CONCEPTS PART 3B

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Environmental accounting:

The method of accounting which includes the ecological and environmental damages done
by the economic activities in monetary terms. Integrated environment and economic
(green) accounting attempts at accounting for both socioeconomic performance and its
environmental effects and integrates environmental concerns into mainstream economic
planning and policies.

Environmental audit:

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Assessment of the environmental impact of a firm/public body through its
activities. This is done with an objective to reduce or eliminate pollution aspect.

Environmental taxes:

As against the command and control approach to managing environment, the economic or
market based instruments (MBIS) approach sends economic signals to the polluters to
modify their behaviour.
They are designed to internalize environmental costs and provide economic incentives for
people and businesses to promote ecologically sustainable activities. Carbon taxes are a
kind of Environmental Taxes.

Equity share:

A security issued by a company to those who contributed capital in its formation shows
ownership in the company. The other terms for it are 'stock' or 'common stock'. Such
shares might be issued via public issue, bonus shares, convertible debentures, etc. and
may be traded on the stock exchanges.
Such shareholders have a claim on the earnings and assets of the company after all the
claims have been paid for. This is why such shareholders are also known as the residual
owners.

Escrow account:

In simple terms, an 'escrow account' is a third party account. It is a separate bank account
to hold money which belongs to others and where the money parked will be released only
under fulfilment of certain conditions of a contract.

ECONOMIC TERMS AND CONCEPTS PART 3B

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ESOPs:

Many companies use employee stock options plans to compensate, retain, and attract
employees. These plans are contracts between a company and its employees that give
employees the right to buy a specific number of the company’s shares at a fixed price within
a certain period of time. The fixed price is often called the grant or exercise
price. Employees who are granted stock options hope to profit by exercising their options
to buy shares at the exercise price when the shares are trading at a price that is higher than
the exercise price.

ESPS:

An employee stock purchase plan (ESPP) is a company-run program in which participating

employees can purchase company shares at a discounted price.

The primary difference between ESOP and ESPS is that under ESPS, employees are required
to purchase the shares as a part of public issue but under ESOP, employees are given a time
period within which they can purchase shares of the company at a pre-determined price.

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