Economics glossary letter C

Here are Economics Terms beginning with C

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Capital in economics refers to man made aids to production such as building, machines and tools.

Capital account of the balance of payments refers to the part of the balance of payments that deals with inflows and outflows of financial capital and foreign direct investment both inwards and outwards. The capital account may be positive (inflows exceed outflows) or negative (outflows exceed inflows) in any given year.

Capital expenditure (Capex) is expenditure by the private and government sector on capital in the form of investment goods such as buildings, equipment, machines, infrastucture and the like.

Carry Trade is a foreign exchange trading strategy whereby a speculator borrows funds in a low interest rate currency and places the funds in a high interest rate currency. If the high interest rate currency appreciates or depreciates by less than the interest rate differential then the trade will be profitable. However, if the high interest rate currency depreciates by an amount greater than the interest rate differential then the trade will be loss making.

Cartel is a collusive agreement between two or more firms usually to set prices and/or restrict output and/or to divide up market shares. The aim is invariably to increase each firms profits compared to a competitive outcome or to restrict competition including new entrants.

Central bank is the authority that invariably implements the monetary policy of a country. In addition, it usually acts as the lender of the last resort for the banking system and often acts as a banker for the central government.

Centrally planned economy is an economy in which the key economic decisions of what to produce, how to produce it and for whom to produce are determined in a centralized fashion by the government of the economy.

Certificate of deposit a certificate which certifies that a deposit of a certain amount has been made at a bank and specifying the interest to be paid, usually issued by a commercial bank. Can be used as collateral for a loan.

Ceteris paribus a latin term used extensive in economics, it means "other things being equal."

Classical economics is an economic model that allows the forces of free markets to determine economic decisions of what to produce, how to produce and for whom to produce.

Clearing system a system in which credits and debits between banks are cleared.

Closed shop is an arrangement whereby a firm agrees to employ only workers that belong to a specified union.

Coase theorem named after the Nobel prize winner Ronald Coase. The theorem states that if trade in an externality is possible and there are no transaction costs then bargaining will lead to a socially efficient outcome regardless of the initial allocation of property rights.

Cobb-Douglas production function a production function which shows how the level of output changes as the inputs of factors of production, typically capital (K) and labour (L) change. A typical specification of the Cobb Douglas production function is:

Collusion occurs when economic agents get together formally or informally so as to reach an agreement to avoid a market based outcome. for example two firms may decide to collude to raise prices, cut back on output, avoid destabilising innovation or divide up market share.

Collusive tendering is when two or more firms agents agree on the prices they will tender in a bid to win a contract. This means the bids will involve higher prices facing the client than if a competitive bidding process was in place.

Command economy is an economy in which the key economic decisions of what to produce, how to produce it and for whom to produce are determined in a centralized fashion by the government of the economy.

Common market refers to the creation of a tariff free area between two or more countries which also agree to adopt a set of common external tariff against the rest of the world. There is also free movement of factors of production, that is, labour, capital and enterprise between the countries.

Comparative advantage a country is said to have a comparative advantage in the production of a good, if it can produce the good at a lower opportunity cost of production than another country.

Competition for corporate control refers to the use of takeovers in order to take control of companies. The takeovers invariable result in the dismissal of the managers in the target company.

Competition Policy refers to is the structure a governments puts into place to regulate of markets and monopolies. In general Competition policy aims to; prevent the growth of Monopoly power; prevent the abuse of Monopoly power and restrictive trading practices; prevent formation of abusive cartels; investigate suspected abuses of monopoly power and recommend policy decision and Reduce barriers to entry and keep markets contestable

Complementary goods are goods consumed together. For example, cars and petrol- a rise in the price of petrol will lead to a fall in the demand for cars so that they have a negative cross elasticity of demand.

Conglomerate merger is the merger of two or more firms from different industries. For example, a bank mergers with an insurance company.

Consortium invloves tweo or more companies coming to together or the creation of a separate company to bid for and undertake a specific project.

Conspicuous consumption is a concept based on a theory by Thorstein Veblen that some high cost goods are preferred to cheaper alternatives because they send a signal to others that the consumer has high income and/or wealth and good taste or to abtain a higher social status.

Consumer durables are consumer goods that are normally reasonably high price and last a significant period of time such as "white goods ( e.g.washing machines, refrigerators), televisions, computer, cars and so on.

Consumer expenditure refers to aggegate consumer expenditure on good and services whether pruduced domestically or imported over a given period of time

Consumer soveriegnty refers to the power of the consumer in determining what firms produce and charge for their products. If consumer sovereigny is high then consumers get more choice, better quality and lower prices.

Conusmer surplus is the difference between what a consumer is willing to pay for a prouct and what they are actually charged. For example, if a consumer is willing to pay $1,000 for a computer but is actually charged only $700 then the consumer surplus for that particular consumer is $300.

Consumption refers to the act of consuming goods and sevices by consumers.

Consumption function is a function showing the relationship between aggregate consumer expenditure and the nation income. It is drawn with comnsumption expenditure on the vertical axis and national income on the horizontal axis.

Consumption smooting refers to the act of households smoothing their consumer expenditure over time despite flucations in their incomes. when income is higher than norma consumption rises by less but when income is lower than normal consumption falls by less.

Convergence of GDP per capita normally refers to the tendency of less developed countries to close the income gap with richer developed nations over time. however in general it is about how poorer nations tend to catch up with richer nations GDP per capita over tiome regardless of whether they are developed or developing nations.

Coordination failure refers to a situation in which economic agents (individuals, firms or governments) acting independently achieve a poorer outcome than if they had coordinated. For example, one firm fearing a recession sacks its workers, this then leads to less demand for other firms and they too sack workers. The result is higher unemployment than if all firms had agreed not to sack workers to begin with.

Core workers are employees with firm specific skils and know how who are employed by companies on a long term basis and whom are regarded as vital to the firm.

Cost plus pricing when firms add a profit margin to their average costs of productioon when determining their prices.. This may not be consistent with profit maximization.

Countervailing power is when the pricing power of a monopoly form or oligoply firms is reduced by the power of a single or group of buyers who can act to prevent prices being driven to excessively high levels. for example in Britain te National Health Service as a monopsonist purchaser can force down the prices it pays for pharmaceuticals.

Cournot equilibrium is an equilibrium in which two firms take the output of the other firms as given and then choose their own optimal level of output. In the Cournot equilibrium the output they each assume of the other firm is the output that the other firm actually produces.

Cournot model of duopoly is a model in which two two firms take the output of the other firms as given and then choose their own optimal level of output.

Crawling peg refers to a fixed exchange rate system with bands. Over time the fixed exchnage rate is subject to periodic changes of the central rate.

Credible threat a tem used primarily in game theory is a threat that is believable to other agents since it is in the interest of the threatening agent to carry it out.

Credit crunch refers to a sudden large and unexpected fall in the quantity of credit available to firms and consumers due to distress in the banking and financial sector.

Cross price elasticity of demand refers to the pecentage change in quantity demand of good X due to a percentage change in the price of Good Y. A positive cross elasticity of demand is associated with goods that are substitutes and a negative cross elastcity of demand is associated with complementary goods.

Cross sectional data refers to data which depicts the relationship been different variables at any given point in time. For example, how car ownership varies across different income groups.

Cross subsidy occurs when a firm uses profits in one market to subsidise the price of a good in another market. for example, Universities may use fees obtained from postgraduate students to subsides the fees for undergraduate students.

Crowding out occurs when increased government expenditure has the side effect of reducing private sector consumption, investment and exports.

Cumulative causation is when an initial change causes through multiple channels a much bigger eventual impact. For example a large multinational creates initial jobs, but this then attracts other multinational to the area and suppliers so the job growth is magnified.

Currency union occurs when a group of countries agree to adopt a common currency. The most well known example is the Eurozone, which is made up of 17 European Union countries that have adopted the euro as a common currency.

Current account of the balance of payments shows the difference between exports of goods and services and other income receipts less imports of goods and services and income payments. A current account surplus means that a country is earning more than it is spending from abroad while a current account deficit means the country is spending more than it is earning from abroad.

Customs Union a free trade area in good and services combined with the use of a set of common external tariffs on imports from countries outside of the area. There is however no free movement of capital and labour as occurs under a common market.