98 Fun Facts About Economics

In a market economy, what primarily determines the price of goods and services?

The interaction of supply and demand sets prices: when buyers want more than sellers offer, prices climb; when goods pile up unsold, they fall. No planner needs to set them.

Which of the following is a fundamental characteristic of a capitalist economic system?

Capitalism is an economic system defined by private individuals or businesses owning and controlling the means of production, with the primary goal of generating profits. Free markets and competition are also key aspects.

What does Gross Domestic Product (GDP) measure?

Gross Domestic Product (GDP) is a monetary measure of the total market value of all the final goods and services produced within a country's borders during a specific time period, usually a year or a quarter. It is a key indicator of economic activity and health.

In economics, what is the 'opportunity cost' of a decision?

The value of the best alternative forgone is the opportunity cost: the true price of a choice is the next-best thing you gave up to make it.

John Maynard Keynes's 'The General Theory of Employment, Interest and Money' was published in which year?

The General Theory appeared in February 1936, in the shadow of the Great Depression; it denied that an economy automatically returns to full employment and gave macroeconomics much of its vocabulary.

Who completed and published volumes II and III of Marx's 'Das Kapital' from his manuscripts?

Friedrich Engels assembled volumes II and III from Marx's manuscripts and published them in 1885 and 1894, more than a decade after his collaborator's death; volume I had appeared in 1867.

Which institution created the economics prize awarded with the Nobels in 1968, marking its 300th anniversary?

Founded in 1668, the Riksbank is the world's oldest surviving institution of its kind; the prize was first awarded in 1969 to Jan Tinbergen and Ragnar Frisch.

Which economic system blends private enterprise with government intervention?

A mixed economy is what almost every modern country runs: markets do most of the allocating while the state regulates, provides public services and redistributes income.

What financial metric is the cost of borrowing money, usually expressed as a percentage?

Interest rates are a fundamental component of financial markets, influencing everything from mortgages and loans to savings accounts and investments.

What occurs when a government's total expenditures exceed its total revenues over a specific period?

A budget deficit means the government spent more than it took in that year; the national debt is the pile of past deficits it still owes.

In trade theory, what describes a country producing a good more efficiently than another country?

The idea was first set out in the context of international trade in 1776, using labor as the only input, and it explains trade only when each side is outright better at making something.

What principle says countries should specialise where their opportunity cost is lowest, even if less efficient overall?

Comparative advantage, set out by David Ricardo in 1817, says a country gains by specialising where its opportunity cost is lowest even if it is worse at everything; it is often called economics' most counter-intuitive insight.

Which market structure has a single seller, high barriers to entry and strong pricing power?

A monopoly is one seller with no close substitutes, so it sets prices rather than accepting them; the board game of the same name began as a lesson in its dangers.

What is a downturn of two consecutive quarters of falling GDP commonly called?

A recession is a broad decline in economic activity; the popular rule of thumb is two consecutive quarters of falling real GDP, though the US NBER dates recessions using a wider set of indicators.

Which publication has published the tongue-in-cheek Big Mac Index since 1986?

The Economist introduced the Big Mac Index in September 1986 as a light-hearted test of purchasing power parity: if exchange rates were right, the same burger would cost the same everywhere.

Which economic school advocates minimal government intervention, holding that free markets naturally yield efficiency?

Classical economics emphasizes the self-regulating nature of markets and advocates for 'laissez-faire' policies, with limited government interference.

What term describes average cost per unit falling as production of a good increases?

Economies of scale are cost advantages reaped by companies when production becomes efficient, meaning the cost per unit of output decreases with increasing scale.

What do economists call something both non-excludable and non-rivalrous?

Public goods are characterized by non-excludability (it's hard to prevent people from using them) and non-rivalry (one person's use doesn't reduce availability for others).

Which institution is typically responsible for setting a country's monetary policy, chiefly through interest rates?

The central bank manages the money supply and interest rates, and is usually kept at arm's length from politicians so it can make unpopular decisions.

The post-World War II Bretton Woods system pegged many currencies to which currency?

The arrangement ended on 15 August 1971, when the United States suspended the dollar's convertibility to gold, and the Jamaica Accords formally ratified its demise in 1976.

Which graph rests on the idea that a 0% or 100% tax rate raises no revenue?

The Laffer curve, named by Jude Wanniski in 1978 after economist Arthur Laffer, holds that tax revenue is zero at both 0% and 100% rates and peaks in between, so raising rates past the peak shrinks the take.

Which graph plots the income share of the bottom x percent of households against x?

It was devised by Max O. Lorenz in 1905; the further it sags below the 45-degree line of perfect equality, the more unequal the distribution.

When a government increases spending or cuts taxes to stimulate the economy, what is it doing?

Expansionary fiscal policy means spending more or taxing less to lift demand; the monetary version is the central bank's job, done through interest rates.

What is a staple called when people buy more of it as it gets dearer, because they can no longer afford alternatives?

A Giffen good is a staple whose demand rises with its price; Alfred Marshall's example, credited to Robert Giffen, was bread among the very poor, who drop meat and buy even more bread when bread gets dearer.

Which behavioral-economics concept describes preferring to avoid losses over acquiring equivalent gains?

Loss aversion makes a loss feel roughly twice as painful as an equal gain feels good, which is why streaks and sunk deposits are such effective motivators.

What type of unemployment comes from a mismatch between workers' skills and available jobs?

Structural unemployment arises when workers' skills do not match the jobs on offer, as when laid-off miners cannot fill local software vacancies; unlike cyclical unemployment it persists through recoveries.

What shows the combinations of two goods that give a consumer the same utility?

An indifference curve is a graph showing various combinations of two goods or commodities that give the consumer equal satisfaction or utility.

Which curve says that in the short run, lower unemployment comes with higher inflation?

The Phillips curve, drawn by A. W. Phillips in 1958 from a century of UK wage and unemployment data, pairs low unemployment with high inflation; the 1970s, when both rose together, broke the short-run pattern.

What is a luxury item called when raising its price increases demand for it?

A Veblen good sells better the dearer it gets, because the price is the point; Thorstein Veblen called the motive conspicuous consumption, and the demand curve slopes upward.

What is the term for a tax imposed on imported goods and services?

A tariff is a tax levied on imported goods or services, typically to protect domestic industries or generate revenue.

Which 'invisible hand' economist is considered the father of modern economics?

Adam Smith, with his seminal work 'The Wealth of Nations', introduced the concept of the 'invisible hand' and is widely regarded as the founder of modern economics.

What financial concept measures the sensitivity of an asset's price to movements in the overall market?

Beta is a measure of the volatility—or systematic risk—of an individual stock or portfolio in comparison to the overall market.

The United States Federal Reserve was created by an act of Congress in which year?

The Federal Reserve Act of 1913 followed the severe banking panic of 1907; the Fed's mandate is maximum employment, stable prices and moderate long-term interest rates.

What is it called when producing or consuming a good imposes a cost or benefit on an uninvolved third party?

Externalities are costs or benefits landing on people who never agreed to them, like factory smoke or a neighbour's beehives, which is why markets left alone misprice them.

What game-theory term describes each player's strategy being the best response to all the others'?

A Nash equilibrium is a standoff where nobody gains by changing strategy alone; John Nash's 1950 idea won him a Nobel and a biopic, A Beautiful Mind.

Which of the following is considered one of the four main factors of production?

The four main factors of production in economics are land, labor, capital, and entrepreneurship, which are the resources used to produce goods and services.

What coefficient, ranging from 0 to 1, is commonly used to measure income inequality within a nation?

The Gini coefficient is a measure of statistical dispersion intended to represent the income or wealth distribution of a nation's residents, with 0 representing perfect equality and 1 representing perfect inequality.

Which theory says economic agents decide using the best forecasts from all available information?

Rational expectations theory posits that individuals base their decisions on the best available information in the economy, including predictions about future government policies.

Which country's 100 trillion dollar banknote, issued in 2009, could not cover a bus fare?

Zimbabwe's prices were rising an estimated 79.6 billion percent a month in November 2008, and the country gave up printing its own currency in April 2009.

Rising prices plus rising unemployment, a pairing theory ruled out: what's the term?

Slow growth, high unemployment and rising prices at once. The Phillips Curve, which trades unemployment off against inflation, said the last two shouldn't rise together.

What term describes taking on more risk because someone else, such as an insurer, will bear the cost?

Moral hazard is extra risk-taking when someone else bears the cost: an insured firm may act more recklessly knowing its policy will pay, and banks rescued in 2008 were accused of it after their bailouts.

Which measure gives the percentage change in quantity demanded when a good's cost rises 1%?

Price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price; insulin, with few substitutes, is inelastic, while goods with many alternatives see demand swing sharply.

What type of cost does not vary with the level of output in the short run?

Fixed cost stays put whatever you produce, like rent or insurance; variable cost rises with every extra unit made.

Which principle says adding more of a variable input to a fixed input eventually lowers its marginal product?

The law of diminishing returns states that in a production process, adding more of one factor of production, while holding others constant, will eventually lead to smaller increases in output.

What concept is the total goods and services demanded across an economy at a given price level?

Aggregate demand represents the total demand for all finished goods and services produced in an economy at a given overall price level and in a given time period.

Who developed the theory of 'creative destruction', where innovation kills old industries?

Schumpeter developed the idea in 'Capitalism, Socialism and Democracy' (1942) out of a close reading of Marx, and it is sometimes called Schumpeter's gale.

What economic concept refers to the knowledge, skills and attributes embodied in individuals?

Human capital refers to the economic value of a worker's experience and skills. This includes assets like education, training, intelligence, and other abilities.

The 'tragedy of the commons' is the classic failure associated with which category of good?

Common-pool resources such as fisheries, forests and groundwater basins are hard to fence off yet rivalrous, so each catch leaves less for others; Garrett Hardin's 1968 essay named their overuse the tragedy of the commons.

Adam Smith's The Wealth of Nations was first published in which year?

The Wealth of Nations appeared on 9 March 1776, a few months before the American Declaration of Independence; David Hume wrote that he had feared it required too much thought to be popular.

Thomas Malthus's 1798 essay warned that what would outgrow a nation's food supply?

In his 1798 Essay on the Principle of Population, Malthus argued population grows geometrically while food output grows arithmetically, so any gain in food was temporary: people multiplied until per-capita supply fell back.

Which 1944 book by Friedrich Hayek argued that central planning leads toward tyranny?

The Road to Serfdom was turned down by three US publishers before the University of Chicago Press took it; a 1945 Reader's Digest condensation then put it in front of millions.

Tulip mania, the famous 17th-century bubble, collapsed in February 1637 in which country?

At the peak, some bulbs sold for more than ten times a skilled artisan's annual income. No bulbs were ever delivered on the final contracts.

George Akerlof's 1970 paper 'The Market for Lemons' took which market as its example?

A 'lemon' is a car that turns out to be defective after purchase. The paper helped earn Akerlof a share of the 2001 Nobel for work on asymmetric information.

Who in 2009 became the first woman to win the Nobel Memorial Prize in Economics?

Elinor Ostrom, a political scientist by training, shared the 2009 prize with Oliver Williamson for showing how communities manage shared resources without privatisation or state control; Claudia Goldin became the third woman laureate in 2023.

Who was the first American to win the Nobel Memorial Prize in Economics, in 1970?

Paul Samuelson won in 1970, the prize's second year; his 1948 textbook Economics became the best-selling economics text ever, and the Swedish academy said he had done more than any other economist to raise the field's scientific level.

What is a market with a single dominant buyer, rather than a single seller, called?

Monopsony, a term Joan Robinson coined in her 1933 book The Economics of Imperfect Competition, is a market with one dominant buyer; a lone employer in a company town can push wages below what competition would pay.

Which law holds that 'bad money drives out good'?

Gresham's law, named after Tudor financier Sir Thomas Gresham, holds that when debased and full-weight coins must pass at the same face value, people spend the bad and hoard the good, so only bad money circulates.

In November 1923, one US dollar bought roughly how many German marks?

By 20 November 1923 the official rate was 4.2 trillion marks to the dollar, the level at which the new Rentenmark was pegged; a Berlin loaf that cost about 160 marks in late 1922 cost 200 billion marks.

Which currency suffered the highest hyperinflation ever recorded, in 1946?

The Hungarian pengő's prices were doubling roughly every 15 hours in July 1946; Hungary replaced it with the forint on 1 August 1946 at 400 octillion (4×10^29) pengő to one forint.

In 1929, Wall Street's 'Black Tuesday' crash fell on which date?

Black Tuesday was 29 October 1929, when around 16 million shares changed hands on the New York Stock Exchange; the earlier Black Thursday, 24 October, had set a then-record 12.9 million.

Which US president signed the protectionist Smoot–Hawley Tariff Act in June 1930?

Herbert Hoover called the bill 'vicious, extortionate, and obnoxious' and signed it anyway under party pressure, ignoring a petition from more than 1,000 economists.

The 1944 Bretton Woods conference that created the IMF met in which US state?

The conference met at the Mount Washington Hotel in Bretton Woods, New Hampshire, in July 1944, where 730 delegates from 44 Allied nations designed the post-war monetary order.

Euro notes and coins entered circulation on 1 January of which year?

Euro notes and coins arrived on 1 January 2002 in twelve countries; the currency had existed electronically since 1999, and national notes ceased to be legal tender by the end of February 2002.

OPEC was founded in September 1960 at a conference held in which city?

Baghdad hosted the founding conference in September 1960 for Iran, Iraq, Kuwait, Saudi Arabia and Venezuela; headquarters moved to Vienna only in 1965.

Which US president ended the dollar's direct convertibility into gold in August 1971?

The package also froze wages and prices and slapped a surcharge on imports, earning it the nickname 'the Nixon shock'.

'Supply creates its own demand' sums up a law named after which French economist?

Say's law is named for Jean-Baptiste Say, whose 1803 Treatise on Political Economy argued that production generates the income that buys output; the four-word summary is Keynes's 1936 paraphrase, not Say's own words.

Which psychologist won the 2002 Nobel economics prize for work on judgment and decisions?

Daniel Kahneman, a psychologist, shared the 2002 prize with Vernon Smith for bringing psychological insight into economics; he said it would have been shared with Amos Tversky, his long-time collaborator, had Tversky not died in 1996.

Richard Thaler and Cass Sunstein's 2008 book on 'choice architecture' was titled what?

Nudge (2008) argued that how choices are presented, their 'choice architecture', steers decisions without banning options; the 2021 'final edition' added a chapter on 'sludge', the friction that makes cancelling harder than signing up.

John von Neumann co-wrote the 1944 book that founded game theory with which economist?

'Theory of Games and Economic Behavior' came out of Princeton. Nash's equilibrium work followed a few years later as a graduate student there.

Ronald Coase's 1960 article on transaction costs and property rights was titled what?

The Problem of Social Cost (1960) argued that with costless bargaining, who holds a right does not affect efficiency, but Coase's real point was that bargaining is usually costly; George Stigler later dubbed the idea the Coase theorem.

Purchasing power parity compares currencies by pricing what in each country?

The OECD's version tracks around 3,000 consumer goods and services plus government occupations, equipment and construction projects.

François Quesnay's 1759 'Tableau économique' founded which school of thought?

Quesnay was a physician, and his circular-flow model of wealth was inspired by William Harvey's work on blood circulation.

Who coined 'the dismal science' as a jab at economics in 1849?

Thomas Carlyle coined 'the dismal science' in his 1849 'Occasional Discourse on the Negro Question', attacking economists who backed free labour markets over slavery; he meant it as a contrast with 'the gay science', a name for poetry.

Which economist produced the first official estimate of US national income in the 1930s?

Simon Kuznets produced the 1934 report National Income, 1929–32 for the US Senate, the foundation of modern GDP accounting; it helped win him the 1971 Nobel, and the inverted-U inequality curve bears his name.

'Dutch disease' was coined in 1977 after the discovery of a huge field of what?

The Economist coined 'Dutch disease' in 1977 for what followed the 1959 discovery of the giant Groningen natural gas field: gas exports pushed up the guilder and Dutch manufacturing became uncompetitive.

Funding Concorde long after it stopped making sense is the textbook example of what?

The sunk cost fallacy is letting money already spent, which cannot be recovered, drive a decision; Britain and France kept funding Concorde that way, so biologists Dawkins and Carlisle dubbed it the 'Concorde fallacy' in 1976.

The world's oldest 'modern' stock exchange was founded in 1602 in which city?

The Amsterdam exchange opened in 1602 to trade shares of the Dutch East India Company, chartered that year with a 21-year monopoly on Dutch trade in Asia; it is usually called the first modern stock exchange.

Lehman Brothers' September 2008 collapse was, at the time, the largest what in US history?

Lehman's Chapter 11 bankruptcy filing on 15 September 2008, with about $639 billion in assets, dwarfed every earlier US bankruptcy; the Dow fell 504 points, 4.4%, that day, its worst drop since September 2001.

On Black Monday in 1987, the Dow Jones fell by roughly what percentage in a single day?

On 19 October 1987 the Dow Jones Industrial Average lost 508 points, 22.6%, the biggest one-day percentage fall in its history to that date; in Australia and New Zealand, across the date line, it is remembered as Black Tuesday.

Which Scottish financier ran the French company behind the 1720 Mississippi bubble?

John Law's Mississippi Company, which held France's colonial trade monopolies and took over the royal debt and tax collection, absorbed his Banque Royale in 1720; its shares collapsed that year and Law fled France in December 1720.

Kenneth Arrow's impossibility theorem, proved in 1950, is a result about what?

It shows no ranked voting rule can satisfy a short list of fairness conditions at once. Arrow later conceded that cardinal methods such as score voting escape it.

Engel's law says that as a family's income rises, the share it spends on what falls?

Food takes a shrinking share of the budget as income rises, Ernst Engel found in 1857; spending on it still grows, only more slowly, and many poverty lines are built on the ratio.

Jevons's 1865 paradox noted that efficiency gains increased British use of what?

In The Coal Question (1865) William Stanley Jevons observed that Watt's more efficient steam engine made coal cheaper to use, so Britain burned far more of it; the same 'rebound effect' dogs energy-efficiency policy.

Arthur Okun's misery index adds the unemployment rate to which other figure?

Arthur Okun's misery index simply adds the inflation rate to the unemployment rate; Robert Barro's harsher 1999 version also adds the interest rate and the gap between actual and trend GDP growth.

In 1911 the US Supreme Court ordered the breakup of which corporate trust?

The Court's May 1911 ruling split Standard Oil into 34 companies, including the ancestors of Exxon, Mobil and Chevron; Ida Tarbell's 1904 muckraking history of the trust had helped bring the case.

The 1933 Glass–Steagall Act walled off US commercial banks from what business?

The Banking Act of 1933, sponsored by Senator Carter Glass and Representative Henry Steagall, barred commercial banks from investment banking such as underwriting securities; the Gramm–Leach–Bliley Act repealed that separation in 1999.

The 'impossible trinity': free capital flows, control of your own interest rates and what?

A country cannot have free capital flows, an independent monetary policy and a fixed exchange rate at once; Robert Mundell and Marcus Fleming derived the trilemma independently in the early 1960s, and the third leg has to give.

Which Belgian-American economist named the reserve-currency issuer's dilemma?

To supply the world with dollars the US had to run deficits, which eventually undermined faith in the dollar's gold backing. The Nixon shock proved him right.

Milton Friedman said rising prices are 'always and everywhere' what kind of phenomenon?

Friedman's 1963 line, 'inflation is always and everywhere a monetary phenomenon', was aimed at cost-push explanations blaming oil prices or wage demands; his cure was slow, steady growth of the money supply.

The 'paradox of value' contrasts cheap, essential water with what pricey item?

Adam Smith's diamond–water paradox asked why near-useless diamonds cost more than vital water; the marginalists of the 1870s answered that price tracks the usefulness of one extra unit, and an extra glass of water is worth little.

What is currency called when it is backed by neither gold nor any other commodity?

Fiat money has value only because a government declares it legal tender; Kublai Khan's Yuan dynasty issued inconvertible paper notes in the 1260s, and since the dollar left gold in 1971 every major currency has been fiat.

Which Fed chairman warned of 'irrational exuberance' in a December 1996 speech?

Alan Greenspan used the phrase in a 5 December 1996 speech at the American Enterprise Institute and later wrote that it came to him in the bathtub; Robert Shiller borrowed it for his 2000 book on the dot-com bubble.

Mercantilists measured a nation's wealth mainly by its stock of what?

Mercantilists equated national wealth with the stock of gold and silver, hence their obsession with trade surpluses: sell more than you buy and bullion flows in. Adam Smith devoted much of The Wealth of Nations to demolishing the idea.

Wassily Leontief won his Nobel for developing which analytical tool?

Wassily Leontief won the 1973 Nobel for input–output analysis, tables tracking how each industry's output becomes other industries' inputs; his 1941 study The Structure of American Economy applied it to US data.

Baumol's 'cost disease' was first described in a 1960s study of which sector?

Baumol and Bowen's 1966 study Performing Arts: The Economic Dilemma found a string quartet needs the same four players and the same minutes as in Beethoven's day, yet musicians' wages must keep pace with sectors where productivity soars.

Bill Phillips's 1949 MONIAC computer modelled the British economy using flows of what?

MONIAC pumped coloured water through transparent tanks and valves to show money flowing round the economy; Phillips built the prototype in 1949 in a Croydon garage from war-surplus parts, including bits of Lancaster bombers.

Friedrich Hayek shared the 1974 Nobel economics prize with which Swedish economist?

Gunnar Myrdal, a social democrat, shared the 1974 prize with the free-market liberal Hayek, a pairing widely read as a balancing act; Myrdal later said the economics prize should be abolished.

The 1997 Asian financial crisis began in July with the collapse of which currency?

The Thai baht's float on 2 July 1997, after Thailand ran down its reserves defending the dollar peg, started what Thais call the 'Tom Yum Kung crisis'; the contagion then spread to Indonesia, Malaysia and South Korea.