continuous double auction To countervailing duty (Economics)

continuous double auction

Bids are submitted by both buyers and sellers, then ranked from highest to lowest and a trade is effected when there is a match. A dutch auction is a continuous descending auction.

continuous variable

A variable, expressed in symbolic form, e.g. x or y, which can assume any value between two given values.

contract compliance

Obeying the terms and conditions of governmental contracts awarded to private sector firms. This approach has often been used, especially in the USA, as a means of advancing employment policies, e.g. the employment of women, blacks and disabled persons.

contract curve

1 A curve connecting the points of tan-gency of two individuals’ respective indifference curves such that the MARGINAL RATE OF SUBSTITUTION for them is the same.

2 an isoquant showing where the marginal rate of technical substitution is the same for the production of two different goods.

contracting

Forming an agreement to supply a factor of production or a product.

contracting out

Partial privatization of a public service often through employing subcontractors to undertake a specific function such as cleaning, laundering or accounting.

Contractionary national income gap deflationary gap

contractual savings

savings made under a contract that specifies regular payments into a fund over a minimum time period. The advantage to pension funds and life assurance companies of savings of this type is that they make possible long-term institutional investments, e.g. in real estate.


contrarian investment strategy

A stock market practice of buying stocks and shares that have been losing value and selling stocks short which have been improving. This approach is based on the view that a stock market overreacts to the information it receives. Price-earnings and book-market ratios are used to identify stocks suitable for the pursuit of this strategy.

contribution standard

A principle of income distribution that asserts that the productivity of different kinds of resources should determine income distribution. This principle is derived from the marginal productivity theory of distribution and is criticized on the grounds that it is very difficult to apply as a factor of production’s own productivity is often inseparable from others.

controlled market

A market regulated by a central or local government. There can be control over pricing, over the quantities which can be sold or in the range of people allowed to buy and sell. Many European countries in the past gave the police the power to regulate markets; today the principal organizations regulating prices have been set up under national price or agricultural policies. In practice, it is difficult to have complete control over a market as the prices set are unlikely to be permanently in equilibrium, thus giving buyers and sellers an incentive to evade the controls.

convergence criteria

The five macroeconomic rules set out in the Treaty of Maastricht for member countries of the European Union to enter the single currency, the euro: the public deficit to be no more than 3 per cent of GDp; average inflation rate over 1997 not to exceed 1.5 per cent of the three best-performing member states; gross government debt to be less than 60 per cent of GDp; the national currency to fluctuate within the margins set by the Exchange Rate Mechanism for at least two years, avoiding devaluation and severe tensions; long-term interest rates to be no more than 2 per cent of the three member countries with the greatest price stability.

convergence hypothesis

The supposition that different types of economy are becoming similar. This view emerged in the 1960s because soviet-type economies modified their planning methods by making more use of the price system and market economies became more corporate and sympathetic towards public enterprise. It was argued that all economies were becoming mixed economies. Although economic reforms using prices have become increasingly popular in Eastern Europe, privatization has caused market economies to revert more to their original form which was more capitalist than mixed.

conversion

Replacing one kind of stock market security with another. Major types of conversion occur when an equity replaces a debenture, or a dated government bond is replaced by an undated one.

convertible currency

A currency exchangeable for gold or a major currency. After the Second World War, the UK pound did not return to full convertibility until 1958; in the late twentieth century, East European currencies were the last major currencies to remain inconvertible.

cookie jar accounting

setting aside reserves in the years of a company’s prosperity to be used in a recession so that income available for shareholders is stabilized.

co-operative

A group of producers or consumers who join together to share the rewards of production including profits from retailing. The oldest consumers’ co-operative was founded in Rochdale, Lancashire, in 1844; many producer co-operatives were founded in the USA and the UK in the last quarter of the nineteenth century. Unfair business competition, especially the withholding of supplies, destroyed many of the US co-operatives, but some of the UK co-operatives founded then still survive in printing, clothing and footwear manufacture. Self-management of Yugoslav enterprises and the large workers’ cooperatives at Mondragon (in the Basque region of Spain) attracted much attention. All these enterprises have had to face the problems of underinvestment (as producer members often prefer present wages to future profits), low productivity and a lack of managerial experience. But poor performance has not been universal, as Mondragon shows.

co-operative federalism

A federal state with much intergovernmental co-operation between federal and state governments. In particular, the different layers of government jointly participate in many programmes.

A set of possible equilibrium prices. As originally devised by edgeworth in Mathematical Psychics (1881), it corresponds to all pareto-efficient positions in a two-person, two-good economy which show improvement after trade. This concept has been applied to the study of co-operative games and is shown by the contract curve in the edgeworth box diagram. The core coincides with a set of price equilibria under perfect competition, i.e. general EQUILIBRIUM.

core economy

A major economy, usually a market economy, which plays a leading role in world trade.

core firm

A giant corporation that dominates a market.

core inflation rate

The underlying trend in inflation which depends solely on past labour and capital costs and firms’ expectations of changes in these costs. This rate changes only if expectations based on extrapolating from past costs change. To bring the core inflation rate of a major economy, such as the USA’s, down to zero could require a steady fall in national output for several years. This rate is usually estimated by excluding volatile food and energy prices from the consumer price index. .

core region

A dominant or leading region of a country which often includes the capital city. The accumulation of physical and human capital is encouraged there by the agglomeration and concentration economies possible in such a large population.

corner solution

An answer to an optimization problem in which one of the variables in a trade-off is zero at an optimum.

Corn Laws

The series of English laws dating from the reign of Edward iv which protected English agriculture by imposing tariffs on the import of corn to maintain its price; also export bounties (subsidies) were granted to farmers. classical economists such as smith objected to this interference with free trade; ricardo viewed it as an encouragement to production which would expand agriculture, a form of production subject to the law of diminishing returns, and bring about a decline in the rate of profit and a stationary state in the economy. The growing manufacturing interest also opposed these laws as protection kept up food prices and wages. The laws were repealed by the government led by Sir Robert Peel in 1846.

corn model

Ricardo’s simple model of an economy with one commodity, corn, which is both the single input and single output of that country. Corn provides subsistence for workers who produce an annual output of corn. Thus a single commodity is both the intermediate and final product.

cornucopia

An abundance of consumer goods possible only in a high-income capitalist country, e.g. the USA.

corporate finance

Specialist financial services to corporations and other large organizations. Advice is given on raising new capital and on acquisitions.

corporate governance

The set of rules which are used to control and run a firm or other organization. The powers of different managers, the formulae for calculating remuneration and grievance procedures are part of governance.

corporate income tax

A separate tax on firms which has the advantage of being easier to collect than an income tax applied to both persons and firms. As it is a tax on a special kind of factor income, pure corporate profits, it does not affect output in the short or long run.

corporate morality

The maintenance of high ethical standards by businesses. This requires honesty in the accounting and other statements of corporate activity, high-quality safe products, participation in community programmes, care for the environment, an awareness of the long-term interests of the economy in its investment policy and prompt payment of taxation in order to contribute sufficiently to public expenditure.

corporate state

A state considerably influenced by relatively few large firms and trade unions which jointly, with the collaboration of the government, make the major economic decisions on which the running of an economy is based. Italian fascism of the interwar period took this form; UK governments of the 1960s and 1970s, according to their critics, adopted such a political philosophy. As the proportion of output produced by a few major companies increases in the USA and other Western countries, corporatism becomes a more important issue.

corporate veil

The disguises of firms to prevent government and shareholders knowing all of their activities, including the extent of their income. Shareholders’ ignorance of a company’s actual behaviour leads them to underestimate the true value of a company, e.g. they ignore the effect of current corporate saving on prospective price-earnings ratios and hence the stock market valuation of the company. Governments collect less in corporate taxation because of their ignorance of firms’ total earnings.

corporation

A privately or publicly owned firm whose powers and activities are defined in the statute or articles which set it up. It is the major way of organizing a large firm in many countries and hence is responsible for most industrial and commercial output of several national economies. As most large corporations, whether in the public or private sectors, are to a large extent controlled by their managers, many have asked to whom they are ultimately responsible.

corporation income tax

A major tax used by the US federal government for raising revenue. To avoid its constitutionality being challenged in the courts, it was levied as an excise on the privilege of doing business as a corporation. Until 1941, it raised more revenue than the individual income tax. The tax is paid in two instalments in the first six months of the year following the tax year in which a corporation’s income arises.

corporation tax

A direct tax on the profits, after interest and depreciation, of companies. Separate income taxation for individuals and companies enables different rates to be charged. The yield from the corporation tax varies from country to country as a consequence of different tax rates and differences in corporate profitability.

corporatism

Control of an economy by giving major economic decision making to corporations, industrial ministries and, in some economies, leading trade (labor) unions. This was said to be the character of the UK economy in the 1960s and 1970s and has long been true of France.

corrective subsidy

A subsidy given to a firm as an incentive for internalizing an externality; a payment to cover the social costs borne by a firm.

corrective tax

An indirect tax used to counter externalities thereby bringing about a pareto equilibrium.

correlation

The extent of interdependence between two variables. Unlike regression, this calculation is not used to predict the value of one variable from the other.

correspondent bank

A bank accepting deposits from another bank located in another area to provide local services for it. Many banks internationally have this arrangement to be able to make payments in different currencies. In the USA, the unit banking system necessitated correspondent banking as a means of transferring funds between different localities.

corridor

A range above and below the equilibrium path of an economy. Within the corridor, normal market forces bring the economy back to the equilibrium path.

corruption

The use of public office for private gain by the political establishment, bureaucrats or legislators. its different forms include accepting bribes to change decisions, fraud, LAUNDERING MONEY and BLACK MARKET operations. Corruption increases transaction costs and the final cost of many goods and services, especially where a government licence is needed. Although it can discourage foreign investors, it does make some economic systems work faster.

‘corset’

The method of Bank of England control over commercial banks’ liabilities in force from December 1973 to June 1980. A limit was placed on the amount of banks’ sterling deposits and foreign currency deposits lent in sterling: if the limit was exceeded, a special deposit, bearing no interest, had to be lodged at the Bank of England. Banks objected to the way in which it encouraged companies to lend directly to each other rather than using banks as intermediaries. The removal of the corset led to an upsurge in the money supply.

cost-benefit analysis

The evaluation of an investment project with a long-term perspective from the viewpoint of the economy as a whole (although it is sometimes used in the private sector) by comparing the effects of undertaking the project with not doing so. This form of analysis was designed to provide a means for evaluating public works and development projects in cases where the value of them could be measured empirically. It can be traced back to dupuit’s De la mesure de l’utilite des travaux publics (1844), but it was first applied as a technique for assessing projects under the US Flood Control Act 1936. The theoretical justification for many cost-benefit procedures was slight until hicks published an article in 1943 on consumers’ surpluses. A calculation of the net present value of expected costs and expected benefits makes it possible to use the decision rule that a project will only be undertaken if the benefits exceed the costs. The maximization of net social benefits came to be regarded as the appropriate criterion for selecting a project. The benefits and costs can be real (tangible or intangible) or pecuniary. Tangible benefits can often be equated with increased output; intangible benefits with prestige and the creation of something beautiful; and pecuniary benefits with a change in the relative remuneration of an industry or an occupation.

cost-effectiveness analysis

An analysis of the costs of alternative programmes designed to meet a single objective. The programme which costs least will be the most cost effective. This form of analysis was first developed when Robert McNamara was US Secretary of Defense in the 1960s.

cost gradient

The increase in costs resulting from an enterprise being less than optimum size.

costing margin

An addition to average direct costs to cover indirect costs and provide a normal level of net profit under full-cost pricing. This rule is most likely to be used in a mature oligopolistic industry not faced with potential competition.

cost, insurance and freight

The full-cost valuation of imports paid by purchasers. International trade statistics usually measure imports ‘c.i.f.’ so that all the charges of international trade are included in balance of payments accounts.

cost leader

The lowest cost producer of an industry. This leadership is usually established by economies of scale, exclusive rights over new technology or preferential access to raw materials. A cost advantage has often been the basis of monopoly power.

cost of living adjustment

A provision in a US labour contract providing for automatic wage increases in line with rises in the consumer price index. Usually abbreviated to COLA.

cost of living index

Now termed in the UK the retail price index. It shows changes in the cost of purchasing a bundle of goods and services representative of the average consumer. The Ministry of Labour and now its successor, the Department for Education and Employment, had to maintain this index as it is of crucial importance to wage bargaining.

cost-push inflation

Inflation caused by an autonomous increase in costs in the absence of an increase in demand. The principal cost increases are wage increases forced by powerful trade unions, imported raw material costs pushed up by international producers’ cartels and the profit mark-ups of oligopolistic firms.

cost ratio

The ratio to sales of factory costs, administrative costs, research and development costs, capital expenditure, selling costs or distribution costs.

cost-utility analysis

A method of evaluating health programmes by calculating the cost per effect produced of a medical procedure or treatment. Effects are converted into preferences or utilities. It makes use of quality-adjusted LIFE YEARS.

cottage industry

An industry whose production takes place in workers’ homes. Handloom weaving before the industrial revolution was organized in this way; now, networking and telecommuting are home based.

Council for Mutual Economic Aid

The intergovernmental council ‘Comecon’ of the USSR, Bulgaria, Czechoslovakia, Hungary, Poland and Romania established in 1949, which promoted mutual international trade and the co-ordination of national economic plans. (Albania joined in 1949, East Germany in 1950, Mongolia in 1962 and Vietnam in 1978; Romania weakened its ties in 1973 by making separate agreements with the European community; Yugoslavia became an associate member in 1964; China and North Korea enjoyed observer status from 1964.) it was established by stalin to provide a socialist ‘market’ to oppose the world-wide capitalist market – hence comecon was called ‘the Russian Marshall plan’. To Comecon were added the international BANK FOR ECONOMIC CO-OPERATION and the international investment bank as alternatives to the INTERNATIONAL MONETARY FUND.

Initially, comecon agreed on general goals for trade and technical assistance which led to the joint organization of scientific research, technical assistance in the building of industrial plants and the development of mineral resources. In 1954, a step was made towards economic integration by the co-ordination of five-year plans and in 1955 production priorities for member states were established. Multilateral trade agreements were recommended, as was the co-ordination of energy policies. Although in 1961 ‘Basic Principles’ for the long-term plans of member countries were drawn up, soviet proposals the following year for a single plan and a single planning authority were rejected as being an encroachment on national sovereignty. The International Bank for Economic co-operation was chartered in 1963 to arrange multilateral payments and short-term credits and the International Investment Bank was created in 1970 to finance specific projects which were part of co-ordinated five-year plans. In 1970, medium- and long-term cooperation up to 1980 was agreed; to implement this, central economic planning machinery was set up in Moscow. In 1987, direct links within Comecon between productive enterprises and research institutes of the USSR and Eastern Europe in the form of joint ventures were set up. To avoid currency negotiations, dividends could be paid in goods. The political convulsions of 1989 in Eastern Europe provoked some members of Comecon to call for a more market-oriented approach to their economic decision making. Comecon was dissolved in 1991.

council housing

UK housing owned by local governments. Less of the UK housing stock is now publicly owned as a result of the Conservative government policy in the 1980s of allowing council house tenants to purchase the houses which they had for a long time rented at less than market rates. Economists have been concerned that much of this housing has been let at less than market rents and by the impact on geographical labour mobility of access to housing being dependent on continued residence in the same locality.

Council of Economic Advisers

The team of three in the USA which advises the president on the state of the economy. This council was set up under the employment act 1946. A principal task of the council is to assist the president in preparing his annual Economic Report to the Congress, a report formulating broad guidelines for stabilization policy and other aspects of the government’s economic programme. The academics chosen as members of the council usually have political views close to those of the administration.

council tax

UK local property tax introduced in 1991 as a replacement of the community charge. poorest households are exempted from it; other households are assessed on the assumption that two adults live in the household (a single person would have a rebate of 25 per cent). The value of each property is placed within one of seven bands, which are defined differently for England, Scotland and Wales.

countercyclical policy

Government policy to reduce fluctuations in government spending which has to be such as to restore the economy to an equilibrium path, the trend line through cyclical fluctuations. Since 1933 Sweden has been the best-known user of such policies but in the 1950s, when demand management was believed to be a possible art, many Western economies used monetary, fiscal and other policies to reduce fluctuations in the gross domestic product and in employment. In less developed countries it is more difficult to have successful countercyclical measures: fluctuations in climate and in export demand (which are of central importance to primary producers) cannot be controlled by governments. Also, poverty itself is more a product of long-run factor shortages than deficiency in home demand, and taxation and expenditure affect a smaller percentage of the population.

counterparty capital

The capital required by a securities house to cover the risk that a party being dealt with in the settlement system has little or no credit to meet a payment due.

counterpurchase

countertrade not entirely barter as the exporter requires part payment in cash.

countertrade

barter or parallel sales and purchases; a method of trade between East and West which has been used to minimize the need for East European countries to use hard currencies.

countervailing duty

A selective tariff on imports to counter government subsidies in the exporting nation. This is used to reduce some trade distortions.

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