Glossary

accidents of birth
Differences in life prospects that arise from factors beyond your control, such as the wealth or educational attainment of your parents.
asset
Anything of value that is owned.
consumption (C)
Expenditure on consumer goods including both short-lived goods and services and long-lived goods, which are called consumer durables.
credit-constrained
A description of individuals who are able to borrow only on unfavourable terms.
decreasing returns to scale
These occur when doubling all of the inputs to a production process less than doubles the output. Also known as: diseconomies of scale.
diseconomies of scale
These occur when doubling all of the inputs to a production process less than doubles the output. Also known as: decreasing returns to scale.
disposable income
Income available after paying taxes and receiving transfers from the government.
economies of scale
These occur when doubling all of the inputs to a production process more than doubles the output. The shape of a firm’s long-run average cost curve depends both on returns to scale in production and the effect of scale on the prices it pays for its inputs. Also known as: increasing returns to scale. See also: diseconomies of scale.
flow
A quantity measured per unit of time, such as annual income or hourly wage.
Gini coefficient
A measure of inequality of any quantity such as income or wealth, varying from a value of zero (if there is no inequality) to one (if a single individual receives all of it).
global inequality
An estimate of income or wealth inequality among all people on the planet.
gross domestic product (GDP)
A measure of the market value of the output of final goods and services in the economy in a given period. Output of intermediate goods that are inputs to final production is excluded to prevent double counting.
human capital
The stock of knowledge, skills, behavioural attributes, and personal characteristics that determine the labour productivity or labour earnings of an individual. Investment in this through education, training, and socialization can increase the stock, and such investment is one of the sources of economic growth. Part of an individual’s endowments.
income ratios
A measure of inequality that compares income at a given percentile of the income distribution to that of another by taking a ratio. For example, the 90:10 ratio compares income at the 90th percentile to income at the 10th percentile.
income shares
A measure of the share of income going to some portion of the income distribution. For example, the share going to the top 10% or the top 1%.
income
The amount of profit, interest, rent, labour earnings, and other payments (including transfers from the government) received, net of taxes paid, measured over a period of time such as a year. The maximum amount that you could consume and leave your wealth unchanged. Also known as: disposable income.
inequality between countries
A measure of inequality between countries that relies on national average incomes rather than individual incomes.
inequality of opportunity
Differences across people that arise because of barriers to access, such as school and neighbourhood quality, or discrimination based on race or gender.
inequality of outcomes
Differences across people in the material dimensions of wellbeing arising from any source, including family background and individual talent and effort.
Lorenz curve
A graphical representation of inequality of some quantity such as wealth or income. Individuals are arranged in ascending order by how much of this quantity they have, and the cumulative share of the total is then plotted against the cumulative share of the population. For complete equality of income, for example, it would be a straight line with a slope of one. The extent to which the curve falls below this perfect equality line is a measure of inequality. See also: Gini coefficient.
market income
Income before paying taxes and receiving transfers from the government.
maximin principle
A decision-making principle that aims to maximise the welfare of the least fortunate in society.
predistribution policy
Government actions that affect the endowments people have and their value, including the distribution of market income and the distribution of privately held wealth. Examples include education, minimum wage, and anti-discrimination policies. See also: redistribution policy.
redistribution policy
Taxes, monetary, and in-kind transfers of the government that result in a distribution of final income that differs from the distribution of market income. See also: predistribution policy.
stock
A quantity measured at a point in time. Its units do not depend on time. See also: flow.
too big to fail
Said to be a characteristic of large banks, whose central importance in the economy ensures they will be saved by the government if they are in financial difficulty. The bank thus does not bear all the costs of its activities and is therefore likely to take bigger risks.
wealth
Stock of things owned or value of that stock. It includes the market value of a home, car, any land, buildings, machinery or other capital goods that a person may own, and any financial assets such as shares or bonds. Debts are subtracted—for example, the mortgage owed to the bank. Debts owed to the person are added.