The Economy (CORE) Unit 6 glossary

incomplete contract

A contract that does not specify, in an enforceable way, every aspect of the exchange that affects the interests of parties to the exchange (or of others). [6.3][12.4][KC6][KC10]

isoprofit curve

A curve on which all points yield the same profit. [6.7]

contract

A legal document or understanding that specifies a set of actions that parties to the contract must undertake. [6.1][12.0]

isocost line

A line that represents all combinations that cost a given total amount. [2.4][6.7][KC2]

labour discipline model

A model that explains how employers set wages so that employees receive an economic rent (called employment rent), which provides workers an incentive to work hard in order to avoid job termination. [6.7]

employment rent

The economic rent a worker receives when the net value of her job exceeds the net value of her next best alternative (that is, being unemployed). [6.4][KC6]

reservation wage

What an employee would get in alternative employment, or from an unemployment benefit or other support, were he or she not employed in his or her current job. [5.6][6.5][KC6]

unemployment

A situation in which a person who is able and willing to work is not employed. [6.4][9.2]

worker's best response function (to wage)

The optimal amount of work that a worker chooses to perform for each wage that the employer may offer. [6.6][KC6]

efficiency wages

The payment an employer makes that is higher than an employee's reservation wage, so as to motivate the employee to provide more effort on the job than he or she would otherwise choose to make. [6.7]

offshoring

The relocation of part of a firm's activities outside of the national boundaries in which it operates. It can take place within a multinational company or may involve outsourcing production to other firms. [6.0][16.0]

division of labour

The specialization of producers to carry out different tasks in the production process. [4.1][6.1][KC6]

principal-agent relationship

This relationship exists when one party (the principal) would like another party (the agent) to act in some way, or have some attribute that is in the interest of the principal, and that cannot be enforced or guaranteed in a binding contract. [6.0][10.12][KC11]