Glossary¶

This glossary defines the key terms used across all six modules. Each entry includes a plain-language definition and a brief example. Terms are listed alphabetically. The Module tag tells you where the concept first appears.

Use ++ctrl+f++ (or ++cmd+f++ on Mac) to search for a specific term.

A¶

Absolute Poverty¶

A condition where a person's income or consumption falls below a minimum threshold needed to meet basic needs — food, shelter, clothing. Contrasted with relative poverty (being poor compared to others in your society). Example: The World Bank's international poverty line of $2.15/day (2017 PPP) is an absolute poverty measure. India's Tendulkar line serves a similar function domestically. Module 4

Adverse Selection¶

A situation where one party in a transaction has more information than the other, leading to a market where low-quality goods or high-risk individuals dominate. Example: If health insurance is voluntary, people who know they are sick are more likely to buy it, driving up premiums for everyone. Module 2

Anchoring Bias¶

The tendency to rely too heavily on the first piece of information encountered when making decisions. Example: A shop marks a shirt as "~~₹2,000~~ Now ₹999!" — the ₹2,000 anchor makes ₹999 feel like a bargain, even if the shirt was never worth ₹2,000. Module 1

Asymmetric Information¶

A situation where one party in a transaction knows more than the other. Example: A used car seller knows the car's history; the buyer does not. This information gap can lead to adverse selection and moral hazard. Module 2

B¶

Backward Induction¶

A method of solving sequential games by starting at the final move and reasoning backwards to determine the optimal strategy at each stage. Example: In chess, you think several moves ahead by considering what your opponent will do at each future step. Module 2

Behavioral Economics¶

A field that combines insights from psychology and economics to study how people actually make decisions — often deviating from the "rational" predictions of standard economic theory. Example: People spend more using credit cards than cash because the pain of paying feels less immediate. Module 1

Bounded Rationality¶

The idea that people's decision-making is limited by the information available, their cognitive abilities, and the time they have to decide. Proposed by Herbert Simon. Example: Rather than comparing every mobile phone on the market, you buy the first one that meets your basic requirements. Module 1

Budget Constraint¶

The set of all combinations of goods and services a consumer can afford given their income and prices. Example: With ₹500 per week for food, you can buy 10 meals at ₹50 each, or 5 meals at ₹100, or any combination that totals ₹500. Module 2

C¶

Capital Deepening¶

An increase in the amount of capital per worker in an economy. In the Solow model, capital deepening raises output per worker but faces diminishing returns. Example: Replacing hand looms with power looms in a textile factory — each worker now has more capital to work with, increasing their productivity. Module 5

Cap-and-Trade¶

Carbon Tax¶

A tax levied on the carbon content of fossil fuels, designed to internalize the external cost of greenhouse gas emissions. A form of Pigouvian tax. Example: A carbon tax of $50 per ton of CO2 makes coal-fired electricity more expensive relative to solar, nudging the energy mix toward cleaner sources. Module 6 A market-based system for controlling pollution. The government sets a cap on total emissions and issues tradable permits. Firms that reduce pollution cheaply can sell their permits to firms that find it more expensive. Example: The EU Emissions Trading System covers power plants and factories across Europe. Module 6

Capability Approach¶

Amartya Sen's framework that measures well-being not by income alone but by what people are able to do and become — their "capabilities." Example: Two people may earn the same salary, but one lives in a village without schools or hospitals, limiting what they can achieve with that income. Module 4

Child Labor¶

The employment of children in work that deprives them of childhood, education, and well-being. Often driven by poverty and lack of alternatives. Example: India's Census 2011 recorded 10.1 million child laborers aged 5-14. The Child Labour (Prohibition and Regulation) Amendment Act, 2016 prohibits employment of children below 14 in all occupations. Module 4

Collective Action¶

Common Pool Resource¶

A resource that is rivalrous (one person's use reduces availability for others) but non-excludable (difficult to prevent access). Prone to overuse. Example: Groundwater — each farmer's borewell reduces the water table for all farmers, but no one can be easily excluded from drilling. India has 1,600+ over-exploited groundwater blocks. Module 6

Commons Governance¶

Systems of rules, norms, and institutions through which communities manage shared resources. Elinor Ostrom demonstrated that communities can govern commons sustainably without privatization or centralized control. Example: Van Panchayats in Uttarakhand manage ~5,400 sq km of community forests through locally designed rules about harvesting, monitoring, and sanctioning. Module 6 When individuals work together to achieve a common goal that benefits the group. Often difficult because of the free rider problem. Example: Villagers in Uttarakhand's Van Panchayats collectively manage forests, preventing overuse. Module 6

Comparative Advantage¶

The ability to produce a good at a lower opportunity cost than another producer. A country or person should specialize in what they do relatively best, even if they are not the absolute best at it. Example: India exports IT services not because Indian programmers are the cheapest, but because India's opportunity cost of producing software is lower than its opportunity cost of producing, say, aircraft. Module 3

Competition¶

A market structure where many firms sell similar products, and no single firm can control the price. Competition drives innovation and lowers prices. Example: The Indian telecom market after Jio's entry — intense competition drove data prices to among the lowest in the world. Module 2

Complementary Goods¶

Goods that are consumed together, so a rise in the price of one reduces demand for the other. Example: Petrol and cars — when petrol prices rise sharply, demand for fuel-inefficient cars falls. Module 3

Consumer Surplus¶

The difference between what consumers are willing to pay and what they actually pay. Example: You would pay ₹200 for a cup of coffee but it costs ₹100 — your consumer surplus is ₹100. Module 3

Cooperation¶

When players in a strategic interaction choose to work together rather than compete, often achieving better outcomes for all. Example: OPEC countries cooperate to limit oil production, keeping prices high — though each member is tempted to cheat. Module 2

Creative Destruction¶

Joseph Schumpeter's term for the process by which new innovations destroy old industries while creating new ones. Example: Smartphones destroyed the market for separate cameras, music players, and GPS devices — but created entirely new industries like app development. Module 5

Credence Good¶

A good or service whose quality the consumer cannot fully evaluate even after consumption. Example: You cannot independently verify whether your mechanic's repair was necessary or whether a doctor's prescription was optimal. Module 2

D¶

Deadweight Loss¶

The loss of economic efficiency when the equilibrium outcome is not achieved — typically caused by taxes, subsidies, price controls, or monopoly. Example: A price ceiling on rent set below the market rate creates a shortage of apartments, and some willing renters and willing landlords cannot transact. Module 3

Demand¶

The quantity of a good or service that consumers are willing and able to purchase at various prices, holding other factors constant. Example: At ₹50 per plate, 100 students buy biryani from the canteen; at ₹80, only 60 buy it. Module 3

Diminishing Returns¶

The general principle that increasing one input while holding others constant eventually yields progressively smaller increases in output. Applies broadly to production, investment, and growth. Example: In the Solow growth model, continued capital investment in a country yields smaller and smaller GDP gains — which is why technology, not just investment, drives long-run growth. Module 5

Diminishing Marginal Returns¶

The principle that adding more of one input (while holding others constant) eventually produces smaller and smaller increases in output. Example: Adding a second waiter to a small restaurant helps a lot; adding a tenth waiter to the same restaurant adds very little. Module 3

Dominant Strategy¶

A strategy that gives the best outcome for a player regardless of what the other player does. Example: In the Prisoner's Dilemma, confessing is a dominant strategy — it gives a better outcome whether the other prisoner confesses or stays silent. Module 2

E¶

Economic Growth¶

A sustained increase in the total output (GDP) of an economy over time. Can be driven by more inputs (labor, capital) or better technology (TFP growth). Example: India's GDP grew at an average of ~7% per year from 2014-2024, driven by services expansion, demographic dividend, and infrastructure investment. Module 5

Economic Mobility¶

The ability of individuals or families to move up (or down) the income or social ladder over time. Example: A rickshaw driver's daughter becomes a software engineer — this represents upward intergenerational mobility. India's economic mobility is constrained by caste, gender, and geography. Module 4

Economic Model¶

A simplified representation of an economic process or relationship, used to make predictions and analyze policy. Models deliberately leave out details to focus on key mechanisms. Example: The supply-and-demand model assumes many buyers and sellers, but ignores the fact that real markets have advertising, brand loyalty, and information gaps. Module 1

Economies of Scale¶

Cost advantages that firms gain as production increases — the cost per unit falls as output rises. Example: Tata Motors can produce cars at a lower per-unit cost than a small workshop because it spreads fixed costs (factory, machinery) over millions of vehicles. Module 5

Education Returns¶

The economic gains from investing in education — measured as the percentage increase in earnings for each additional year of schooling. Also called "returns to education." Example: In India, completing secondary school increases average earnings by approximately 15-20% compared to primary school only, though returns vary by gender, caste, and region. Module 4

Efficiency¶

An allocation of resources where no one can be made better off without making someone else worse off (Pareto efficiency). Example: An economy operating on its Production Possibilities Frontier is productively efficient — it cannot produce more of one good without producing less of another. Module 1

Elasticity¶

A measure of how responsive quantity demanded or supplied is to a change in price or income. Example: Salt has low price elasticity (people buy roughly the same amount even if the price doubles); airline tickets have high elasticity (a small price drop can greatly increase bookings). Module 3

Endowment Effect¶

The tendency for people to value something more highly once they own it. Example: In Thaler's mug experiment, students who received a mug demanded ~$7 to sell it, while those who did not own one were willing to pay only ~$3. Module 1

Equilibrium¶

A state where no participant has an incentive to change their behavior, given what others are doing. In a market, it is the price where quantity demanded equals quantity supplied. Example: If the market price of wheat is ₹25/kg, and at that price farmers want to sell exactly as much as consumers want to buy, the market is in equilibrium. Module 3

Externality¶

A cost or benefit of a transaction that affects a third party who did not choose to be involved. Example: A factory pollutes a river (negative externality), harming downstream farmers who had no say in the factory's production decisions. Module 6

F¶

Financial Crisis¶

A sudden, widespread disruption of financial markets, typically involving bank failures, credit freezes, and sharp declines in asset prices. Example: The 2008 global financial crisis began with the collapse of the US housing bubble and spread through interconnected financial institutions worldwide. Module 1

Fiscal Policy¶

Government decisions about spending and taxation to influence the economy. Example: During the COVID-19 pandemic, the Indian government announced the Atmanirbhar Bharat package to boost economic activity through increased spending. Module 3

Free Rider Problem¶

When individuals benefit from a resource or service without paying for it, because they cannot be excluded. Example: If a neighborhood hires a private security guard, residents who do not contribute still benefit from the reduced crime. Module 6

Framing Effect¶

The tendency for people to react differently to the same information depending on how it is presented. Example: Patients are more likely to agree to surgery if told "90% survive" than if told "10% die" — the information is identical, but the frame changes the decision. Module 1

G¶

Free Rider¶

A person who benefits from a shared resource or collective effort without contributing their fair share. The free rider problem makes it difficult for private markets to provide public goods. Example: A resident who enjoys the neighborhood park maintained by community donations but never donates themselves. Module 6

Game Theory¶

GDP Per Capita¶

A country's total GDP divided by its population. A rough measure of average economic well-being, though it hides inequality. Example: India's GDP per capita in 2024 was approximately $2,700 — far below China ($13,000) or the US ($80,000), reflecting both India's large population and lower productivity. Module 5

Gender Gap¶

The systematic difference between men and women in economic outcomes — wages, labor force participation, education, or political representation. Example: India's female labor force participation rate is approximately 37% (PLFS 2024), compared to over 70% for men — one of the widest gender gaps in the world. Module 4

Globalization¶

The increasing integration of national economies through trade, investment, migration, and information flows. Example: An iPhone designed in California, assembled in China from components made in Japan, South Korea, and India, sold worldwide — this supply chain is globalization in action. India's IT exports ($200+ billion) are both a product and driver of globalization. Module 3 The study of strategic interactions where the outcome for each participant depends on the decisions of others. Example: Two competing telecom companies deciding whether to lower prices — each company's best move depends on what the other does. Module 2

GDP (Gross Domestic Product)¶

The total market value of all final goods and services produced within a country in a given period. Example: India's GDP in 2024-25 was approximately $3.9 trillion, making it the world's fifth-largest economy. Module 5

Gini Coefficient¶

A measure of income inequality ranging from 0 (perfect equality) to 1 (perfect inequality). Example: India's Gini coefficient is approximately 0.35, indicating moderate inequality — higher than many European countries but lower than Brazil or South Africa. Module 4

H¶

Herd Behavior¶

When individuals follow the actions of a larger group, often ignoring their own information or analysis. Example: Investors piling into the stock market because "everyone else is making money" — a pattern that fuels market bubbles. Module 1

Heuristics¶

Mental shortcuts that people use to make decisions quickly. While often useful, heuristics can lead to systematic biases. Example: The "availability heuristic" — people overestimate the risk of plane crashes (dramatic, memorable events) and underestimate the risk of car accidents (common, unremarkable). Module 2

Human Capital¶

The skills, knowledge, and experience possessed by workers that make them productive. Investment in human capital (education, training, health) increases earning potential. Example: A software engineer who learns a new programming language increases their human capital and, typically, their salary. Module 5

Human Development Index (HDI)¶

A composite measure of well-being combining life expectancy, education, and income per capita. Created by the UNDP, based on Amartya Sen's capability approach. Example: Kerala ranks among India's highest HDI states despite modest per-capita income, because of strong performance in health and education. Module 4

I¶

Incentive¶

A reward or penalty that motivates behavior. Economics assumes that people respond to incentives. Example: A congestion charge in central London incentivizes drivers to use public transport, reducing traffic. In India, MGNREGA's wage guarantee incentivizes rural workers to participate in public works. Module 1

Inequality¶

The uneven distribution of income, wealth, or opportunities across a population. Measured by the Gini coefficient, Palma ratio, or income share of the top/bottom groups. Example: India's top 10% hold approximately 57% of national income (World Inequality Lab), while the bottom 50% hold about 13%. Module 4

Informal Economy¶

Economic activity that operates outside formal regulations, taxation, and social protection systems. Includes self-employment, casual labor, and small unregistered enterprises. Example: Street vendors, domestic workers, and construction day-laborers — approximately 90% of India's workforce is informal, contributing roughly 50% of GDP. Module 4

Income Elasticity of Demand¶

A measure of how demand for a good changes when consumer income changes. Example: As Indian household incomes rise, demand for two-wheelers (normal goods) increases, while demand for kerosene (inferior good) decreases. Module 3

Inferior Good¶

A good for which demand decreases as consumer income rises. Example: Coarse grain — as incomes rise in rural India, families switch to rice or wheat. Module 3

Information Asymmetry¶

See Asymmetric Information. Module 2

Innovation¶

The introduction of new products, processes, or ideas that create value. Can be radical (entirely new) or incremental (improving existing products). Example: UPI was a radical innovation in digital payments; each successive version with new features represents incremental innovation. Module 5

Institutions¶

The formal rules (laws, regulations) and informal norms (customs, trust) that structure economic and social interactions. Example: Property rights, contract enforcement, and anti-corruption laws are institutions that determine whether markets function well. India's weak land title system is an institutional barrier to investment. Module 2

L¶

Labor Market¶

The market where workers supply their labor and firms demand it. Wages are the "price" in this market. Example: India's labor market includes ~500 million workers, of whom approximately 90% are in the informal sector without written contracts or social security. Module 3

Law of Demand¶

All else equal, when the price of a good rises, the quantity demanded falls, and vice versa. Example: When Zomato offers a 50% discount, orders surge; when the discount is removed, orders fall. Module 3

Law of Supply¶

All else equal, when the price of a good rises, the quantity supplied rises, and vice versa. Example: When onion prices spike, more farmers rush to bring their stored onions to market. Module 3

Loss Aversion¶

The tendency for people to feel the pain of a loss more intensely than the pleasure of an equivalent gain — roughly twice as much. Example: Losing ₹100 feels worse than finding ₹100 feels good. This explains why investors hold losing stocks too long — selling would "realize" the loss. Module 1

M¶

Marginal Benefit¶

The additional benefit gained from consuming one more unit of a good or service. Example: The first glass of water on a hot day is extremely valuable; the fifth glass is much less so. Module 1

Marginal Cost¶

The additional cost of producing one more unit of a good or service. Example: If a factory produces 100 shirts at ₹50,000 total and 101 shirts at ₹50,400 total, the marginal cost of the 101st shirt is ₹400. Module 1

Marginal Thinking¶

Making decisions by comparing the additional benefit of an action to its additional cost — one unit at a time. Example: "Should I study one more hour?" depends on whether the extra marks gained (marginal benefit) are worth the sleep lost (marginal cost). Module 1

Market Bubble¶

A situation where the price of an asset rises far above its fundamental value, driven by speculation and herd behavior, and eventually collapses. Example: The US housing bubble of 2003-2007, where house prices were driven up by speculative buying and easy credit, culminating in the 2008 financial crisis. Module 1

Market Equilibrium¶

See Equilibrium. Module 3

Market Failure¶

A situation where the free market does not allocate resources efficiently, justifying potential government intervention. Causes include externalities, public goods, monopoly, and information asymmetry. Example: Air pollution is a market failure because the polluter does not bear the full cost of the harm caused. Module 6

Mental Accounting¶

The tendency to treat money differently depending on where it comes from or how it is categorized, violating the economic principle that money is fungible. Example: Spending a tax refund on a luxury item ("bonus money") while simultaneously carrying credit card debt at 18% interest. Module 1

Microfinance¶

Small loans and financial services provided to low-income individuals who lack access to traditional banking. Example: Self-Help Groups (SHGs) in India pool savings and provide small loans to members, reaching over 100 million women. Module 4

Monopoly¶

A market structure with a single seller and no close substitutes. A monopolist can set prices above competitive levels. Example: Indian Railways is effectively a monopoly in long-distance rail transport — there is no competing rail service on the same routes. Module 3

Moral Hazard¶

When someone takes greater risks because they do not bear the full consequences of their actions. Example: Mortgage brokers in The Big Short issued risky loans because they earned commissions regardless of whether borrowers repaid — the risk was passed to investors. In India, the IL&FS crisis involved similar risk-shifting through the NBFC sector. Module 1

Multidimensional Poverty Index (MPI)¶

A measure of poverty that considers multiple deprivations — health, education, and living standards — not just income. Example: According to NITI Aayog's 2023 report, India's MPI headcount ratio declined from 24.85% in 2015-16 to 14.96% in 2019-21. Module 4

N¶

Nash Equilibrium¶

A set of strategies in a game where no player can improve their outcome by changing their strategy alone, given what the other players are doing. Named after John Nash. Example: In a duopoly where both firms charge moderate prices, neither firm benefits from unilaterally raising its price (losing customers) or lowering it (starting a price war). Module 2

Natural Monopoly¶

An industry where a single firm can supply the entire market at lower cost than two or more firms, typically due to high fixed costs. Example: Electricity distribution — it makes no sense to have two competing sets of power lines running to every home. Module 3

Negative Externality¶

A cost imposed on third parties who are not part of a transaction. Example: A coal power plant emits pollution that causes respiratory illness in nearby communities — the health costs are borne by residents, not the power company. Module 6

Network Effects¶

When the value of a product or service increases as more people use it. Example: WhatsApp is valuable because almost everyone in India uses it — a messaging app used by only 10 people has little value. Module 5

Normal Good¶

A good for which demand increases as consumer income rises. Example: Restaurant meals — as families earn more, they eat out more frequently. Module 3

Normative Economics¶

See Positive Economics. Module 1

Nudge¶

A small change in how choices are presented ("choice architecture") that steers people toward better decisions without restricting their freedom to choose otherwise. Coined by Richard Thaler and Cass Sunstein. Example: Making organ donation the default option (opt-out rather than opt-in) dramatically increases donation rates. India's Swachh Bharat Mission used social norms messaging as a nudge. Module 1

O¶

Oligopoly¶

A market dominated by a small number of large firms, where each firm's actions affect the others. Example: India's telecom market — dominated by Jio, Airtel, and Vodafone Idea — is an oligopoly where pricing and investment decisions are highly strategic. Module 3

Opportunity Cost¶

The value of the best alternative that you give up when you make a choice. The true cost of any decision. Example: If you spend Saturday studying instead of working a shift that pays ₹500, the opportunity cost of studying is ₹500 (assuming the job was your next-best option). Module 1

P¶

Pareto Efficiency¶

See Efficiency. Module 1

Perfect Competition¶

A theoretical market structure with many small firms selling identical products, free entry and exit, and perfect information. No single firm can influence the market price. Example: Agricultural commodity markets approximate perfect competition — thousands of wheat farmers sell a homogeneous product and individually have no power over the price. Module 3 See Efficiency. Module 1

Pigouvian Tax¶

A tax on activities that generate negative externalities, designed to make the private cost equal the social cost. Named after economist Arthur Pigou. Example: A carbon tax that charges firms for each ton of CO2 emitted, internalizing the environmental cost. Module 6

Platform Economy¶

Economic activity organized through digital platforms that connect buyers and sellers, workers and firms, or users and content. Example: Swiggy, Uber, and Amazon are platforms — they do not produce the goods or services themselves but facilitate transactions between others. Module 5

Positive Externality¶

A benefit that accrues to third parties who are not involved in a transaction. Example: When you get vaccinated, you protect not only yourself but also people around you (herd immunity). Education also generates positive externalities — educated workers raise productivity for their colleagues and contribute to civic life. Module 6

Positive Economics¶

Price Mechanism¶

The process by which prices coordinate the decisions of buyers and sellers in a market. Rising prices signal scarcity and encourage conservation; falling prices signal abundance and encourage consumption. Example: When onion prices spike due to a poor harvest, consumers reduce purchases and other farmers rush supply to market — the price mechanism coordinates these responses without any central planner. Module 3

Private Good¶

A good that is both excludable (non-payers can be prevented from consuming it) and rivalrous (one person's consumption reduces what is available for others). Most market goods are private goods. Example: A sandwich — if you eat it, no one else can, and the seller can refuse to give it to you unless you pay. Module 6 Economic statements about facts — claims that can be tested with evidence ("what is"). Contrasted with normative economics, which involves value judgments about "what ought to be." Example: "Raising the minimum wage to ₹300/day will reduce employment in small firms by 5%" is a positive statement (testable). "The minimum wage should be ₹300/day" is a normative statement (a value judgment). Module 1

Poverty Line¶

A threshold income or consumption level below which a person is classified as poor. Example: India's official poverty line (Tendulkar methodology) was set at ₹816/month in rural areas and ₹1,000/month in urban areas (2011-12 prices). Debate continues about whether these thresholds are adequate. Module 4

Price Ceiling¶

A legal maximum price that can be charged for a good or service. If set below the market equilibrium, it creates a shortage. Example: Rent control in Mumbai — by capping rents below market rates, the policy discourages new construction and creates a shortage of affordable housing. Module 3

Price Floor¶

A legal minimum price. If set above the market equilibrium, it creates a surplus. Example: India's Minimum Support Price (MSP) for wheat guarantees farmers a price above the market rate, encouraging production but sometimes creating government stockpile surpluses. Module 3

Prisoner's Dilemma¶

A game theory scenario where two rational individuals might not cooperate even when cooperation would benefit both, because each has an incentive to defect. Example: Two competing firms would both profit more by keeping prices high, but each is tempted to undercut the other — so both end up with low prices and low profits. Module 2

Producer Surplus¶

The difference between the price a producer receives and the minimum price they would accept. Example: A farmer willing to sell wheat at ₹20/kg but receiving the MSP of ₹25/kg earns a producer surplus of ₹5/kg. Module 3

Production Possibilities Frontier¶

A curve showing the maximum possible combinations of two goods an economy can produce with its available resources and technology. Points on the curve are efficient; points inside are inefficient; points outside are unattainable. Example: India's Union Budget illustrates the PPF — more spending on infrastructure means less available for subsidies, unless the economy grows. Module 1

Productivity¶

The amount of output produced per unit of input (labor, capital, or both). Higher productivity means more output from the same resources. Example: Mechanized farming produces more grain per worker-hour than manual farming. India's relatively low labor productivity is a major policy concern. Module 5

Property Rights¶

Legal rules that define who owns a resource and what they can do with it. Well-defined property rights are essential for markets to function. Example: Unclear land titles in rural India discourage investment because farmers cannot use their land as collateral for loans. Module 2

Public Good¶

A good that is non-excludable (you cannot prevent people from using it) and non-rivalrous (one person's use does not reduce availability for others). Example: National defense, street lighting, and clean air are public goods. Because people can free-ride, private markets typically under-provide them. Module 6

R¶

Randomized Controlled Trial (RCT)¶

Regulation¶

Government rules that constrain or direct economic behavior. Can address market failures (pollution standards, safety requirements) but can also create inefficiencies (excessive compliance costs, rent-seeking). Example: India's Bureau of Energy Efficiency star ratings for appliances — a regulation that uses information provision to steer consumer choices toward energy-efficient products. Module 6

Relative Poverty¶

Being poor relative to the standards of one's own society — typically defined as having income below a certain percentage (e.g., 60%) of the median. Contrasted with absolute poverty. Example: A family in Mumbai earning ₹15,000/month is above the absolute poverty line but may be in relative poverty given the high cost of urban living. Module 4

Research and Development¶

Systematic investment in creating new knowledge (research) and applying it to create new products or processes (development). A key driver of innovation and long-run growth. Example: India's R&D spending is approximately 0.7% of GDP — significantly below China (2.4%) and the US (3.5%), which partly explains the innovation gap. Module 5 An experimental method where participants are randomly assigned to a treatment group or a control group to measure the causal effect of an intervention. Example: Esther Duflo and Abhijit Banerjee used RCTs to test whether providing free bed nets (rather than selling them cheaply) increased malaria prevention in Africa. Module 4

Rational Choice¶

The assumption that people have clear preferences, weigh costs and benefits, and choose the option that maximizes their well-being. A foundational assumption of standard economics. Example: A rational consumer compares prices, quality, and alternatives before purchasing a phone. In practice, people often rely on brand loyalty, social proof, or impulse. Module 1

Rent-Seeking¶

Using resources to influence policy or regulations to gain economic advantage without creating new value. Example: A firm lobbying the government for a monopoly license rather than competing on quality and price. The "License Raj" era in India (pre-1991) was characterized by extensive rent-seeking. Module 3

S¶

Scarcity¶

Shortage¶

A situation where the quantity demanded exceeds the quantity supplied at the current price. Often caused by price ceilings or supply disruptions. Example: When the government caps the price of essential medicines below the market rate, pharmacies may run out of stock because suppliers find it unprofitable to sell at that price. Module 3

Government programs that provide a minimum level of support to vulnerable populations — through cash transfers, food subsidies, employment guarantees, or insurance. Example: India's social safety net includes MGNREGA (employment guarantee), PDS (food rations), PM-KISAN (cash transfers to farmers), and Ayushman Bharat (health insurance for 500 million poor). Module 4

Solow Model¶

See Solow Growth Model. Module 5 The fundamental economic problem: human wants are unlimited, but resources (time, money, land, labor, raw materials) are finite. Scarcity forces choices. Example: Even a billionaire faces scarcity of time. India faces scarcity of clean water despite being a large economy. Module 1

The total cost of an activity to society, including both private costs borne by the producer and external costs borne by third parties. Example: The social cost of driving includes the driver's fuel and time (private costs) plus pollution, congestion, and accident risk imposed on others (external costs). Module 6

Solow Growth Model¶

Robert Solow's framework showing that long-run economic growth depends primarily on technological progress, not just accumulating more capital or labor. Example: The model explains why simply building more factories (capital accumulation) eventually faces diminishing returns — sustained growth requires innovation. Module 5

Strategic Interaction¶

A situation where the outcome of your decision depends on the decisions made by others. The central subject of game theory. Example: A firm deciding whether to launch a new product must consider how competitors will respond — will they match the price, launch their own version, or ignore it? Module 2

Subsidy¶

A payment from the government to producers or consumers intended to encourage production or consumption of a good. Example: India's fertilizer subsidy makes agricultural inputs cheaper for farmers, but costs the government over ₹1.5 lakh crore annually and can distort market signals. Module 3

Substitute Goods¶

Goods that can replace each other, so a rise in the price of one increases demand for the other. Example: Tea and coffee — when coffee prices rise, some consumers switch to tea. Module 3

Sunk Cost¶

A cost that has already been incurred and cannot be recovered, regardless of future decisions. Rational decision-makers should ignore sunk costs. Example: You paid ₹2,000 for a non-refundable train ticket but get a better offer. The ₹2,000 is sunk — your decision should depend only on which option you prefer now, not on the money already spent. Module 1

Surplus¶

A situation where the quantity supplied exceeds the quantity demanded at the current price. Often caused by price floors. Example: When the government sets the Minimum Support Price for wheat above the market equilibrium, farmers produce more than consumers want to buy at that price, creating a surplus that the government must procure and store. Module 3

Sustainability¶

Meeting present needs without compromising the ability of future generations to meet their own needs. Requires balancing economic growth with environmental preservation and social equity. Example: India's International Solar Alliance promotes sustainable energy transition — solar capacity grew from 2.6 GW in 2014 to 82+ GW in 2024, reducing dependence on coal without sacrificing growth. Module 6

Supply¶

The quantity of a good or service that producers are willing and able to sell at various prices, holding other factors constant. Example: At ₹80/kg, onion farmers bring 10,000 tonnes to market; at ₹40/kg, only 5,000 tonnes. Module 3

Systemic Risk¶

The risk that the failure of one institution or market triggers a cascade of failures across the entire financial system. Example: The collapse of Lehman Brothers in 2008 triggered a global credit freeze because Lehman was deeply interconnected with other financial institutions. India's IL&FS default in 2018 created similar contagion fears in the NBFC sector. Module 1

T¶

Technological Change¶

Improvements in the methods or tools used to produce goods and services. Can be embodied (in new machines) or disembodied (new organizational methods). The primary driver of long-run economic growth in the Solow model. Example: The shift from manual record-keeping to computerized databases — the same number of clerks can process far more transactions. Module 5

Technology Residual¶

See Total Factor Productivity. Module 5

Total Factor Productivity¶

The portion of output growth that cannot be explained by increases in labor or capital inputs — often attributed to technological progress, efficiency improvements, or institutional quality. Also called the "Solow residual." Example: If India's GDP grows by 7% but labor and capital together explain only 4%, the remaining 3% is TFP growth. Module 5

Trade-off¶

The sacrifice of one thing in order to get something else. Every choice involves a trade-off because resources are scarce. Example: Studying an extra hour for your exam means one less hour of sleep — you trade rest for better preparation. Module 1

Tragedy of the Commons¶

The depletion of a shared resource when individuals act in their own self-interest without coordination. Example: Overfishing in the open ocean — each fishing boat takes as much as it can, and the collective result is collapse of fish stocks. India's groundwater crisis follows the same logic. Module 6

U¶

Unemployment¶

The state of being without work while actively seeking employment. Can be frictional (between jobs), structural (skills mismatch), or cyclical (due to economic downturns). Example: India's PLFS 2024 reports an unemployment rate of approximately 3.2% — but this masks significant underemployment and disguised unemployment in the informal sector. Module 3

Utility¶

A measure of satisfaction or happiness that a consumer derives from consuming a good or service. Example: The first slice of pizza gives high utility; by the fourth slice, utility is much lower — illustrating diminishing marginal utility. Module 2

V¶

Value Added¶

The increase in value that a firm contributes to a product at each stage of production. Example: A cotton farmer sells raw cotton for ₹50/kg. A spinning mill converts it to yarn worth ₹120/kg. The mill's value added is ₹70/kg. Module 5

W¶

Wage¶

Wage Determination¶

The process by which wages are set in a labor market — through supply and demand, collective bargaining, minimum wage laws, or employer market power. Example: In India's IT sector, wages are largely determined by market supply and demand (competitive labor market). In the organized manufacturing sector, union bargaining plays a larger role. MGNREGA sets a floor through its guaranteed wage. Module 3 The price of labor — the payment workers receive for their services. Determined by supply and demand in the labor market, influenced by skills, experience, bargaining power, and institutional factors like minimum wage laws. Example: MGNREGA guarantees a minimum wage (₹267-374/day depending on state) for unskilled manual labor in rural areas. Module 3

Willingness to Pay¶

The maximum amount a consumer would pay for a good or service. Example: If you would pay up to ₹150 for a movie ticket but the price is ₹100, your willingness to pay is ₹150 and your consumer surplus is ₹50. Module 3

This glossary covers approximately 90 terms used across all six modules. Terms are cross-referenced where relevant. For deeper exploration, see the Module pages and Resources.