A glossary is a set of distinctions, not a verdict
Consolidate the glossary into a working analytical toolkit, then apply the postscript’s demand for testable mechanisms. Produce a policy comparison that handles resources, behaviour, administration, distribution and uncertainty together.
Allow about 150 minutes for reading, learning and immediate practice. Multi-day exercises run alongside later lessons.
Learning objectives
Separate a term’s definition from its proposed consequences.
Keep stocks, flows and liquidity measures in compatible units.
Build a resource account that avoids double counting opportunity costs and transfers.
Read before practising
Assigned source readings
The book text is the source. The lesson, invented cases and practice tasks are accompanying teaching material. Page numbers below refer to the downloadable full-book PDF, whose pagination can differ from the manuscript’s printed contents.
Source: The Lost Lesson: Economics After the Slogans. The supplied source text has not been rewritten.
Develop the argument
The lesson
Read each entry in two layers
The glossary is unusually argumentative. An entry often begins by defining a term and then moves into a mechanism, a policy criticism or a recommendation. Treat those layers separately. Administrative burden names time and procedural effort; a claim about who bears it requires attention to circumstances. Capture names influence over rules; a costly requirement does not by itself prove capture. Adverse selection concerns sorting under unequal information, while an assertion about its size needs a particular market and evidence. This method lets you use the vocabulary without importing every conclusion as part of the definition.
The opening entries connect scarcity and allocation with assets, capital, credit and investment opportunities. They also introduce behavioural response, bottlenecks, compliance fixed costs, demand, elasticity and dispersed costs. Read these as a network of questions. What resource is constrained? What changes in the payoff? Who can respond? Which costs are visible and which are spread across people or time? A term earns its place when it makes the mechanism clearer. Adding technical vocabulary to an unchanged assertion does not improve the analysis.
Keep the accounts in compatible units
A stock is measured at a point in time; a flow is measured over a period. An asset valuation, annual income and immediately available cash answer different questions. The source’s repeated phrase that wealth is not cash should be understood as a warning against treating all wealth as spendable cash, not as a claim that cash can never form part of wealth. Specify whether a wealth figure is gross assets or net of liabilities. State whether a cash-flow figure is monthly or annual and whether it is before or after expenses.
Liquidity concerns the terms on which an asset can become cash, including time and possible loss. A quoted value does not guarantee that a large holding can be sold at that price. Conversely, a cash obligation does not automatically force an asset sale if sufficient cash or another feasible payment source is available. The outcome depends on the balance sheet, timing and options. The glossary’s broad use of asset includes skills and reputation; do not silently assume that every such item is legally transferable, recorded in accounts or included in a real tax base. Define the scope of the fictional case before calculating.
Use cost and response concepts carefully
Cost includes resources and alternatives sacrificed; price is an exchange amount; value concerns usefulness to a chooser. Opportunity cost is the best feasible forgone alternative, not the sum of every imaginable alternative. A transfer can change distribution without itself being a resource destroyed. Administrative work, lost output and a change in risk may add further costs, but identify them separately to avoid counting the same burden twice. The glossary’s deadweight-loss discussion concerns forgone beneficial exchanges. A complete welfare comparison must also consider any harm the intervention prevents.
Elasticity and fixed supply explain why the same payment can have different effects in different settings. If capacity cannot expand over the chosen period, extra purchasing power may chiefly alter prices and allocation. If capacity responds, quantity can change too. Define the time horizon and the relevant response instead of labelling an entire market permanently fixed. Similarly, capital gains lock-in, base erosion and avoidance are mechanisms to examine, not universal numerical constants. The glossary is most useful when it directs you toward the missing condition in a claim and the evidence needed to assess it.
Worked example · invented for this course
Original course example: valuable assets and a small cash obligation
A fictional organisation holds equipment valued at 100 units and cash of 5 units, with liabilities of 40 units. Annual net operating inflow is 10 units. A hypothetical obligation of 2 units is due immediately.
State the date of the balance sheet. Gross listed assets are 105 units and net listed assets are 65 units.
Keep the annual inflow separate from the current cash balance; it may not arrive before the due date.
In the first scenario, the 5 units of current cash cover the 2-unit obligation without an equipment sale.
In a second scenario with only 1 unit of cash, identify a 1-unit funding gap and examine timing, borrowing or sale options without assuming their availability or cost.
Do not treat the 100-unit equipment valuation as a promise that a quick sale will realise that amount.
What follows: Valuation, net wealth, cash and cash flow are distinct measures. A liquidity problem is conditional on timing and available resources, not established by a large asset value alone.
Train the skill
Practice and evidence
1. Audit the first glossary cluster
Review every glossary entry from administrative burden through fixed supply.
Deliverable: An annotated list separating each entry’s definition from any policy inference, plus six detailed notes.
Use the source wording or a faithful paraphrase.
For six entries, name a condition under which the proposed effect could differ.
Identify one pair of terms often confused and explain the difference.
Review criteria
Total available: 10 points
Coverage 3 points
Accounts for every entry in the assigned cluster.
Distinctions 4 points
Separates definitions, mechanisms and conclusions accurately.
Conditions 3 points
Gives meaningful assumptions rather than generic uncertainty.
2. Repair a mixed-unit argument
Create a fictional balance sheet and cash-flow schedule, then correct the claim that its entire asset value is immediately spendable.
Deliverable: A dated numerical account and a 400-word explanation.
Specify gross and net figures, liabilities and period units.
Include two liquidity scenarios.
Explain one uncertainty in valuation and one forgone alternative.
Review criteria
Total available: 10 points
Arithmetic 4 points
Calculations and units are correct and reproducible.
Liquidity 3 points
Distinguishes current resources from future flows.
Interpretation 3 points
States conditional conclusions and avoids double counting.
Transfer the learning
Which definition in this cluster is most likely to be used as a hidden argument, and how would you make the argument explicit?
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Formative self-check
Test your understanding
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