Key Concepts

Institutions:  The established behavior practices and patterns upon which the life of a community is built.  They are “the rules of the game” that shape the relationships among members of a society.

• Institutions may be either formal or informal.
• Formal institutions include written constitutions, statutory law, and codified sets of rules.
• Informal institutions include customs, manners, traditions, and informal codes or expectations of behavior.
• Institutions shape behavior by creating incentives.

Key institution:  Property Rights

• Property rights are the formal and informal arrangements that govern the ownership, use, and transfer of assets.
• Formal property rights are encoded into law, statute, ordinance, or contract.
• Informal property rights may be based on custom, tradition or precedent.

Capital:  Products used to produce other goods and services.  Investment in capital is associated with increased productivity and output.

• Physical capital includes buildings, machines, and tools. 
• Human capital includes knowledge and experience.

Economic Growth:  Increase over time in the total output (and income) of an economy.  If the rate of economic growth is greater than the rate of population growth, standards of living rise.

Using the analogy of the economy as a pie, economic growth means the pie gets bigger.  For the poor, this means that even if their share of the pie remains the same, it’s still a bigger piece than it was before.