This
usually refers to firms, where it is defined as the value of the firm's output
minus the value of all its inputs purchased from other firms. It is therefore a
measure of the profit earned by a particular firm plus the wages it has paid.
As a rule, the more value a firm can add to a product, the more successful it
will be. In many countries, the main form of indirect taxation is value-added
tax, which is levied on the value created at each stage of production. However,
it is paid, ultimately, by whoever consumes the finished product.
Another
definition of value added refers to the change in the overall economic value of
a company. This takes into account changes in the combined value of its shares,
assets, debt and other liabilities. Part of the pay of company bosses is often
linked to how much economic value is added to the company under their
management.
Value
at risk
Value
at risk models, widely used for risk management by banks and other financial
institutions, use complex computer algorithms to calculate the maximum that the
institution could lose in a single day's trading. These models seem to work
well in normal conditions but not, alas, during financial crises, which is arguably
when it is most necessary to know how much value is at risk.
Variable
costs
Part
of a firm’s production costs that change according to how much output it
produces. Contrast with fixed costs. Examples include some purchases of raw
materials and workers’ overtime payments. In the long run, most costs can be
varied.
Velocity
of circulation
The
speed with which money whizzes around the economy, or, put another way, the
number of times it changes hands. Technically, it is measured as GNP divided by
the money supply. It is an important ingredient of the quantity theory of
money.
Venture
capital
Private
equity to help new companies grow. A valuable alternative source of finance for
entrepreneurs, who might otherwise have to rely on a loan from a probably risk
averse bank manager. The United States has by far the world's biggest venture
capital industry. Some economists reckon that this is why more innovative new
firms have become successful there. As legend has it, with a bright idea, a
garage to work in and some venture capital, anybody can create a Microsoft.
However, the bursting of the dot com bubble in 2000 threw American venture
capital into a severe recession, damaging its reputation for financing
profitable innovation.
Vertical
equity
One
way to keep taxation fair. Vertical equity is the principle that people with a
greater ability to pay should hand over more tax to the government than those
with a lesser ability to pay.
Vertical
integration
Merging
with a company at a different stage in the production process, for instance, a
car maker merging with a car retailer or a parts supplier. Unlike horizontal
integration, it is likely to raise antitrust concerns only if one of the
companies already enjoys some monopoly power, which the deal might allow it to
extend into a new market.
Visible
trade
Physical
exports and imports, such as coal, computer chips and cars. Also known as
merchandise trade. Contrast with invisible trade.
Volatility
The
most widely accepted measure of risk in financial markets is the amount by
which the price of a security swings up and down. The more volatile the price,
the riskier is the security. Not least because there is no obvious alternative,
economists often use past volatility to forecast the future risk of a security.
However, as the saying goes, past results are not necessarily guides to future
performance.
Voluntary
unemployment
Unemployment
through opting not to work, even though there are jobs available. This is the
joblessness that remains when there is otherwise full employment. It includes
frictional unemployment as a result of people changing jobs, people not working
while they undertake job search and ¬people who just do not want to work.
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