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In sociology, the word labelling is used more as a metaphor, than a concrete concept. The general function of labels are widely known and recognized as a method of distinction that helps people recognize one product from another. In social terms, labels represent a way of differentiating and identifying people that is considered by many as a form of prejudice and discrimination.
The most common method of 'labeling' people derives from a general way of perceiving members of a certain nationality, religion, ethnicity, gender, or some other group. When a majority of people hold a certain point of view towards a certain group, that point of view becomes a stereotype. That stereotype affects the way other people perceive the groups in question and the result is a 'label' that is metaphorically imposed on the members of the group in question. A member of a targeted group is thus 'labeled' by the larger society, and along with it, the nuances underlying the label, be it positive or negative, that aids in the formation of social stereotypes.