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aggregate

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a collection of specific economic units treated as if they were one. For example, al prices of individual goods and services are combined into a price level, or all units of output are aggregated into gross domestic product.

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capital

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human-made resources used to produce goods and services; goods that do not directly satisfy human wants; also called capital goods

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capital goods

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human-made resources used to produce goods and services; goods that do not directly satisfy human wants; also called capital

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consumer goods

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products and services that satisfy human wants directly

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economic growth

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(1) an outward shift in the production possibilities curve that results from an increase in resource supplies or quality or an improvement in technology; (2) an increase of real output (gross domestic product) or real output per capita

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economic perspective

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a viewpoint that envisions individuals and institutions making rational decisions by comparing the marginal benefits and marginal costs associated with their actions

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economic principle

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a widely accepted generalization about the economic behavior of individuals or institutions

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economic resources

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the land, labor, capital, and entrepreneurial ability that are used in the production of goods and services; productive agents; factors of production

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economics

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the social science concerned with how individuals, institutions, and society make optimal (best) choices under conditions of scarcity

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economizing problem

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the choices necessitated because society's economic wants for goods and services are unlimited but the resources available to satisfy these wants are limited

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entrepreneurial ability

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the human resource that combines the other resources to produce a product, makes non-routine decisions, innovates, and bears risks.

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factors of production

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economic resources: land, capital, labor, and entrepreneurial ability

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investment

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spending for the production and accumulation of capital and additions to inventories

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labor

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people's physical and mental talents and efforts that are used to help produce good and services

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land

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natural resources ("free gifts of nature") used to produce goods and services

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macroeconomics

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the part of economics concerned with the economy as a whole; with such major aggregates as the household, business, and government sectors; and with measures of the total economy

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marginal analysis

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the comparison of marginal ("extra" or "additional") benefits and marginal costs, usually for decision making

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microeconomics

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the part of economics concerned with decision making by individual units such as a household, a firm, or an industry and with individual markets, specific gods and services, and product and resource prices

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opportunity cost

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the amount of other products that must be forgone or sacrificed to produce a unit of a product

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other-things-equal-assumption

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the assumption that factors other than those being considered are held constant; ceteris paribus assumption

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positive economics

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the analysis of facts or data to establish scientific generalizations about economic behavior

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production possibilities curve

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a curve showing the different combinations of two goods or services that can be produced in a full employment, full production economy where the available supplies of resources and technology are fixed

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scientific method

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the procedure for the systematic pursuit of knowledge involving the observation of facts and the formulation and testing of hypotheses to obtain theories, principles, and laws.

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utility

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the want-satisfying power of a good or service; the satisfaction or pleasure a consumer obtains form the consumption of a good or service (or form the consumption of a collection of good and service).

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"invisible hand"

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the tendency of firms and resource suppliers that seek to further their own self-interests in competitive markets to also promote the interest of society.

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barter

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the exchange of one good or service for another good or service

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circular flow diagram

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an illustration showing the flow of resources from households to firms and of products from firms to households. These flows are accompanied by reverse flows of money from firms to households and from households to firms.

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command system

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a method of organizing an economy in which property resources are publicly owned and government uses central economic planning to direct and coordinate economic activities; command economy; communism.

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competition

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the presence in a market of independent buyers and sellers competing with one another along with the freedom of buyers and sellers to enter and leave the market.

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consumer sovereignty

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determination by consumers of the types and quantities of goods and services that will be produced with the scarce resources of the economy; consumers' direction of production through their dollar votes

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creative destruction

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the hypothesis that the creation of new products and production methods simultaneously destroys the market power of existing monopolies

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division of labor

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the separation of the work required to produce a product into a number of different tasks that are performed by different workers; specialization of workers

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dollar votes

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The "votes that consumers and entrepreneurs cast of the production of consumer and capital goods, respectively, when they purchase those goods in product and resource markets.

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economic system

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a particular set of institutional arrangements and a coordinating mechanism for solving the economizing problem; a method of organizing an economy, of which the market system and the command system are the two general types.

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freedom of choice

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the freedom of wonders of property resources to employ or dispose of them as they see fit, of workers to enter any line of work for which they are qualified, and of consumers to spend their incomes in a manner than they think is appropriate

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freedom of enterprise

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the freedom of firms to obtain economic resources, to use those resources to product products of the firm's own choosing, and to sell their products in markets of their choice

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market system

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all the product and resource markets of a market economy and the relationships among them; a method that allows the prices determined in those markets to allocate eth economy's scarce resource and to communicate and coordinate the decisions made by consumers, firms, and resource suppliers

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medium of exchange

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any item sellers generally accept and buyers generally use to pay for a good or service; money; a convenient means of exchanging goods and services without engaging in barter

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money

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any item that is vernally acceptable to sellers in exchange for good and service

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private property

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the right of private persons and firms to obtain, own, control, employ, dispose of , and bequeath land, capital, and other property.

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product market

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a market in which product are sold by firms and bought by households

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resource market

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a market in which households sell and firms buy resources or the services of resources

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self-interest

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that which each firm, property owner, worker, and consumer believes is best for itself and seeks to obtain

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specialization

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the use of the resources of an individual, a firm, a region, or a nation to concentrate production on one or a small number of goods and services

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change in demand

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a change in the quantity demanded of a good or service at every price; a shift of the demand curve to the left or right.

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change in quantity demanded

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a change in the amount of a product that consumers are willing and able to purchase because of a change in the product's price

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change in quantity supplied

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a change in the amount of a product that producers offer for sale because of a change in the product's price

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change in supply

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a change in the quantity supplied of a good or service at every price; a shift of the supply curve to the left or right

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complementary good

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products and services that are used together. When the price of one falls, the demand for the other increases (or conversely)

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demand

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a schedule showing the amounts of a good or service that buyers (or a buyer) with to purchase at various prices during some time period.

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demand curve

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a curve illustrating demand

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determinants of demand

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factors other price that determine the quantities demanded of a good or service

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determinants of supply

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factors other than price that determine the quantities supplied of a good or service

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equilibrium price

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the price in a competitive market at which the quantity demanded and the quantity supplied are equal, there is neither a shortage nor a surplus, and there is no tendency for price to rise or fall

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equilibrium quantity

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(1) the quantity demanded and supplied at the equilibrium price in a competitive market; (2) the profit maximizing output of a firm

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income effect

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a change in the quantity demanded of a product that results from the change in real income (purchasing power) caused by a change in the product's price

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inferior goods

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a good or service whose consumption declines a s income rises (and conversely), price remaining constant

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law of demand

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the principle that, other things equal, an increase in a product's price will reduce the quantity of it demanded, and conversely for a decrease in price

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law of supply

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the principle that, other things equal, an increase in the price of a product will increase the quantity of it supplied, and conversely for a price decrease.

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normal goods

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a good or servic3e whose consumption increases when income increases and falls when income decrease, price remaining constant

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productive efficiency

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the production of a good in the least costly way; occurs when production takes place at the output at which average total cost is a minimum and marginal product per dollar's worth of input is the same for all inputs

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shortage

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the amount by which the quantity demanded of a product exceeds the quantity supplied at t particular (below-equilibrium) price.

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substitute good

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products or services that can be used in place of each other. When the price of one falls, the demand for the other product falls; conversely, when the price of one product rises, the demand for the other product rises

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substitution effect

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(1) a change in the quantity demanded of a consumer good that results from a change in its relative expensiveness caused by a change in the product's price; (2) the effect of a change in the price of a resource on the quantity of the resource employed by a firm, assuming not change in its output

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supply

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a schedule showing the amounts of a good or service that sellers (or a seller) will offer at various prices during some period

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surplus

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the amount by which the quantity supplied of a product exceeds the quantity demanded at a specific (above-equilibrium) price

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average tax rate

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total tax paid divided by total (taxable) income, as a percentage.

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bond

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a financial device through which a borrower (a firm or government) is obligated to pay the principal and interest on a loan at a specific date in the future

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corporate income tax

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a tax levied on the net income (accounting profit) of corporations

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corporation

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a legal entity ("person") chartered by a state or the Federal government that is distinct and separate from the individuals who own it.

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durable goods

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a consumer good with an expected life (use) of 3 or more years

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externality

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a cost or benefit from production or consumption accruing without compensation to someone other than the buyers and sellers of the product (see negative externality and positive externality)

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firm

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an organization that employs resources to produce a good or service for profit and owns and operates one or more plants

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free-rider problem

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the inability of potential providers of an economically desirable good or service to obtain payment form those who benefit, because of nonexcludability

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functional distribution of income

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the manner in which national income is divided among the functions performed to earn it (or the kinds of resources provided to earn it); the division of national income into wages and salaries, proprietors' income, corporate profits, interest, and rent.

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government purchases

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Expenditures by government for goods and services that government consumes in providing public goods and for public (or social) capital that has as long lifetime; the expenditures of all governments in the economy for those final goods and services.

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industry

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a group of (one of more) firms that produce identical or similar products

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limited liability

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restriction of the maximum loss to a predetermined amount for the owners (stockholders) of a corporation. The maximum loss is the amount they paid for their shares of stock.

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marginal tax rate

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the tax rate paid on each additional dollar of income

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monopoly

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a market structure in which the number of sellers is so small that each seller is able to influence the total supply and the price of the good or service

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negative externalities

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a cost imposed without compensation on third parties by the production or consumption of sellers or buyers. Example: a manufacturer dumps toxic chemicals into a river, killing the fish sought by sports fishers; an external cost or a spillover cost

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nondurable goods

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a consumer good with an expected life (use) of less than 3 years

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partnership

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an unincorporated firm owned and operated by two or more persons

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payroll taxes

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a tax levied on employers of labor equal to a percentage of all or part of the wages and salaries paid by tem and on employees equal to a percentage of all or part of the wages and salaries received by them.

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personal distribution of income

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the manner in which the economy's personal or disposable income is divided among different income classes or different households or families

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personal income tax

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a tax levied on the taxable income of individuals, households, and unincorporated firms

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plant

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a physical establishment that performs one or more functions in the production, fabrication, and distribution of goods and services

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positive externalities

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a benefit obtained without compensation by third parties from the production or consumption of sellers or buyers. Example: a beekeeper benefits when a neighboring farmer plants clover. An external benefit or a spillover benefit.

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principal-agent-problem

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a conflict of interest that occurs when agents (workers or managers) pursue their own objectives to the detriment of the principals' (stockholders') goals.

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property taxes

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a tax on the value of property (capital, land, stocks, and bonds, and other assets) owned by firms and households

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public goods

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a good or service that is characterized by non-rivalry and nonexcludability; a good or service with these characteristics provided by government

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quasi-public goods

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a good or service to which excludability could apply but that has a large positive externality that government sponsors its production to prevent an under allocation of resources

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services

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an (intangible) act or use for which a consumer, firm, or government is willing to pay

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sole proprietorship

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an unincorporated firm owned and operated by one person

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stock

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an ownership share in a corporation

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transfer payments

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a payment of money (or goods and services) by a government to a household or firm for which the payer receives no good or service directly in return

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appreciation

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an increase in the value of the dollar relative to the currency of another nation

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comparative advantage

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a lower relative opportunity cost than that of another producer or country

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Doha Round

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The latest, completed (as of fall 2006) sequence of trade negotiations by members of the World Trade Organization; named after Doha, Qatar, where the set of negotiations began.

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European Union (EU)

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an association of 25 European nations that has eliminated tariffs and quotas among them, established common tariffs fro imported goods from outside the member nations, eliminated barriers to the free movement of capital, and created other common economic policies

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exchange rates

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the rate of exchange of one nation's currency for another ration's currency

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export subsidies

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government payments to domestic producers to enable them to reduce the price of a good or service to foreign buyers

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foreign exchange market

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a market in which the money (currency) of one nation can be used to purchase (can be exchanged for) the money of another nation; currency market.

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General Agreement on Tariffs and Trade (GATT)

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the international agreement reached in 1947 in which 23 nations agreed to give equal and nondiscriminatory treatment to one another, to reduce tariff rates by multinational negotiations, and to eliminate import quotas. It now includes most nations and has become the World Trade Organization.

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import quotas

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a limit imposed by a nation on the quantity (or total value) of a good that may be imported during some period of time.

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most-favored-nation clauses

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an agreement by the US to allow some other nation's exports into the US at the lowest tariff level levied by the US

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multinational corporations

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firms that own production facilities in two or more countries and produce and sell their products globally

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non tariff barriers

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all barriers other than protective tariffs that nations erect to impede international trade, including import quotas, licensing requirements, unreasonable product quality standards, and unnecessary bureaucratic detail in customs procedures, and so on.

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North American Free Trade Agreement (NAFTA)

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a 1993 agreement establishing, over a 15-year period, a free-trade zone composed of Canada, Mexico, and the US

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protective tariffs

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a tariff designed to shield domestic producers of a good or service from the competition of foreign producers

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Reciprocal trade agreements act

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a 1934 Federal law that authorized the president to negotiate up to 50 percent lower tariffs with foreign nations than agreed to reduce their tariffs on US goods (Such agreements incorporated the most-favored-nation clause).

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Smoot-Hawley Tariff Act

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legislation passed in 1930 that established very high tariffs. Its objective was to reduce imports and stimulate the domestic economy, but it resulted only in retaliatory tariffs by other nations

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terms of trade

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the rate at which units of one product can be exchanged for units o another product; the price of a good or service; the amount of one good or service that must be given up to obtain1 unit of another good or service

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trade bloc

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a group of nations that lower or abolish trade barriers among members. Examples include the EU and the nations of NAFTA

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World Trade Organization (WTO)

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an organization of 149 nations (as of fall 2006) that oversees the provisions of the current world trade agreement, resolves trade disputes stemming from it, and holds forums for further rounds of trade negotiations.