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103 Cards in this Set

  • Front
  • Back
absolute advantage
the ability to produce something with fewer resources than other producers would use to produce the same thing
accounting profit
a firm's total revenue minus its explicit cost
those who consider the private sector to be relatively unstable and able to absorb economic shocks only with the aid of discretionary government policy
actual investment
the amount of investment actually undertaken during a year; equals planned investment plus unplanned changes in inventories
adverse selection
a situation in which those on the informed side of the market self-elect in a way that harms the uninformed side of the market
adverse supply shocks
unexpected events that reduce aggregate supply, sometimes only temporarily
a person who performs work or provides a service on behalf of another person, the principal
aggregate demand
the relation between the price level in the economy and the quantity of aggregate output demanded
aggregate demand curve
a curve representing the relation between the economy's price level and the amount of aggregate output demanded per period of time, other things held constant
aggregate expenditure
total spending on final goods and services at a given price level during a given time period
aggregate expenditure function
a relationship showing, for a given price level, the amount of planned spending for each level of income; the total of C + I + NX
aggregate income
the sum of all income earned by resource suppliers in an economy during a given time period
aggregate output
the total quantity of final goods and services produced in an economy during a given time period
aggregate supply curve
a curve representing the relation between the economy's price level and the amount of aggregate output supplied per period of time, other things held constant
allocative efficiency
the condition that exists when firms produce the output that is most preferred by consumers; marginal cost of each good just equals the marginal benefit that consumers derive from that good
alternative goods
other goods that use some of the same type of resources used to produce the good in question
annually balanced budget
budget philosophy prior to the Great Depression; aimed at equating revenues with expenditures, except during times of war
a given sum of money received each year for a specified number of years
antitrust activity
government activity aimed at preventing monopoly and fostering competition
applied research
research that seeks to answer particular questions or to apply scientific discoveries to the development of specific products
a person who takes advantage of temporary geographic differences in the exchange rate by simultaneously purchasing foreign exchange in one market and selling it in another market
anything of value that is owned
association-causation fallacy
the incorrect idea that if two variables are associated in time, one must necessarily cause the other
asymmetric information
an inequality in the information known by each party to a transaction; or, a situation in which one side of the market has more reliable information than does the other side
a situation of national self-sufficiency in which there is no economic interaction with foreigners
automatic stabilizers
structural features of government spending and taxation that smooth fluctuations in disposable income over the business cycle
a term that means "independent"; an investment that is independent of the level of income
autonomous government purchases
government purchases that do not vary with the level of real GDP
autonomous net taxes
taxes minus transfers, independent of the level of real GDP
average fixed cost
total fixed cost divided by output
average revenue
total revenue divided by output
average total cost
total cost divided by output; the sum of average fixed cost plus average variable cost
average variable cost
total variable cost divided by output
backward-bending supply curve of labor
occurs when the income effect of a higher wage dominates the substitution effect of a higher wage
balance of payments
a record of all economic transactions between residents of one country and residents of the rest of the world during a given time period
balance on current account
a section of a country's balance of payments account that measures the sum of the country's net unilateral transfers and its balance on goods and services
balance on goods and services
a section of a country's balance of payments account that measures the difference in value between a country's exports of goods and services and its imports of goods and services
balance sheet
a financial statement that shows assets, liabilities, and net worth at a given point in time
balanced budget amendment
proposed amendment to the U.S. Constitution requiring a balanced federal budget
balance budget multiplier
a factor that shows that identical changes in government purchases and net taxes change equilibrium real GDP demanded by that same amount
bank holding company
a corporation that owns banks
bank notes
papers promising a specific amount of money in gold to bearers who presented them to issuing banks for redemption; an early type of money
barrier to entry
any impediment that prevents new firms from competing on an equal basis with existing firms in an industry
the direct exchange of one good for another without the use of money
base year
a reference year against which other years are measured
basic research
the search for knowledge without regard to how that knowledge will be used; a first step toward technological advancement
behavioral assumption
an assumption that describes the expected behavior of economic actors
beneficial supply shocks
unexpected events that increase aggregate supply, sometimes only temporarily
bilateral monopoly
a situation in which a single seller, or monopolist, bargains with a single buyer, or monopsonist
binding arbitration
negotiation in which both parties in a union-management dispute agree to accept an impartial observer's resolution of the dispute
a certificate reflecting a firm's promise to pay the holder a periodic interest payment until the date of maturity and a fixed sum of money on the designated maturity date
bounded rationality
the notion that there is a limit on the amount of information an economic agent, such as a manager, can comprehend
budget deficit
amount by which government spending during the year exceeds government revenues
budget line
a line showing all combinations of two goods that can be purchased at given prices with a fixed amount of income
bureaucratic coordination
a type of economic coordination whereby an administrative hierarchy directs the activities of economic actors
government agencies charged with implementing legislation and financed by appropriations from legislative bodies
business cycle
the rise and fall of economic activity relative to the long-term growth trend of the economy
all buildings, equipment, and human skill used to produce goods and services
capital account
the record of a country's international transactions involving purchases or sales of financial and real assets
a group of firms that agree to coordinate their production and pricing decisions
change in demand
a shift in a given demand curve caused by a change in one of the determinants of demand for the good
change in quantity demanded
a movement along the demand curve for a good in response to a change in the price of a good
change in quantity supplied
a movement along the supply curve for a good in response to a change in the price of the good
change in supply
a shift in a given supply curve caused by a change in one of the determinants of the supply of the good
checkable deposits
deposits in financial institutions against which checks can be written
classical economists
a group of eighteenth- and nineteenth-century British economists who criticized mercantilism and believed that self-interest and competition promoted economic development
Coase theorem
the theory that as long as bargaining costs are small, an efficient solution to the problem of externalities will be achieved by assigning property rights
cold turkey
the announcement and execution of tough measures to reduce high inflation
collective bargaining
the process by which union and management negotiate a mutually agreeable labor agreement
command economy
an economic system characterized by centralized economic planning and public ownership of resources
commercial banks
depository institutions that make short-term loans primarily to businesses
commodity money
anything that serves both as money and as a commodity
common pool problem
the problem that unrestricted access to a resource results in overuse until the net marginal value of additional use drops to zero
comparable worth
the principle that pay should be determined by job characteristics rather than by supply and demand
comparative advantage
the ability to produce something at a lower opportunity cost than other producers face
competing-interest legislation
legislation that imposes concentrated costs on one group and provides concentrated benefits to another group
goods that are related in such a way that an increase in the price of one leads to a decrease in the demand for the other
concentration ratio
a measure of the market share of the largest firms in an industry
conglomerate merger
a merger involving the combination of firms producing in different industries
consent decree
a legal agreement through which the accused party, without admitting guilt, agrees to refrain in the future from certain illegal activity if the government drops the charges
constant-cost industry
an industry that can expand or contract without affecting the long-run per-unit cost of production; the long-run industry supply curve is horizontal
constant-cost industry
an industry that can expand or contract without affecting the long-run per-unit cost of production; the long-run industry supply curve is horizontal
constant elasticity of demand
the type of demand that exists when price elasticity is the same everywhere along the curve; the elasticity value is constant
consumer equilibrium
the condition in which an individual consumer's budget is completely exhausted and the last dollar spent on each good yields the same marginal utility
consumer price index (CPI)
a measure over time of the cost of a fixed "market basket" of consumer goods and services
consumer surplus
the difference between the maximum amount that a consumer is willing to pay for a given quantity of a good and what the consumer actually pays
all household purchases of final goods and services
consumption function
the relation between the level of income in an economy and the amount households spend on consumption, other things constant
consumption possibilities schedule
a schedule reflecting the alternative consumption possibilities available in an economy; in the absence of trade, the consumption it is the same as the production possibilities schedule
contestable market
one in which potential entrants can serve the same market and have access to the same technology as the existing firm
continuing resolution
budget agreements that allow agencies, in the absence of an approved budget, to spend at the rate of the previous year's budget
contractionary gap
the amount by which actual output in the short run falls below the economy's potential output
a theory that economies around the world will grow more alike over time, with poorer countries catching up with richer countries
corporate profits
a component of the government measure of national income; the net revenues received by incorporated business before corporate income taxes are subtracted
a legal entity owned by stockholders whose liability is limited to the value of their stock
cost-plus pricing
a method of determining the price of a good by adding a percentage markup to the average variable cost
cost-plus inflation
a continuous rise in the price level caused by reductions in aggregate supply
craft union
a union whose members have a particular skill or work at a particular craft, such as plumbers or carpenters
cross-price elasticity of demand
the percentage change in the quantity demanded of one good (holding the price constant) divided by the percentage change in the price of another good
a firm's use of revenues from profitable activities to subsidize unprofitable activities
crowding in
the potential for government spending to stimulate private investment in an otherwise sluggish economy
crowding out
the displacement of interest-sensitive private investment that occurs when increased government spending drives up interest rates
currency appreciation
a decrease in the number of units of a particular currency needed to purchase one unit of another currency