Economics

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A schedule (or graph) that shows the value of output (real GDP) that would be demanded at different price levels.

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Aggregate Demand (AD)

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schedule

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A schedule (or graph) that shows the value of output(real GDP) that would be produced at different price levels. In the long run, the schedule shows a constant level of real GDP at all price levels, determined by the economy’s productive capacity at full employment. In the short run, the aggregate supply schedule may show different levels of real GDP as the price level changes.

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Aggregate Supply (AS)

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Trading a good or service directly for another good or service, without using money or credit.

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Barter

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The advantage(s) of a particular course of action as measured by good feeling, dollars, or number of items.

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Benefit

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An element of financial planning where all income is listed and compared to all expenditures. Often expenditure decisions need to be made to hold spending less than or equal to income.

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Budget

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Refers to national budgets; occurs when government spending is greater than government income from taxes and tariffs in a given year. A yearly deficit adds to the public debt.

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Budget Deficit

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Refers to national budgets; occurs when government income is greater than government spending in a given year.

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Budget Surplus

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Fluctuations in the overall rate of national economic activity with alternating periods of expansion and contraction; these vary in duration and degrees of severity; usually measured by real gross domestic product (GDP).

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Business Cycles

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Resources and goods made and used to produce other goods and services. Examples include buildings, machinery, tools, and equipment.

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Capital

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Attempts by two or more individuals or organizations to acquire the same goods, services, or productive and financial resources. Consumers compete with other consumers for goods and services. Producers compete with other producers for sales to consumers.

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Competition

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Interest that is earned not only on the principal but also on the interest already earned.

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Compound Interest

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A price index that measures the cost of a fixed basket of consumer goods and services and compares the cost of this basket in one time period with its cost in some base period. Changes in the CPI are used to measure inflation.

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Consumer Price Index (CPI)

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The difference between the price a consumer would be willing to pay for a good or service and what that consumer actually has to pay.

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Consumer Surplus

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People who use goods and services to satisfy their economic wants.

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Consumers

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People who use goods and services to satisfy their economic wants.

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Consumption

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The disadvantages of a particular course of action as measured by bad feeling, dollars, or numbers of items.

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Costs

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The opportunity to borrow money or to receive goods or services in return for a promise to pay later.

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Credit

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Money owed to someone else. Also see Debt for individual and National debt.

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Debt

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A sustained decrease in the average price level of all the goods and services produced in the economy.

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Deflation

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A schedule (or graph) showing how many units of a good or service buyers are willing and able to buy at all possible prices during a period of time.

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Demand

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The allocation or dividing up of the goods and services a society produces.

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Distribution

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An arrangement in which workers perform only one or a few steps in a larger production process (as when working on an assembly line).

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Division of Labor

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In a market economy, government agencies establish and maintain a legal system to regulate both commercial and social behavior, promote competition, respond to market failures by providing public goods and adjusting for externalities, redistribute income, and establish macroeconomic stabilization policies. To perform these functions, governments must shift resources from private uses by taxing and/or borrowing.

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Economic Functions of Government

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An increase in real output as measured by real GDP or per capita real GDP.

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Economic Growth

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Factors that motivate and influence the behavior of individuals and organizations, including firms and government agencies. Prices, profits, and losses are important economic incentives in a market economy.

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Economic Incentives

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The study of how people, firms, and societies choose to use scarce resources.

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Economics

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See Price elasticity of demand, Price elasticity of supply.

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Elasticity

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Goods and services produced in one nation and sold to consumers in other nations.

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Exports

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The central bank of the United States. Its main function is controlling the money supply through monetary policy.

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Federal Reserve

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Changes in the expenditures or tax revenues of the federal government, undertaken to promote full employment, price stability, and reasonable rates of economic growth.

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Fiscal Policy

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Market where demand for and supply of foreign currencies determines exchange rates.

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Foreign Exchange Market

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Tangible objects that satisfy economic wants.

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Goods

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The market value of all final goods and services produced in a country in a calendar year.

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Gross Domestic Product (GDP)

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The health, education, experience, training, and skills of people.

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Human Capital

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A very rapid rise in the overall price level.

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Hyperinflation

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Purchases of foreign goods and services; the opposite of Exports.

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Imports

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Any reward or benefit, such as money or good feeling, that motivates choices and behaviors.

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Incentive

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A rise in the general or average price level of all the goods and services produced in an economy.

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Inflation

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Payments earned by households for selling or renting their productive resources. For example, workers receive wage or salary payments in exchange for their labor.

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Income

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Payments for the use of real or financial capital over some period of time; paid by those who use the resources to those who own them, as in mortgage payments paid by a borrower to a lender.

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Interest

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Purchase of capital goods (including machinery, technology, or new buildings) used to make consumer goods and services.

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Investment

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The macroeconomic theory holding that business cycles are caused by changes in aggregate demand and that such cycles can and should be influenced by fiscal and monetary policy undertaken to promote economic stability.

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Keynesian Theory

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The quantity and quality of human effort available to produce goods and services.

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Labor

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The people in a nation who are aged 16 or over and are employed or actively looking for work.

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Labor Force

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Describes a phenomenon observed in all short-run production processes, when at least one input (usually capital)is fixed. As more and more units of a variable input (usually labor) are added to the fixed input, the additional (marginal) output associated with each increase in units of the variable input will eventually decline. In other words, successive increases in a variable factor of production added to fixed factors of production will result in smaller increases in output.

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Law of Diminishing Marginal Returns

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The equilibrium level of output and the price level where aggregate demand equals aggregate supply.

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Macroeconomic Equilibrium

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A macroeconomic theory holding that the main cause of changes in the business cycle are changes in money supply.

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Monetarist Theory

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Anything that is generally accepted as final payment for goods and services; serves as a medium of exchange, a store of value, and a unit of account; allows people to compare the relative economic value of different goods and services.

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Money

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A market structure in which a single seller produces sells all the units of a good or service in a particular market, and where the barriers to new firms entering the market are very high.

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Monopoly

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The total amount owed by the national government to those from whom it has borrowed to finance the accumulated difference between annual budget deficits and annual budget surpluses; also called public debt.

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National Debt

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“Gifts of nature” that can be used to produce goods and services; for example, oceans, air, mineral deposits, virgin forests, and actual fields of land. When investments are made to improve fields of land or other natural resources, those resources become, in part, capital resources.

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Natural Resources

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A property of certain goods and services such that (once the goods or services are provided) they cannot be denied to or withheld from people who have not paid for the goods or services; examples include street lights or national defense.

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Nonexclusion

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Profits just high enough to compensate producers for the explicit and implicit costs (including opportunity costs) they incur in producing a particular good or service, without leading to any net entry or exit by producers in that market. Also called normal profits. Normal profits are an economic cost of production; they mark a point at which any lower level of profit would lead a producer to pursue some other use of his or her resources.

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Normal Rate of Profit

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A market structure in which a few, relatively large firms account for all or most of the production or sales of a good or service in a particular market, and where barriers to new firms entering the market are very high. Some oligopolies produce homogeneous products; others produce heterogeneous products.

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Oligopoly

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The forgone benefit of the next best alternative that must be given up when scarce resources are used for one purpose instead of another.

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Opportunity Cost

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The state of being poor, variously defined. Sometimes defined relatively — by reference, for example, to the average household income in a nation or region. Sometimes defined absolutely — by reference, for example, to the income needed to provide for adequate food, housing, and clothing in a nation or region.

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Poverty

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The amount of money that people pay when they buy a good or service; the amount they receive when they sell a good or service.

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Price

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The responsiveness of the quantity demanded of a good or service to changes in its price. The price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price.

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Price Elasticity of Demand

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The responsiveness of the quantity supplied of a good or service to changes in its price. The price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price.

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Price Elasticity of Supply

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People and firms that use resources to make goods and services.

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Producers

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Income received for entrepreneurial skills and risk taking, calculated by subtracting all of a firm’s explicit and implicit costs from its total revenues.

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Profit

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Legal protection for the boundaries and possession of property. Assigning of property rights to individuals, collectives, or governments will depend on the economic system.

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Property Rights

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Goods for which use by one person does not reduce the quantity of the good available for others to use, and for which consumption can not be limited to those who pay for the good.

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Public Goods

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The study of decision making as it affects the organization and operation of government and other collective organizations. Involves the application of economic principles to political science topics.

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Public-Choice Analysis

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The amount of goods and services that a monetary unit of income can buy.

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Purchasing Power

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In international trade, limits on the quantity of a product that may be imported or exported, established by government laws or regulations; in command economies, more typically a production target assigned by government planning agencies to the producers of a good or service.

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Quotas

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The three (or four) basic kinds of resources used to produce goods and services: land or natural resources, human resources (including labor and entrepreneurship), and capital.

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Resources

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A decline in the rate of national economic activity, usually measured by a decline in real GDP for at least two consecutive quarters (i.e., six months).

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Recession

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Payments for labor resources; unlike wages, not explicitly based on the number of hours worked. See also Wages.

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Salaries

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Setting aside income, or money, for a future use.

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Savings

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The condition that exists when human wants exceed the capacity of available resources to satisfy those wants; also a situation in a resource has more than one valuable use. The problem of scarcity faces all individuals and organizations, including firms and government agencies

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Scarcity

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Credit with collateral (a house or a car, e.g.) for the lender.

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Secured Debt

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Activities performed by people, firms, or government agencies to satisfy economic wants.

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Services

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A property of a good or service such that it can be used by many without diminishing another’s ability to consume the same good; examples include street lights or radio broadcasts.

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Shared Consumption

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The situation that results when the quantity demanded for a product exceeds the quantity supplied. Generally happens because the price of the product is below the market equilibrium price.

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Shortage

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An organization of people with a particular legislative concern. They work together to gather information, lobby politicians, and publicize their concern.

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Special Interest Group

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A claim on the assets of a corporation that gives the purchaser a share of the ownership of the corporation.

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Stock

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A statement of dent issued by a corporation. the corporation promises to pay a certain sum of money at maturity and also to pay periodic fixed sums unil that date.

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Bond

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A schedule (or graph) showing how many units of a good or service producers are willing and able to sell at all possible prices during a period of time.

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Supply

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The situation that results when the quantity supplied of a product exceeds the quantity demanded. Generally happens because the price of the product is above the market equilibrium price.

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Surplus

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A tax on an imported good or service.

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Tariff

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Compulsory payments to governments by households and businesses.

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Taxes

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All money received from selling a good or service; the price times the quantity sold of each item.

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Total Revenue (TR)

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Voluntary exchange of goods and services for money or other goods and services.

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Trade

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An economy in which customs and habits from the past are used to resolve most economic issues of production and distribution.

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Traditional Economy

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Unemployment exists when people who want to work in jobs they are qualified to do at current wage rates are not able to find jobs, or are waiting to begin a new job, or are actively looking for work but do not have the skills required to fill the jobs that are currently available.

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Unemployment

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The percentage of the labor force that is unemployed.

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Unemployment Rate

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Debt without collateral; credit card debt, for example.

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Unsecured Debt

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An abstract measure of the satisfaction consumers derive from consuming goods, services, and leisure activities.

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Utility

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Costs that change as a firm’s level of output changes. See also Fixed costs.

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Variable Costs (VC)

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Payments for labor services that are directly tied to time worked, or to the number of units of output produced.

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Wage

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All costs associated with producing a good of service; the sum of fixed costs plus variable costs.

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Total Cost (TC)