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91 Cards in this Set

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Absolute Advantage
The ability to produce more units of a good or service than some other producer, using the same quantity of resources.
Adaptive Expectations
Expectations about inflation or other economic events.
Aggregate Demand (AD)
A schedule (or graph) that shows the value of output (real GDP) that would be demanded at different price levels.
Aggregate Supply (AS)
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
Alternative
One of many courses of action that might be taken in a given situation.
Assumptions
Beliefs or statements presupposed to be true
Balance of Payments
The record of all transactions (in goods, services, physical and financial assets) between individuals, firms, and governments of one country with those in all other countries in a given year, expressed in monetary terms.
Balance of Trade
The part of a nation’s balance of payments accounts that deals only with its imports and exports of goods (also called merchandise or “visibles”). When “invisibles,” or services, are added to the balance of trade, the result is a nation’s balance on the current account section of its balance of payments.
Barriers to Entry
Factors that restrict entry into an industry and give cost advantages to existing firms. Examples would include the large size of existing firms, control over an essential resource or information, and legal rights such as patents and licenses.
Barter
Trading a good or service directly for another good or service, without using money or credit.
Benefit
The advantage(s) of a particular course of action as measured by good feeling, dollars, or number of items.
Bond
A contractual obligation to repay a specified amount of money in a specified amount of time, including a set rate of interest on the amount that is borrowed.
Budget
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.
Budget Deficit
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.
Budget Surplus
Refers to national budgets; occurs when government income is greater than government spending in a given year.
Business Cycles
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).
Capital
Resources and goods made and used to produce other goods and services. Examples include buildings, machinery, tools, and equipment.
Capital Account
Part of a nation’s balance of payments accounts; records capital outflows — i.e., expenditures made by the nation’s residents to purchase physical capital and financial assets from the residents of foreign nations; also records capital inflows — i.e., expenditures by residents of foreign nations to purchase physical capital and financial assets from residents of the nation in question.
Compound Interest
Interest that is earned not only on the principal but also on the interest already earned.
Consumer Price Index (CPI)
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.
Consumer Surplus
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.
Costs
The disadvantages of a particular course of action as measured by bad feeling, dollars, or numbers of items.
Credit
The opportunity to borrow money or to receive goods or services in return for a promise to pay later.
Debt
Money owed to someone else. Also see Debt for individual and National debt.
Deflation
A sustained decrease in the average price level of all the goods and services produced in the economy.
Demand
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.
Distribution
The allocation or dividing up of the goods and services a society produces.
Division of Labor
An arrangement in which workers perform only one or a few steps in a larger production process (as when working on an assembly line).
Economic Functions of Government
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.
Economic Growth
An increase in real output as measured by real GDP or per capita real GDP.
Economic Incentives
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.
Elasticity
See Price elasticity of demand, Price elasticity of supply.
Exports
Goods and services produced in one nation and sold to consumers in other nations
Federal Reserve
The central bank of the United States. Its main function is controlling the money supply through monetary policy.
Foreign Exchange Market
Market where demand for and supply of foreign currencies determines exchange rates.
Goods
Tangible objects that satisfy economic wants.
Gross Domestic Product (GDP)
The market value of all final goods and services produced in a country in a calendar year.
Human Capital
The health, education, experience, training, and skills of people.
Hyperinflation
A very rapid rise in the overall price level.
Imports
Purchases of foreign goods and services; the opposite of Exports.
Inflation
A rise in the general or average price level of all the goods and services produced in an economy.
Interest
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.
Keynesian Theory
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.
Labor
The quantity and quality of human effort available to produce goods and services.
Labor Force
The people in a nation who are aged 16 or over and are employed or actively looking for work.
Law of Diminishing Marginal Returns
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.
Macroeconomic Equilibrium
The equilibrium level of output and the price level where aggregate demand equals aggregate supply.
Macroeconomics
The study of economics concerned with the economy as a whole, involving aggregate demand, aggregate supply, and monetary and fiscal policy.
Monetarist Theory
A macroeconomic theory holding that the main cause of changes in the business cycle are changes in money supply.
Money
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.
Monopoly
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.
National Debt
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.
Natural Resources
“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.
Nonexclusion
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.
Normal Rate of Profit
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.
Oligopoly
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.
Opportunity Cost
The forgone benefit of the next best alternative that must be given up when scarce resources are used for one purpose instead of another.
Price
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.
Price Elasticity of Demand
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.
Price Elasticity of Supply
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.
Purchasing Power
The amount of goods and services that a monetary unit of income can buy.
Quotas
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.
Resources
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.
Salaries
Payments for labor resources; unlike wages, not explicitly based on the number of hours worked. See also Wages.
Savings
Setting aside income, or money, for a future use.
Scarcity
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.
Supply
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.
Surplus
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.
Shared Consumption
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.
Secured Debt
Credit with collateral (a house or a car, e.g.) for the lender.
Tariff
A tax on an imported good or service.
Taxes
Compulsory payments to governments by households and businesses.
Total Revenue (TR)
All money received from selling a good or service; the price times the quantity sold of each item.
Trade
All money received from selling a good or service; the price times the quantity sold of each item.
Traditional Economy
An economy in which customs and habits from the past are used to resolve most economic issues of production and distribution.
Unemployment
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.
Unemployment Rate
The percentage of the labor force that is unemployed.
Unsecured Debt
Debt without collateral; credit card debt, for example.
Utility
An abstract measure of the satisfaction consumers derive from consuming goods, services, and leisure activities.
Wage
Payments for labor services that are directly tied to time worked, or to the number of units of output produced.
Variable Costs (VC)
Costs that change as a firm’s level of output changes. See also Fixed costs.
Interdependence
A situation in which decisions made by one person affect decisions made by other people, or events in one part of the world or sector of the economy affect other parts of the world or other sectors of the economy.
Investment
Purchase of capital goods (including machinery, technology, or new buildings) used to make consumer goods and services.
Invisible Hand
A figure of speech representing the idea that firms and individuals making decisions in their own self-interest will at the same time create economic order and promote society’s interests; coined by Adam Smith.
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