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200 Cards in this Set

  • Front
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Barter
A situation where people exchange goods and services directly, rather than using money in an intermediary transaction
Scarcity
The condition of desires exceeding the available resources to satisfy them, requiring people to make exchanges.
Tradeoffs
The unfortunate fact (caused by scarcity) that making one choice means that other choices become unavailable.
Purposeful action
An activity undertaken for a conscious reason; behavior that has a goal.
Keynesian economics
A school of thought (inspired by John Maynard Keynes) that prescribes government budget deficits as a way to lift the economy out of recession and restore full employment
Budget deficit
The amount the government must borrow when it spends more than it collects in taxes and other sources of revenue
Austrian economics
A school of thought (inspired by Carl Menger and others who happened to be Austrian) that blames recessions on government interference with the economy, and recommends tax and spending cuts to help the economy during a recession
Logical deduction
A form of reasoning that starts from one or more axioms and moves step-by-step to reach a conclusion.
Axioms
The starting assumptions or foundations in a deductive system.
Preferences
An individual’s goals or desires. Economists interpret a person’s actions as attempts to satisfy his or her preferences.
Goods
Scarce physical items that an individual values because they can help to satisfy his preferences.
Service
A person’s performance of a task that another person values
because it helps to satisfy preferences.
Subjective
Unique to each individual; “in the eye of the beholder.”
Utility
A term common in economics textbooks to describe how much value a person gets from a good or service.
Economize
The act of treating a resource with care because it is scarce and can only satisfy a limited number of goals or preferences.
Consumer goods and services
Scarce physical items or services that
directly satisfy a person’s preferences.
Producer goods / factors of production / means of production
Scarce physical items or services that indirectly satisfy preferences, because they can be used to produce consumer goods and services.
Land / natural resources
Factors of production that are gifts of nature.
Labor
The contribution to production flowing from a person’s body
Leisure
A special type of consumer good that results from using one’s body (and time) to directly satisfy preferences, as opposed to
engaging in labor.
Disutility of labor
Economists’ term to describe the fact that people prefer leisure to labor. People only engage in labor because of its
indirect rewards
Capital goods
Producer goods that are produced by human beings; they are not direct gifts from nature.
Income
The flow of consumer goods and services that a person has the potential to enjoy during a specific period of time.
Saving
Consuming less than one’s income would allow; living below one’s means.
Investment
Diverting resources into projects that are expected to increase future income.
Productivity
The amount of output produced by a factor of production in a period of time, often used in reference to labor.
Equilibrium
A stable situation after all disturbances or changes have worked themselves out.
Depreciation
The wearing away or “using up” of capital goods during the course of production.
Marginal utility
A technical economics term referring to the subjective enjoyments of one additional unit of a good or service.
Benefits
The subjective enjoyments flowing from a course of action
(Opportunity) cost
The benefits of the next-best alternative to a given action.
Expectations
An individual’s forecasts of the future, which involve his or her understanding of “how the world works” and therefore guide current actions
Institutions
Social relationships and practices that allow people to interact with each other. Institutions provide a framework of predictability in society.
Capitalism
An economic system relying on private property and free enterprise. No single person or group controls the system as a whole.
Socialism
An economic system in which government officials decide how society’s resources shall be used to produce particular goods and services.
Mixed economy
A system that allows private citizens to legally own resources, but in which government officials lay down rules that limit the choices the legal owners can make with their property.
Capitalists
The people in a capitalist society who control (large amounts of) financial wealth.
Private property
A system in which resources are owned by people outside of the government
Owner
The person who has legal authority to decide how a particular unit of a resource or good shall be used. The owner can usually transfer ownership to another person
Private sector
The portion of an economy that is controlled by people outside of the government.
Public sector
The portion of an economy that is controlled by the government.
Market economy
Can be a synonym for capitalism. It also refers to the collection of voluntary exchanges that occur in a capitalist system.
Free enterprise
A system in which individuals can choose their own occupations and are free to start whatever business they wish. They don’t need special permission from anyone to enter an industry.
Guilds
The organization of occupations in the medieval period, before the capitalist era.
Slavery
A system in which some human beings are considered the legal property of others.
Money
A good that is accepted by everyone in the economy on one side of every trade. In economics jargon, it is a widely (or universally) accepted medium of exchange
Direct exchange
Trading that occurs when people swap goods
that they directly value; barter
Indirect exchange
Trading that occurs when at least one of the parties accepts an item that he or she does not intend to use personally, but instead will trade it away in the future to get something else.
Price
The terms of a trade, meaning how many units of one item are given up to acquire a unit of a different item.
Gains from trade
A situation in which two people can both gain (subjective) benefits from swapping their property with each other.
Equilibrium position
A stable situation in which there are no further gains from trade.
Disequilibrium
An unstable situation in which at least two people stand to benefit from an additional trade.
Spontaneous order
A predictable pattern that is not planned by any one person.
Arbitrage opportunity
The ability to earn a “sure profit” when the same good sells at different prices at the same time.
Medium of exchange
An object that is accepted in a trade, not because the person receiving it wants to directly use it, but because he or she wants to trade it away in the future to acquire something else.
Progressive income taxation
A system that taxes individuals or corporations at higher rates based on the level of income.
Division of labor / specialization
The situation where each person works on one or a few tasks, and then trades to obtain the things produced by others.
Productivity of labor
The amount of output a worker can produce in a certain period of time.
Economies of scale
A condition in which output will increase more than proportionally as inputs are increased.
Absolute advantage
Occurs when a person can produce more units per hour in a particular task, compared to someone else.
Comparative advantage
Occurs when a person has the relative superiority in a particular task, when taking all other tasks into account.
Entrepreneur
The person in a market economy who hires workers and buys resources in order to produce goods and services.
Revenues
The amount of money customers spend on an entrepreneur’s output during a period of time.
Expenses
The amount of money an entrepreneur spends on labor, raw materials, and other inputs during a period of time.
Monetary profit
The amount by which revenues are greater than expenses.
Monetary loss
The amount by which expenses are greater than revenues.
Competition
The rivalry that exists between entrepreneurs who have the option of hiring the same workers and buying the same resources, in order to produce goods and services to be sold to the same customers
Marginal productivity
The increased revenues that result from hiring an extra worker.
Income (individual)
The amount of money that can be spent on consumption goods in a certain period, from the sale of labor and the earnings of other assets (such as stocks).
Income / earnings (business)
Revenues minus expenses.
Savings
The amount by which income is greater than spending on consumption.
Borrowing / dissaving
The amount by which consumption spending is greater than income.
Investment
Savings that are spent in the hopes of increasing future income.
Interest
The income earned during a period of time from lending savings to others.
Demand
The relationship between the price of a good (or service), and the number of units that consumers want to purchase at each hypothetical price.
Demand schedule
A table that illustrates the demand relationship either for an individual or a group.
Law of Demand
If other influences stay the same, then a lower price will lead consumers to buy more units of a good (or service), while a higher price will lead them to buy fewer units.
Demand curve
A graphical illustration of the demand relationship, with price placed on the vertical axis and quantity on the horizontal axis. It is are “downward sloping,” meaning that they start in the upper left and move down and to the right.
Supply
The relationship between the price of a good (or service), and the number of units that producers want to sell at each hypothetical price.
Supply schedule
A table illustrating the supply relationship, either for an individual or group of producers.
Supply curve
A graphical illustration of the supply relationship, with price placed on the vertical axis and quantity on the horizontal axis. It is “upward sloping,” meaning that they start in the bottom left and move up and to the right.
Law of Supply
If other influences stay the same, then a higher price will lead producers to sell more units of a good (or service), while a lower price will lead producers to sell fewer units.
Surplus / glut
A situation where producers want to sell more units of a good (or service) than consumers want to purchase. This occurs when the actual price is higher than the market-clearing price.
Shortage
A situation where consumers want to buy more units than producers want to sell. This occurs when the actual price is below the market-clearing price.
Equilibrium price / market-clearing price
The price at which producers want to sell exactly the number of units that consumers want to purchase. On a graph, it occurs at the intersection of the supply and demand curves.
Equilibrium quantity
The number of units that producers want to sell, and consumers want to buy, at the equilibrium price. On a graph, it occurs at the intersection of the supply and demand curves.
Reduction in supply / leftward shift in the supply curve
A situation in which a change besides the price of a good (or service) causes producers to reduce the number of units they want to sell, at various possible prices.
Reduction in demand / leftward shift in the demand curve
A situation in which a change besides the price of a good (or service) causes consumers to reduce the number of units they want to purchase, at various possible prices.
Substitutes
Goods (or services) that consumers use for similar purposes.
Complements
Goods (or services) that consumers use together.
Time preference
The degree to which people prefer to consume sooner rather than later; a gauge of people’s impatience to receive enjoyments.
Discount
The percentage by which the value of a unit of money is reduced, because it will not be received until the future.
Exchange rate
The “price” of one currency in terms of another, or how many units of one currency will trade for one unit of another currency.
Maturity
The time duration of a specific loan, and the interest rate that applies to it.
Loanable funds market
The market in which lenders give money to borrowers at an agreed-upon interest rate.
Bond
A corporation’s IOU, which is a legally binding promise to repay borrowed money plus interest.
Credit intermediary
A person or organization that is the “middleman” between lenders and borrowers.
Bank
A common credit intermediary, which takes deposits from many different lenders and makes loans to many different borrowers.
Depositors
People who give their money to a bank.
Spread
The difference between the interest rate that a credit intermediary (such as a bank) earns from its borrowers, compared to the interest rate it pays to its lenders or depositors.
Credit risk
The likelihood that a borrower will be unable to pay back a loan.
Mortgage
A special type of loan in which the borrower buys a house (or other real estate) with the funds. Usually the property serves as collateral.
Default
A situation when a borrower stops making repayments on a loan.
Delinquencies
Cases where borrowers are not in good standing with the lender (such as a bank), because they have not been keeping up with their required payments.
Credit card
A device that allows the borrower to achieve virtually instant loans from the credit card company when making purchases.
Credit history
A person’s record of borrowing and repayment behavior
Credit score
A number that an agency will assign to a person based on his or her credit history, which helps potential lenders decide on the riskiness of lending money to the person.
Credit limit
The maximum amount of money that a person can borrow from a pre-approved source (such as a credit card).
Secured loan
A loan that has an asset (such as a house, car, etc.) pledged as collateral, in case the borrower defaults.
Unsecured loan
A loan that has no collateral serving as a backup. If the borrower defaults, the lender has no other options.
Collateral
An asset that a borrower “puts up” when applying for a loan. If the borrower defaults, the lender may take possession of the asset as compensation.
Productive debt
Debt used to finance investments. Ideally, the extra income from the investment spending will allow the borrower to make the interest payments resulting from the increase in debt, so that the extra borrowing “pays for itself.”
Gross profit / accounting profit
The excess of revenues over out-of-pocket expenses.
Net profit / economic profit
The portion of gross profits over and above the normal interest return on the invested capital
Economic problem
How to allocate society’s scarce resources (including labor) in order to produce the combination of goods and services that best satisfies people’s preferences.
Stock market
A special type of market in which buyers and sellers exchange shares of corporate stock.
Corporate stock
Partial ownership claims to a corporation.
Stock exchanges
Particular locations or venues where stocks are traded.
Stock brokerages
Companies that help individuals buy and sell stocks.
Sole proprietorship
A business run by a single person.
Raise capital
The process of obtaining funds for a growing business by selling partial ownership of the business to outside investors.
Going public
Allowing the general public to buy shares of stock in a corporation, as opposed to restricting ownership to those specifically invited by the owners.
Incorporation
Transforming a business into a corporation, so that its ownership is allotted by shares of stock.
Initial public offering (IPO)
The auction of shares to the general public when a corporation first decides to go public.
Issuing debt
Raising funds by selling bonds to lenders.
Issuing stock / issuing equity
Raising funds by selling stock shares to investors.
Rolling over debt
Paying off an old set of bondholders by issuing new bonds.
Refinancing (a mortgage)
The situation that occurs when a homeowner gets a new mortgage from the bank (perhaps at a lower interest rate or with lower monthly payments) and uses it to pay off the current mortgage.
Callable bonds
Bonds that the issuer (borrower) has the right to pay off ahead of schedule.
Residual claimants
Refers to stockholders, who are entitled to the earnings of a corporation only after the other creditors have first been paid.
Dividend
A disbursement of a portion of a corporation’s net earnings to the stockholders.
Leverage
Enhancing the potential returns from an investment by using borrowed money.
Bankrupt
The situation that occurs when a business has liabilities greater than its assets.
Speculator
A person who buys an asset (such as a corporate stock) thinking its price will rise, or who sells an asset thinking its price will fall.
Interest rate risk
The risk bondholders face because rising interest rates will reduce the market value of their bonds.
Short sale
A transaction in which a person borrows an asset (such as a share of stock) from an existing owner, in order to sell it at the current price. The person eventually must buy back the asset to return it to the original owner.
Command economy / command-and-control economy / socialism
An institutional arrangement in which the government owns all the major resources, and directs labor, according to a unified central plan.
Economic democracy
An analogy to politics often used by (democratic) socialists to justify socialism. Most people would not like an aristocratic system in which a few elites made all the political decisions, but would instead prefer a democratic “one person, one vote” system. The socialists argue that their program simply applies this logic to the economic arena, taking power away from the small group of wealthy capitalists and showering it on the masses.
Anarchists
People who think there should be no government
Shirking
Deliberately working less than one’s potential
Calculation problem
The objection Ludwig von Mises raised against socialism, which points out that because socialist planners lack market prices for resources, they can’t determine if a particular project uses up more resources than it produces in goods and services. Even if the planners were angels, they would have no idea whether they were using scarce resources in an efficient way to best serve the citizens.
Communism
An economic and political ideology that seeks to gain government ownership of the means of production (in the name of the workers) through violent revolution.
Fascism
An economic and political ideology that also seeks extensive government regulation of all resources in the service of the collective good, though it allows private individuals to officially retain ownership of the factories and other capital goods.
Interventionism
The philosophy of the mixed economy, in which the government heavily intervenes in the capitalist system to regulate how individuals can use their private property
Price controls
Policies that punish people who exchange goods and services at prices different from the acceptable range prescribed by the government
Price ceiling
A type of price control on a particular good or service that sets a maximum level on the amount a buyer can pay a seller.
Rent control
A price ceiling placed on apartment rents.
Slumlord
The unflattering term applied to a landlord who doesn’t maintain the quality of the apartments and who is generally unscrupulous.
Price floor
A type of price control on a particular good or service that sets a minimum level that a buyer must pay a seller.
Minimum wage
A price floor on payments to workers.
Price supports
Government policies that maintain a desired minimum price not by threatening buyers who pay too little, but instead by having the government directly buy the good or service whenever its market price would otherwise fall below the floor.
Unemployment
A surplus or glut on the labor market, meaning that some workers cannot find jobs even though they are willing to work for the same pay and can perform the jobs just as well as the people who are employed.
Taxation
The process in which the government takes ownership of portions of income or other assets from private individuals.
Budget deficits
The excess of government spending over tax receipts; the amount the government must borrow to pay its bills in a given period.
Inflation
The creation of more money, which drives up prices.
Black market
The system of illegal transactions that violate government regulations.
Sales tax
A tax that applies to goods and services as they are sold to the customer, usually applied as
Sales tax
A tax that applies to goods and services as they are sold to the customer. Sales taxes are usually applied as percentages of the pre-tax dollar amount.
Paternalism
Overriding the desires of someone else because he or she is not considered competent to make the right decision.
Income tax
A tax that applies to the earnings of an individual or a corporation. Income taxes are usually applied as percentages of the pre-tax dollar income
Graduated income tax
An income tax that applies higher rates to higher levels of income.
Income Tax Brackets
The thresholds of income that are taxed at various rates.
Tax Deduction
A provision in the tax code that allows a particular expense (such as medical expenses or the purchase price of a new solar panel) to be subtracted from an individual’s taxable income. This means that items are paid for with “pretax dollars,” which allows an individual to buy more with his income.
Taxable income
The amount of income actually subject to the official tax rates for each bracket; the original income after all deductions and other adjustments have been made.
Mercantilism
The economic doctrine that views the accumulation of wealth as the path to national prosperity. It encourages exports and discourages imports.
Exports
Goods (and services) that the people of a country sell to foreigners.
Imports
Goods (and services) that the people of a country buy from foreigners.
Trade surplus
The amount by which exports exceed imports, measured in money.
Trade deficit
The amount by which imports exceed imports, measured in money.
Beggar-thy-neighbor policies
Policies (usually involving currencies and trade restrictions) that make other countries poorer, in the attempt to make one’s own country richer.
Zero-sum game
A situation in which the gain of one person (or country) corresponds to an equal loss of another person (or country). Mutually advantageous, win-win outcomes are not possible. There are winners and losers.
Free trade
An environment in which governments do not impose artificial restrictions on the flow of goods and services between their citizens and foreigners.
Protectionism
The philosophy that uses government trade restrictions in an attempt to help workers within the home country. The rationale is that by restricting foreign imports, the government will encourage consumers to “buy local,” providing employment for local workers.
Tariff (duty)
A tax levied on foreign imports.
Import quota
A maximum limit on the amount of a particular good that can be imported during a certain time period.
Drug prohibition
Severe penalties that the government imposes on the consumption and especially the production and sale of certain drugs.
Sin taxes
High sales taxes on goods such as cigarettes and liquor that are imposed not merely to raise revenue, but also to encourage people to reduce their purchases of these dubious items.
Corruption
In the context of the drug trade, the failure of police and other government officials to execute their duties, either because they are accepting bribes from drug dealers or because they themselves are trafficking in prohibited substances.
Hazard pay
The higher earnings necessary to attract workers into an industry that is more dangerous than others.
Loan sharking
The practice of lending money at high interest rates and using illegal methods to obtain repayment.
Usury laws
Price ceilings on interest rates.
Fixed costs
Monetary expenses that do not increase when a business expands output.
Inflation
A term that originally referred to an increase in the money supply, but nowadays tends to refer to increasing prices
Monetary inflation
An expansion in the total amount of money in the economy.
Price inflation
A general increase in the prices of goods and services, quoted in units money. A fall in the purchasing power of money.
Consumer Price Index (CPI)
The Bureau of Labor Statistics’ gauge of the “price level” affecting regular households.
M1
A popular measure of the total amount of money in an economy. It includes the actual currency held by the public (in their wallets, purses, and cashiers’ drawers) but also the total amount of checking account balances.
Hyperinflation
Very severe inflation; when people begin buying anything at all in order to unload their money holdings which are losing value by the hour.
Debasement
Government policies that weaken the money.
Fiat money
Paper money that is not “backed” by anything. The only reason people accept it in trade, is that they expect it to have purchasing power in the future.
Federal Reserve
The central bank of the United States, founded in 1913; responsible for U.S. monetary policy, and has the dual mandate of providing stable economic growth (which implies full employment) and low price inflation.
Flow variable
A concept that is measured over a period of time.
Stock variable
A concept that is measured at a specific point in time.
Face value of a bond
The amount of money the bond issuer promises to pay to the holder of the bond at the maturity date.
National debt / public debt
Usually refers to the total outstanding value of bonds issued by the U.S. Treasury. When economists compare the levels of debt owed by various governments, they usually net out the “intra-governmental holdings” and report only the government debt held by the public
Crowding out
The reduction in private-sector investment that results from government deficit spending. The government’s borrowing increases the demand for loanable funds, which makes the equilibrium interest rate higher than it otherwise would be. At the higher interest rate, private-sector businesses borrow less to fund investment spending.
Business cycle
The regular pattern in market economies where a “boom” period—characterized by low unemployment and prosperity—is followed by a “bust” or recession period— characterized by high unemployment and business failures.
Countercyclical policies
Standard government and Federal Reserve policies that are supposed to counteract the movements of the free market.
Macroeconomics
The subdivision of economics that focuses on economy-wide issues such as price inflation and the business cycle.
Capital consumption
Achieving a higher standard of living (temporarily) by failing to invest enough in the maintenance of capital goods. “Eating the seedcorn,” metaphorically speaking.