Glossary

total revenues minus explicit costs, including depreciation

when one firm purchases another

the total rate of return, including capital gains and interest paid on an investment at the end of a period of time

a loan a borrower uses to purchase a home in which the interest rate varies with market interest rates

when groups with inherently higher risks than the average person seek out insurance, thus straining the insurance system

if employers reduce wages for all workers, the best will leave

active efforts by government or businesses that give special rights to minorities in hiring, promotion, or access to education to make up for past discrimination

the amount of total spending on domestic goods and services in an economy

the total spending on domestic goods and services at each price level

the process whereby an economy as a whole turns economic inputs such as human capital, physical capital, and technology into output measured as GDP per capita

the total quantity of output (i.e. real GDP) firms will produce and sell

producing the optimal quantity of some output; the quantity where the marginal benefit to society of one more unit just equals the marginal cost

laws that give government the power to block certain mergers, and even in some cases to break up large firms into smaller ones

something of value that you own with an expectation that it will produce income for you in the future

customers can withdraw a bank’s liabilities in the short term while customers repay its assets in the long term

a situation where the seller or the buyer has more information than the other regarding the quality of the item being sold

tax and spending rules that have the effect of slowing down the rate of decrease in aggregate demand when the economy slows down and restraining aggregate demand when the economy speeds up, without any additional change in legislation

the amount of aggregate consumption expenditure that would occur even if income dropped to zero

profit divided by the quantity of output produced; profit margin

total cost divided by the quantity of output

variable cost divided by the quantity of output

the situation when high-wage people can earn so much that they respond to a still-higher wage by working fewer hours

an accounting tool that lists assets and liabilities

when government spending and taxes are equal

when depositors race to the bank to withdraw their deposits for fear that otherwise they would be lost

the legal, technological, or market forces that may discourage or prevent potential competitors from entering a market

trading one good or service for another, without using money

arbitrary year whose value as an index number economists define as 100; inflation from the base year to other years can easily be seen by comparing the index number in the other year to the index number in the base year—for example, 100; so, if the index number for a year is 105, then there has been exactly 5% inflation between that year and the base year

a hypothetical group of different items, with specified quantities of each one meant to represent a "typical" set of consumer purchases, used as a basis for calculating how the price level changes over time

a branch of orthodox economics that seeks to enrich the understanding of decision-making by integrating the insights of psychology and by investigating how given dollar amounts can mean different things to individuals depending on the situation

the full spectrum of animal and plant genetic material

a financial contract through which a borrower like a corporation, a city or state, or the federal government agrees to repay the amount that was borrowed and also a rate of interest over a period of time in the future

the rate of return a bond is expected to pay at the time of purchase

someone who owns bonds and receives the interest payments

all possible consumption combinations of goods that someone can afford, given the prices of goods, when all income is spent; the boundary of the opportunity set

shows the possible combinations of two goods that are affordable given a consumer’s limited income

when the federal government spends more money than it receives in taxes in a given year

when the government receives more money in taxes than it spends in a year

a situation in which multiple products are sold as one

the economy's relatively short-term movement in and out of recession

a particular way of organizing a business including strategies for making money in a market (or several markets)

the availability of functionings coupled with the ability of the individual to achieve a combination of functionings

an increase by society in the average level of physical and/or human capital per person

a financial gain from buying an asset, like a share of stock or a house, and later selling it at a higher price

the idea that the utility a consumer assigns to a product is objective and, therefore, quantifiably measurable

a group of firms that collude to produce the monopoly output and sell at the monopoly price

institution which conducts a nation’s monetary policy and regulates its banking system

a mechanism for a saver to deposit funds at a bank and promise to leave them at the bank for a time, in exchange for a higher rate of interest

other things being equal

the belief that the value of money derives, not from the intrinsic value of the commodity, but from its general acceptability for payments and the ability of the state to create demand for it through taxation

a bank account that typically pays little or no interest, but that gives easy access to money, either by writing a check or by using a “debit card”

a diagram that views the economy as consisting of households and firms interacting in a goods and services market and a labor market

the coins and bills that circulate in an economy that are not held by the U.S Treasury, at the Federal Reserve Bank, or in bank vaults

when an insurance policyholder pays a percentage of a loss, and the insurance company pays the remaining cost

something valuable—often property or equipment—that a lender would have a right to seize and sell if the loan is not repaid

negotiations between unions and a firm or firms

when firms act together to reduce output and keep prices high

an economy where economic decisions are passed down from government authority and where resources are owned by the government

laws that specify allowable quantities of pollution and that also may detail which pollution-control technologies must be used

an item that is used as money, but which also has value from its use as something other than money

dollar bills or other currencies with values backed up by gold or another commodity

when a country can produce a good at a lower cost in terms of other goods; or, when a country has a lower opportunity cost of production

goods that are often used together so that consumption of one good tends to enhance consumption of the other

an interest rate calculation on the principal plus the accumulated interest

an early tool to measure the degree of monopoly power in an industry; measures what share of the total sales in the industry are accounted for by the largest firms, typically the top four to eight firms

consumption of goods and services because they allow the consumer to demonstrate or enhance her prestige, rather than for their capacity to produce personal satisfaction (utility)

expanding all inputs proportionately does not change the average cost of production

when a given percent price change in price leads to an equal percentage change in quantity demanded or supplied

when the ratio of the prices of goods is equal to the ratio of the marginal utilities (point at which the consumer can get the most satisfaction)

a measure of inflation that U.S. government statisticians calculate based on the price level from a fixed basket of goods and services that represents the average consumer's purchases

the extra benefit consumers receive from buying a good or service, measured by what the individuals would have been willing to pay minus the amount that they actually paid

the social preoccupation with acquiring and identifying with consumer goods

tax increases or cuts in government spending designed to decrease aggregate demand and reduce inflationary pressures

a monetary policy that reduces the supply of money and loans

the right to enter into agreements with others regarding the use of their property providing recourse through the legal system in the event of noncompliance

pattern in which economies with low per capita incomes grow faster than economies with high per capita incomes

downward wage and price flexibility requires perfect information about the level of lower compensation acceptable to other laborers and market participants

when an insurance policyholder must pay a small amount for each service, before insurance covers the rest

a form of legal protection to prevent copying, for commercial purposes, original works of authorship, including books and music

a measure of inflation typically calculated by taking the CPI and excluding volatile economic variables such as food and energy prices to better measure the underlying and persistent trend in long-term prices

a bond issued by firms that wish to borrow

the rules and practices defining how and by whom a business is directed as well as how members of the business will interact with each other and those outside of the business

a tax imposed on corporate profits

a business owned by shareholders who have limited liability for the company’s debt yet a share of the company’s profits; may be private or public depending on whether its stocks are traded on a public market

another person or firm who legally pledges to repay some or all of the money on a loan if the original borrower does not do so

a contractual provision that wage increases will keep up with inflation

when regulators permit a regulated firm to cover its costs and to make a normal level of profit

the process of estimating the costs of production before production actually takes place

moving in the opposite direction of the business cycle of economic downturns and upswings

the interest rate paid on a bond; can be annual or semi-annual

immediately transfers money from the credit card company’s checking account to the seller, and at the end of the month the user owes the money to the credit card company; a credit card is a short-term loan

the percentage change in the quantity of good A that is demanded as a result of a percentage change in good B

federal spending and borrowing causes interest rates to rise and business investment to fall

a broad measure of the balance of trade that includes trade in goods and services, as well as international flows of income and foreign aid

unemployment closely tied to the business cycle, like higher unemployment during a recession

the loss in social surplus that occurs when a market produces an inefficient quantity

a card that lets the person make purchases, and the cost is immediately deducted from that person’s checking account

an amount that the insurance policyholders must pay out of their own pocket before the insurance coverage pays anything

negative inflation; most prices in the economy are falling

the relationship between price and the quantity demanded of a certain good or service

a graphic representation of the relationship between price and quantity demanded of a certain good or service, with quantity on the horizontal axis and the price on the vertical axis

checkable deposit in banks that is available by making a cash withdrawal, writing a check, or using a debit card

the processes by which businesses (or governments) encourage spending so as to promote sales and profits

a table that shows a range of prices for a certain good or service and the quantity demanded at each price

an insurance system that makes sure depositors in a bank do not lose their money, even if the bank goes bankrupt

institution that accepts money deposits and then uses these to make loans

the process by which capital ages over time and therefore loses its value

an especially lengthy and deep decline in output

removing government controls over setting prices and quantities in certain industries

a product that is perceived by consumers as distinctive in some way

the common pattern that each marginal unit of a good consumed provides less of an addition to utility than the previous unit

the interest rate charged by the central bank on the loans that it gives to other commercial banks

those who have stopped looking for employment due to the lack of suitable positions available

the government passes a new law that explicitly changes overall tax or spending levels with the intent of influencing the level or overall economic activity

actions based on the belief that members of a certain group or groups are in some way inferior solely because of a factor such as race, gender, or religion

the long-run average cost of producing each individual unit increases as total output increases

income after taxes

investing in a wide range of companies to reduce the level of risk

making loans or investments with a variety of firms, to reduce the risk of being adversely affected by events at one or a few firms

a direct payment from a firm to its shareholders

the way in which the work required to produce a good or service is divided into tasks performed by different workers

a situation in which two people each want some good or service that the other person can provide

a potential mistake to avoid in measuring GDP, in which output is counted more than once as it travels through the stages of production

an oligopoly with only two firms

a method of assisting the working poor through the tax system

a heterodox school of economic thought that situates the economy as a subordinate structure within the natural environment

total revenues minus total costs (explicit plus implicit costs)

see social surplus

the study of social provisioning, in which an understanding of the development of political economies is rooted in social, political, natural, and cultural processes

the study of how humans make choices under conditions of scarcity

the long-run average cost of producing each individual unit decreases as total output increases

percentage of total taxes paid divided by total income

the theory that the productivity of workers, either individually or as a group, will increase if the employer pays them more

when the elasticity of demand is greater than one, indicating a high responsiveness of quantity demanded or supplied to changes in price

when the elasticity of either supply is greater than one, indicating a high responsiveness of quantity demanded or supplied to changes in price

an economics concept that measures responsiveness of one variable to changes in another variable

the percentage change in the quantity of savings divided by the percentage change in interest rates

a measure of inflation based on wages paid in the labor market

the long-run process of firms entering an industry in response to industry profits

the situation where quantity demanded is equal to the quantity supplied; the combination of price and quantity where there is no economic pressure from surpluses or shortages that would cause price or quantity to change

the price where quantity demanded is equal to quantity supplied

the quantity at which quantity demanded and quantity supplied are equal for a certain price level

the monetary value a homeowner would have after selling the house and repaying any outstanding bank loans used to buy the house

a tax on people who pass assets to the next generation—either after death or during life in the form of gifts

a tax imposed on the value of an inheritance

at the existing price, the quantity demanded exceeds the quantity supplied; also called a shortage

reserves banks hold that exceed the legally mandated limit

at the existing price, quantity supplied exceeds the quantity demanded; also called a surplus

the price of one currency in terms of another currency

a tax on a specific good—on gasoline, tobacco, and alcohol

an agreement that a dealer will sell only products from one manufacturer

the long-run process of firms reducing production and shutting down in response to industry losses

tax cuts or increases in government spending designed to stimulate aggregate demand and move the economy out of recession

a monetary policy that increases the supply of money and the quantity of loans

how much a project or an investment is expected to return to the investor, either in future interest payments, capital gains, or increased profitability

Keynesian concept that asserts that a change in autonomous spending causes a more than proportionate change in real GDP

a model in the heterodox tradition of Keynes that shows aggregate expenditure as a function of income and equilibrium at the point where spending and output are equal

out-of-pocket costs for a firm, for example, payments for wages and salaries, rent, or materials

the idea that a producer or producers of a product receive compensation that is less than the value of what the producer or producers contributed to the production process

products (goods and services) made domestically and sold abroad

the dollar value of exports divided by the dollar value of a country’s GDP

a market exchange that affects a third party who is outside or “external” to the exchange; sometimes called a “spillover”

a market exchange that affects a third party who is outside or “external” to the exchange; sometimes called a “spillover”

the amount that the bond issuer or borrower agrees to pay the investor

the combination of labor, materials, and machinery that is used to produce goods and services; also called inputs

the interest rate at which one bank lends funds to another bank overnight

when medical care providers are paid according to the services they provide

has no intrinsic value, but is declared by a government to be the country's legal tender

output used directly for consumption, investment, government, and trade purposes; contrast with "intermediate good"

the international flows of money that facilitates trade and investment

an institution, like a bank, that receives money from savers and provides funds to borrowers

an organization that combines inputs of labor, capital, land, and raw or finished component materials to produce outputs

economic policies that involve government spending and taxes

expenditure that must be made before production starts and that does not change regardless of the level of production

the percentage of the total sales in the industry that are accounted for by the largest four firms

a system of land tenure in the American colonies which included perpetual ownership, transmissible to heirs, free disposal of property, alienability

those who want others to pay for the public good and then plan to use the good themselves; if many people act as free riders, the public good may never be provided

unemployment that occurs as workers move between jobs

another name for potential GDP, when the economy is producing at its potential and unemployment is at the natural rate of unemployment

a state of being for an individual as well as the collection of all things an individual can be doing

the idea that units of a good, such as dollars, ounces of gold, or barrels of oil are capable of mutual substitution with each other and carry equal value to the individual

a branch of mathematics often used by economists that analyzes situations in which players must make decisions and then receive payoffs based on what decisions the other players make

a measure of inflation based on the prices of all the GDP components

GDP divided by the population

the trend in which buying and selling in markets have increasingly crossed national borders

an organization which is expected to continue to exist into the foreseeable future

a concept of prices as being determined by the particular needs of the businesses setting their prices to allow themselves to survive and grow

a market in which firms are sellers of what they produce and households are buyers

measure of the size of total production in an economy

includes what is produced domestically and what is produced by domestic labor and business abroad in a year

a program for early childhood education directed at families with limited educational and financial resources

an organization that provides health care and is paid a fixed amount per person enrolled in the plan—regardless of how many services are provided

approach to measuring market concentration by adding the square of the market share of each firm in the industry

bonds that offer relatively high interest rates to compensate for their relatively high chance of default

the accumulated skills and education of workers

an outburst of high inflation that often occurs (although not exclusively) when economies shift from a controlled economy to a market-oriented economy 

the ideas, beliefs, subjective values, and prevailing world views that a person holds

a situation where either the buyer or the seller, or both, are uncertain about the qualities of what is being bought and sold

firms and organizations that fall between the extremes of monopoly and perfect competition

the time it takes for the funds relating to fiscal policy to be dispersed to the appropriate agencies to implement the programs

an unwritten agreement in the labor market that the employer will try to keep wages from falling when the economy is weak or the business is having trouble, and the employee will not expect huge salary increases when the economy or the business is strong

opportunity cost of resources already owned by the firm and used in business, for example, expanding a factory onto land already owned

products (goods and services) made abroad and then sold domestically

a flow of money received, often measured on a monthly or an annual basis

a higher price means that, in effect, the buying power of income has been reduced, even though actual income has not changed; always happens simultaneously with a substitution effect

when one group receives a disproportionate share of total income or wealth than others

a mutual fund that seeks only to mimic the overall performance of the market

a unit-free number derived from the price level over a number of years, which makes computing inflation rates easier, since the index number has values around 100

a price, wage, or interest rate is adjusted automatically for inflation

a tax based on the income, of all forms, received by individuals

the widespread adoption of power-driven machinery and the economic and social changes that occurred roughly over the first half of the 1800s

when the elasticity of demand is less than one, indicating that a 1 percent increase in price paid by the consumer leads to less than a 1 percent change in purchases (and vice versa); this indicates a low responsiveness by consumers to price changes

when the elasticity of either supply is greater than one, indicating a high responsiveness of quantity demanded or supplied to changes in price

a good in which the quantity demanded falls as income rises, and in which quantity demanded rises and income falls

the extremely elastic situation of demand or supply where quantity changes by an infinite amount in response to any change in price; horizontal in appearance

a general and ongoing rise in price levels in an economy

a rule that the central bank is required to focus only on keeping inflation low

equilibrium at a level of output above potential GDP

the common structures, facilities, and systems necessary for organizations to operate

the first sale of shares of stock by a firm to outside investors

putting advances in knowledge to use in a new product or service

the combination of labor, materials, and machinery that is used to produce goods and services; also called factors of production

those already working for the firm are "insiders" who know the procedures; the other workers are "outsiders" who are recent or prospective hires

collectively shared habits of thought–of knowing, doing, and valuing–that control, expand, and liberate individual action

method of protecting a person from financial loss, whereby policy holders make regular payments to an insurance entity; the insurance firm then remunerates a group member who suffers significant financial damage from an event covered by the policy

the value of a business enterprise over and above the value of its tangible assets

the body of law including patents, trademarks, copyrights, and trade secret law that protect the right of inventors to produce and sell their inventions

the “price” of borrowing in the financial market; a rate of return on an investment

output provided to other businesses at an intermediate stage of production, not for final users; contrast with "final good and service"

externalities that cross national borders and that cannot be resolved by a single nation acting alone

a measure of inflation based on the prices of merchandise that is exported or imported

the value the object has in and of itself

advances in knowledge

the evolved, socially constructed systems by which people judge themselves and others to be fundamentally inferior or superior to others

idea that self-interested behavior by individuals can lead to positive social outcomes

see high yield bonds

"demand creates its own supply"

a perceived demand curve that arises when competing oligopoly firms commit to match price cuts, but not price increases

this is the percentage of adults in an economy who are either employed or who are unemployed and looking for a job

the market in which households sell their labor as workers to business firms or other employers

the value of what is produced per worker, or per hour worked (sometimes called worker productivity)

an organization of workers that negotiates with employers over wages and working conditions

the common relationship that a higher price leads to a lower quantity demanded of a certain good or service and a lower price leads to a higher quantity demanded, while all other variables are held constant

as we consume more of a good or service, the utility we get from additional units of the good or service tend to become smaller than what we received from earlier units

as additional increments of resources are added to producing a good or service, the marginal benefit from those additional increments will decline

the common relationship that a higher price leads to a greater quantity supplied and a lower price leads to a lower quantity supplied, while all other variables are held constant

legal prohibitions against competition, such as regulated monopolies and intellectual property protection

the time it takes to get a fiscal policy bill passed

an institution that provides short-term emergency loans in conditions of financial crisis

a debt or something you owe

how easily money or financial assets can be exchanged for a good or service, or to pay debt

the situation in which groups of legislators all agree to vote for a package of otherwise unrelated laws that they individually favor

vertical line at potential GDP showing no relationship between the price level for output and real GDP in the long run

shows the lowest possible average cost of production, allowing all the inputs to production to vary so that the firm is choosing its production technology

where all firms earn zero economic profits producing the output level where P = MR = MC and P = AC

a graph that compares the cumulative income actually received to a perfectly equal distribution of income; it shows the share of population on the horizontal axis and the cumulative percentage of total income received on the vertical axis

a narrow definition of the money supply that includes currency and checking accounts in banks, and to a lesser degree, traveler’s checks

a definition of the money supply that includes everything in M1, but also adds savings deposits, money market funds, and certificates of deposit

occurs when what happens at the macro level is different from and inferior to what happens at the micro level; an example would be where upward sloping supply curves for firms become a flat aggregate supply curve, illustrating that the price level cannot fall to stimulate aggregate demand

the branch of economics that focuses on broad issues such as growth, unemployment, inflation, and trade balance

examination of decisions on the margin, meaning a little more or a little less from the status quo

the additional cost of producing one more unit

profit of one more unit of output, computed as marginal revenue minus marginal cost

the share of the additional dollar of income a person decides to devote to consumption expenditures

the additional revenue gained from selling one more unit

the tax rate that must be paid on the next dollar of income

the additional utility provided by one additional unit of consumption

the additional satisfaction gained from purchasing a good given the price of the product; MU/Price

interaction between potential buyers and sellers; a combination of demand and supply

an economy where economic decisions are decentralized, resources are owned by private individuals, and businesses supply goods and services based on demand

the rules and practices defining how business enterprises will behave in a market, including especially how they will interact with their competitors

the percentage of total sales in the market

the conditions in an industry, such as number of sellers, how easy or difficult it is for a new firm to enter, and the type of products that are sold

a permit that allows a firm to emit a certain amount of pollution; firms with more permits than pollution can sell the remaining permits to other firms

setting the price of a business enterprise’s product by adding some dollar amount over and above average costs of production.  Full cost pricing and target rate of return pricing are two examples

the date that a bond must be repaid

theory that politicians will try to match policies to what pleases the median voter preferences

a federal–state joint program enacted in 1965 that provides medical insurance for certain (not all) low-income people, including the near-poor as well as those below the poverty line, and focusing on low-income families with children, the low-income elderly, and the disabled

whatever is widely accepted as a method of payment

costs firms face in changing prices

the balance of trade looking only at goods

when two formerly separate firms combine to become a single firm

the belief that the value of money derives from the intrinsic value of the commodity (for instance, gold) the physical money is made from

a method of studying economic phenomena that focuses on the motives and actions of the individual, rather than groups, classes, or society as a whole

the branch of economics that focuses on actions of particular agents within the economy, like households, workers, and business firms

an agreement that requires a dealer who buys from a manufacturer to sell for at least a certain minimum price

a price floor that makes it illegal for an employer to pay employees less than a certain hourly rate

see theory

policy that involves altering the level of interest rates, the availability of credit in the economy, and the extent of borrowing

the process of turning money into commodity inputs and ultimately selling commodity outputs for money

the deposits of many investors are pooled together and invested in a safe way like short-term government bonds

total money in the economy divided by the original quantity of money, or change in the total money in the economy divided by a change in the original quantity of money

a promise that the buyer’s money will be refunded under certain conditions

many firms competing to sell similar but differentiated products

a situation in which one firm produces all of the output in a market

when people have insurance against a certain event, they are less likely to guard against that event occurring

a bond issued by cities that wish to borrow; often called 'munis'

a form of marketing in which businesses promote the belief that consumers are ‘too smart’ to be fooled or persuaded by advertising, brands, and so on

funds that buy a range of stocks or bonds from different companies, thus allowing an investor an easy way to diversify

the total accumulated amount the government has borrowed, over time, and not yet paid back

includes all income earned: wages, profits, rent, and profit income

national savings and investment identity

economic conditions in the industry, for example, economies of scale or control of a critical resource, that limit effective competition

the unemployment rate that would exist in a growing and healthy economy from the combination of economic, social, and political factors that exist at a given time

those who have incomes just above the poverty line

something that is necessary for a human being to sustain basic physical and psychological health

a situation where a third party, outside the transaction, suffers from a market transaction by others

GNP minus depreciation

asset value minus how much is owed (the liability); also called equity

an economic statistic such as GDP as actually announced at that time, not adjusted for inflation; contrast with real value

when it is costly or impossible to exclude someone from using the good, and thus hard to charge for it

even when one person uses the good, others can also use it

a good in which the quantity demanded rises as income rises, and in which quantity demanded falls as income falls

statement which describes how the world should be

licenses issued by government agencies, which indicate that a worker has completed a certain type of education or passed a certain test

when a few large firms have all or most of the sales in an industry

the central bank selling or buying Treasury bonds to influence the quantity of money and the level of interest rates

measures cost by what is given up in exchange; opportunity cost measures the value of the forgone alternative

all possible combinations of consumption that someone can afford given the prices of goods and the individual’s income

the idea that the utility that a consumer assigns to a product is subjective, in the mind of the consumer, and is, therefore, not directly quantifiably measurable

a school of thought, representing the boundary of a discipline, framing the types of questions and phenomena that will be analyzed, and the approach or method of study a theorist will employ

when economic outcomes are such that there is no way to make any one or many people better off without making any one person or many worse off

a company run by a group as opposed to an individual

a government rule that gives the inventor the exclusive legal right to make, use, or sell the invention for a limited time

helps an economy exchange goods and services for money or other financial assets

a tax based on the pay received from employers; the taxes provide funds for Social Security and Medicare

during the business cycle, the highest point of output before a recession begins

a market structure in which each firm faces many competitors that sell identical products

the tradeoff between unemployment and inflation

the plant and equipment that firms use in production; this includes infrastructure

a tax imposed on the quantity of pollution that a firm emits; also called a pollution tax

spending that benefits mainly a single political district

a situation where a third party, outside the transaction, benefits from a market transaction by others

statement which describes the world as it is

the maximum quantity that an economy can produce given full employment of its existing levels of labor, physical capital, technology, and institutions

the situation of being below a certain level of income needed for a basic standard of living

the specific amount of income needed for a basic standard of living

percentage of the population living below the poverty line

antipoverty programs set up so that government benefits decline substantially as people earn more income—as a result, working provides little financial gain

when an existing firm uses sharp but temporary price cuts to discourage new competition

payments made to an insurance company

a bond’s current price at a given time

what a buyer pays and what a seller receives for a unit of the specific good or service

when the regulator sets a price that a firm cannot exceed over the next few years

a legal maximum price

government laws to regulate prices instead of letting market forces determine prices

the relationship between the percent change in price resulting in a corresponding percentage change in the quantity demanded or supplied

percentage change in the quantity demanded of a good or service divided the percentage change in price

percentage change in the quantity supplied divided by the percentage change in price

a legal minimum price

a firm in a perfectly competitive market that must take the prevailing market price as given

procedures businesses use to determine, beforehand, the price at which they will sell their product once production is up and running and sales can be made

a game in which the gains from cooperation are larger than the rewards from pursuing self-interest

the dollar value of all benefits of a new product or process invented by a company that can be captured by the investing company

a firm owned by the people who run it on a day-to-day basis

system where the means of production (resources and businesses) are owned and operated by private individuals or groups of private individuals

when the estimated rates of return go primarily to an individual; for example, earning interest on a savings account

a measure of inflation based on prices paid for supplies and inputs by producers of goods and services

the extra benefit producers receive from selling a good or service, measured by the price the producer actually received minus the price the producer would have been willing to accept

the process whereby a firm turns economic inputs like labor, machinery, and raw materials into outputs like goods and services that consumers use

a diagram that shows the productively efficient combinations of two products that an economy can produce given the resources it has available

alternative methods of combining inputs to produce output

when it is impossible to produce more of one good (or service) without decreasing the quantity produced of another good (or service)

profit divided by the quantity of output produced; average profit

a tax that collects a greater share of income from those with high incomes than from those with lower incomes

a tax system in which the rich pay a higher percentage of their income in taxes, rather than a higher absolute amount

legal norms defining who can own what, what can be done with that property, and therefore how businesses can generate earnings and who has claims on those earnings

a tax that is a flat percentage of income earned, regardless of level of income

a firm that has sold stock to the public, which in turn can be bought and sold by investors

good that is nonexcludable and nonrivalrous, and thus is difficult for market producers to sell to individual consumers

inflation calculated using a fixed basket of goods over time tends to overstate the true rise in cost of living, because it does not account for improvements in the quality of existing goods or the invention of new goods

the purchase of long term government and private mortgage-backed securities by central banks to make credit available in hopes of stimulating aggregate demand

the total number of units of a good or service consumers are willing to purchase at a given price

the total number of units of a good or service producers are willing to sell at a given price

dividing a group into fifths, a method often used to look at distribution of income

the theory that rational people will not vote if the costs of becoming informed and voting are too high or because they know their vote will not be decisive in the election

the study of real changes to output, employment, distribution, and growth without addressing money as anything other than a facilitator of exchange

GDP adjusted for changes in prices over time

an economic statistic such as GDP after it has been adjusted for inflation; contrast with nominal value

a significant decline in national output

equilibrium at a level of output below potential GDP

the time it takes to determine that a recession has occurred

taking income from those with higher incomes and providing income to those with lower incomes

a tax in which people with higher incomes pay a smaller share of their income in tax

when the firms supposedly being regulated end up playing a large role in setting the regulations that they will follow and as a result, they “capture” the people doing the regulation, usually through the promise of a job in that “regulated” industry once their term in government has ended

the percentage amount of its total deposits that a bank is legally obligated to to either hold as cash in their vault or deposit with the central bank

money that a bank keeps on hand, and that it does not lend or invest in bonds—and thus does not lead to interest payments

practices that reduce competition but that do not involve outright agreements between firms to raise prices or to reduce the quantity produced

income from selling a firm’s product; defined as price times quantity sold

the theory that rational private households might shift their saving to offset government saving or borrowing

a measure of the uncertainty of that project’s profitability

a group that shares roughly the same risks of an adverse event occurring

the group of government programs that provide assistance to the poor and the near-poor

a bank account that pays an interest rate, but withdrawing money typically requires a trip to the bank or an automatic teller machine

bank account where you cannot withdraw money by writing a check, but can withdraw the money at a bank—or can transfer it easily to a checking account

"supply creates its own demand"

when human wants for goods and services exceed the available supply

the buyer pays an extra amount and the seller agrees to fix anything specified in the contract that goes wrong for a set time period

people who own at least some shares of stock in a firm

the stock of a firm, divided into individual portions

when a change in some economic factor (other than price) causes a different quantity to be demanded at every price

when a change in some economic factor (other than price) causes a different quantity to be supplied at every price

positive short run relationship between the price level for output and real GDP, holding the prices of inputs fixed

the average total cost curve in the short term; shows the total of the average fixed costs and the average variable costs

level of output where the marginal cost curve intersects the average variable cost curve at the minimum point of AVC; if the price is below this point, the firm should shut down immediately

an interest rate calculation only on the principal amount

stores a certain value of money on a card and then one can use the card to make purchases

the dollar value of all benefits of a new product or process invented by a company that can be captured by other firms and by society as a whole

costs that include both the private costs incurred by firms and also additional costs incurred by third parties outside the production process, like costs of pollution

when the estimated rates of return go primarily to society; for example, providing free education

the sum of consumer surplus and producer surplus

a company run by an individual as opposed to a group

area of a country, usually with access to a port where, among other benefits, the government does not tax trade

groups that are small in number relative to the nation, but well organized and thus exert a disproportionate effect on political outcomes

a federally funded program, started in 1964, in which each month poor people receive SNAP cards they can use to buy food

a market exchange that affects a third party who is outside or “external” to the exchange; usually called an “externality”

an economy experiences stagnant growth and high inflation at the same time

money must also be acceptable to make purchases today that will be paid in the future

all elements that affect people’s happiness, whether people buy or sell these elements in the market or not

the budget deficit or surplus in any given year adjusted for what it would have been if the economy were producing at potential GDP

a situation where wages and prices do not fall in response to a decrease in demand, or do not rise in response to an increase in demand

a claim on partial ownership of a specific firm

something that serves as a way of preserving economic value that one can spend or consume in the future

unemployment that occurs because individuals lack skills valued by employers

a good that can replace another to some extent, so that greater consumption of one good can mean less of the other

an inflation rate calculated using a fixed basket of goods over time tends to overstate the true rise in the cost of living, because it does not take into account that the person can substitute away from goods whose prices rise considerably

when a price changes, consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price; always happens simultaneously with an income effect

costs that are made in the past and cannot be recovered

the relationship between price and the quantity supplied of a certain good or service

a line that shows the relationship between price and quantity supplied on a graph, with quantity supplied on the horizontal axis and price on the vertical axis

a table that shows a range of prices for a good or service and the quantity supplied at each price

manner in which the tax burden is divided between buyers and sellers

a combination of invention—advances in knowledge—and innovation

all the ways in which existing inputs produce more or higher quality, as well as different and altogether new products; or, as John Kenneth Galbraith defined it, “the application of scientific or other organized knowledge to practical tasks”

the organization of people who participate in the group decision-making that directs the business enterprise through time

a form of business enterprise having a clearly defined beginning and end date

a representation of an object or situation that is simplified while including enough of the key features to help us understand the object or situation

the three ways in which clothing can help to 'show off' status and wealth. Thorstein Veblen analyzed these in relation to women's dress, but they can be applied to many other consumption goods as well

account that the depositor has committed to leaving in the bank for a certain period of time, in exchange for a higher rate of interest; also called certificate of deposit

the sum of fixed and variable costs of production

satisfaction derived from consumer choices

gap between exports and imports

exists when a nation's imports exceed its exports and it calculates them as imports – exports

methods of production kept secret by the producing firm

exists when a nation's exports exceed its imports and it calculates them as exports – imports

an identifying symbol or name for a particular good and can only be used by the firm that registered that trademark

typically an agricultural economy where things are done the same as they have always been done

the costs associated with finding a lender or a borrower for money

a bond issued by the federal government through the U.S. Department of the Treasury

during the business cycle, the lowest point of output in a recession, before a recovery begins

deficits that occur when a country is running both a trade and a budget deficit

a situation where a customer is allowed to buy one product only if the customer also buys another product

individuals who are employed in a job that is below their skills

a market where the buyers and sellers make transactions in violation of one or more government regulations

the percentage of adults who are in the labor force and thus seeking jobs, but who do not have jobs

"one-way payments" that governments, private entities, or individuals make that they sent abroad with nothing received in return

the common way in which we measure market values in an economy

when the calculated elasticity is equal to one indicating that a change in the price of the good or service results in a proportional change in the quantity demanded or supplied

the idea that the value of an object is based on how useful the product is to the consumer.  Products have an intrinsic value to their consumers

laws that impose an upper limit on the interest rate that lenders can charge

satisfaction, usefulness, or value one obtains from consuming goods and services

cost of production that increases with the quantity produced

the speed with which money circulates through the economy; calculated as the nominal GDP divided by the money supply

financial investments in new companies that are still relatively small in size, but that have potential to grow substantially

the situation in which a majority prefers A over B, B over C, and C over A

the percentage change in hours worked divided by the percentage change in wages

something that is desired, but also not necessary for an individual to live and function in a society

a promise to fix or replace the good for a certain period of time

the sum of the value of all assets, including money in bank accounts, financial investments, a pension fund, and the value of a home

the highly inelastic case of demand or supply in which a percentage change in price, no matter how large, results in zero change in the quantity; vertical in appearance