Glossary of Economic Terms and Concepts
A B C D
E F G H I J K
L M N O P
Q R S T U V
WX Y Z
Absolute advantage - The
ability to produce something with fewer resources than other producers
would use to produce the same thing
Alternatives - Options among which to make choices.
Balance of trade - The
part of a nation's balance of payments that deals with merchandise (or
visible) imports or exports.
Bank, commercial - A financial institution
accepts checking deposits, holds savings, sells traveler's checks and performs
other financial services.
Barter - The direct trading of goods and
services without the use of money.
Benefit - The gain received from voluntary exchange.
Bond - A certificate reflecting a firm's
promise to pay the holder a periodic interest payment until the date of
maturity and a fixed sum of money on the designated maturity date.
Business (firm) - Private profit-seeking
organizations that use resources to produce goods and services.
Capital - All buildings, equipment
and human skills used to produce goods and services.
Capital resources - Goods made by people and used to produce
other goods and services. Examples include buildings, equipment, and machinery.
Change in demand - see Demand
decrease and Demand
Change in supply - see Supply
decrease and Supply
Choice - What someone must make when faced
with two or more alternative uses of a resource (also called economic choice).
Circular flow of goods and services (or Circular flow of economic
activity) - A model of an economy showing the interactions between
households and business firms as they exchange goods and services and resources
Collateral - Anything of value that is acceptable to a lender
to guarantee repayment of a loan.
Command economy - A mode of economic organization
in which the key economic functions--what, how, and for whom--are
principally determined by government directive. Sometimes called
a "centrally planned economy."
Comparative advantage - The principle
of comparative advantage states that a country will specialize in the production
of goods in which it has a lower opportunity cost than other countries.
Competition - The effort of two or
more parties acting independently to secure the business of a third party
by offering the most favorable terms.
Complements - Products that are used with one another such as
hamburger and hamburger buns
Consumers - People whose wants are satisfied by consuming a
good or a service.
Consumption - In macroeconomics, the
total spending, by individuals or a nation, on consumer goods during a
given period. Strictly speaking, consumption should apply only to
those goods totally used, enjoyed, or "eaten up" within that period.
In practice, consumption expenditures include all consumer goods bought,
many of which last well beyond the period in question --e.g., furniture,
clothing, and automobiles.
Consumer spending - The purchase of
consumer goods and services.
Corporation - A legal entity owned
by stockholders whose liability is limited to the value of their stock.
Costs - See Opportunity
Costs of production - All resources used in producing goods
and services, for which owners receive payments.
Craftsperson - A worker who completes all steps in the production
of a good or service.
Credit - (1) In monetary theory, the use
of someone else's funds in exchange for a promise to pay (usually with interest) at a later date. The major examples are short-term loans
from a bank, credit extended by suppliers, and commercial paper.
(2) In balance-of-payments accounting, an item such as exports that earns
a country foreign currency.
Criteria - Standards or measures of value that people use to
evaluate what is most important.
Decision making - Choosing
from alternatives the one with the greatest benefit net of costs.
Deflation - A sustained and continuous
decrease in the general price level.
Demand - A schedule of how much consumers
are willing and able to buy at all possible prices during some time period.
Demand decrease - A decrease in the quantity demanded at every
price; a shift to the left of the demand curve.
Demand increase - An increase in the quantity demanded
at every price; a shift to the right of the demand curve.
Determinants of demand - Factors that influence consumer purchases
of goods, services, or resources.
Determinants of supply - Factors that influence producer decisions
about goods, services, or resources.
Distribution - The manner in which
total output and income is distributed among individuals or factors (e.g.,
the distribution of income between labor and capital).
Division of labor - The process
whereby workers perform only a single or a very few steps of a major production
task (as when working on an assembly line.)
Durables - Consumer goods expected to last longer than three
Earn - Receive payment (income) for productive efforts.
Economic growth - An increase in the
total output of a nation over time. Economic growth is usually measured
as the annual rate of increase in a nation's real
Economic system - The collection of institutions, laws, activities,
controlling values, and human motivations that collectively provide a framework
for economic decision making.
Economic wants - Desires that can be satisfied by consuming
a good or a service. Some economic wants range from things needed
for survival to things that are nice to have.
Employment - See Full
Entrepreneur - One who organizes,
manages, and assumes the risks of a business or enterprise.
Entrepreneurship - The human resource that assumes the risk
of organizing other productive resources to produce goods and services.
Equilibrium price - The market clearing price at which the quantity
demanded by buyers equals the quantity supplied by sellers.
Exchange - Trading goods and services
with others for other goods and services or for money (also called
trade). When people exchange voluntarily, they expect to be better
off as a result.
Exchange rates - The rate, or price,
at which one country's currency is exchanged for the currency of another
Excise Tax - Taxes imposed on specific goods and services, such
as cigarettes and gasoline.
Exports - Goods or services produced in
one nation but sold to buyers in another nation.
Factors of production - Resources used
by businesses to produce goods and services.
Federal Reserve System - The central bank
and monetary authority of the United States.
Final goods - Products that end up in the hands of consumers.
Fiscal policy - A government's program
with respect to (1) the purchase of goods and services and spending on
transfer payments, and (2) the amount and type of taxes.
Functions of money - The roles played by money in an economy.
These roles include medium of exchange, standard of value, and store of
Full employment - A term that is used
in many senses. Historically, it was taken to be that level of employment
at which no (or minimal) involuntary unemployment exists. Today economists
rely upon the concept of the natural rate of unemployment to indicate the
highest sustainable level of employment over the long run.
Goods - Objects that can satisfy
Government - National, state and local
agencies that use tax revenues to provide goods and services for their citizens.
Gross domestic product (GDP) - The value,
expressed in dollars, of all final goods and services produced in a year.
Gross domestic product (GDP), real -
GDP corrected for inflation.
Households - Individuals
and family units which, as consumers, buy goods and services from firms
and, as resource owners, sell or rent productive resources to business
Human capital - The health, strength, education,
training, and skills which people bring to their jobs.
Human resources - The quantity and quality of human effort directed
toward producing goods and services (also called labor).
Incentives - Factors that
motivate and influence the behavior of households and businesses.
Prices, profits, and losses act as incentives for participants to take
action in a market economy.
Imports - Goods or services bought from
sellers in another nation.
Income - The payments made for the use of borrowed or loaned
Increase in productivity - When the same
amount of an output can be produced with fewer inputs; more output can
be produced with the same amount of inputs; or a combination of the two.
Inflation - A sustained and continuous
increase in the general price level.
Interdependence - Dependence on
others for goods and services; occurs as a result of specialization.
Interest rates - The price paid for borrowing
money for a period of time, usually expressed as a percentage of the principal
Investment in capital goods - Occurs when savings are used to
increase the economy's productive capacity by financing the construction
of new factories, machines, means of communication, and the like.
Investment - The purchase of a security,
such as a stock or bond.
Investment in capital resources - Business purchases of new
plant and equipment.
Investment in human capital - An action taken to increase the
productivity of workers. These actions can include improving skills
and abilities, education, health, or mobility of workers.
Labor force - That group
of people 16 years of age and older who are either employed or unemployed.
Labor market - A setting in which workers sell their human resources
and employers buy human resources.
Labor union - A group of employees who
join together to improve their terms of employment.
Land - Natural resources or gifts of nature that are used to
produce goods and services.
Law of demand - The principle that price and quantity demanded
are inversely related.
Law of supply - The principle that price and quantity supplied
are directly related.
Loss - Business situation in which total cost of production
exceeds total revenue; negative profit.
Market - A setting where buyers and sellers establish
prices for identical or very similar products, and exchange goods and/or
Market economy - An economic system where
most goods and services are exchanged through transactions by private households
and businesses. Prices are determined by buyers and sellers making
exchanges in private markets.
Medium of exchange - One of the functions of money whereby people
exchange goods and services for money and in turn use money to obtain other
goods and services.
Mixed economy - The dominant form of economic
organization in noncommunist countries. Mixed economies rely primarily
on the price system for their economic organization but use a variety of
government interventions (such as taxes, spending, and regulation) to handle
macroeconomic instability and market failures.
Monetary policy - The objectives of
the central bank in exercising its control over money, interest rates,
and credit conditions. The instruments of monetary policy are primarily
open-market operations, reserve requirements, and the discount rate.
Money - Anything that is generally accepted
as a medium of exchange with which to buy goods and services, a good that
can be used to buy all other goods and services, that serves as a standard
of value, and has a store of value.
Money market - A term denoting the set
of institutions that handle the purchase or sale of short-term credit instruments
like Treasury bills and commercial paper.
National debt - The
net accumulation of federal budget deficits.
National income - The amount of aggregate
income earned by suppliers of resources employed to produce GNP; net national
product plus government subsidies minus indirect business taxes.
Natural resources - "Gifts of nature" that
are used to produce goods and services. They include land, trees,
fish, petroleum and mineral deposits, the fertility of soil, climatic conditions
for growing crops, and so on.
Non-durables - Consumer goods expected to last less than three
Non-price determinants of supply - The factors that influence
the amount a producer will supply of a product at each possible price.
The non-price determinants of supply are the factors that can change the
entire supply schedule and curve.
Normal profit - The minimum payment an entrepreneur expects
to receive to induce the entrepreneur to perform entrepreneurial functions.
Normative economics - Normative economics
considers "what ought to be"--value judgments, or goals, of public policy.
Positive economics, by contrast, is the analysis of facts and behavior
in an economy, or "the way things are."
Opportunity cost - The
next best alternative that must be given up when a choice is made.
Physical capital - Manufactured
items used to produce goods and services.
Price - The money value of a unit of a good, service, or resource
Prices - The amounts that people pay for
units of particular goods or services.
Private goods - A commodity that benefits
the individual. An example is bread, which, if consumed by one person,
cannot be consumed by another person. (See public
Producers - People who use resources to make goods and services
(also called workers).
Production - The making of goods available
for use; total output especially of a commodity or industry.
Productive resources - All natural resources (land), human resources
(labor), and human-made resources (capital) used in the production of goods
Productivity - The ratio of output
(goods and services) produced per unit of input (productive resources)
over some period of time.
Profit - The difference between total revenues
and the full costs involved in producing or selling a good or service;
it is a return for risk taking.
Property tax - Taxes paid by households and businesses on land
Public goods - A commodity whose benefits
are indivisibly spread among the entire community, whether or not particular
individuals desire to consume the public good. For example, a public-health
measure that eradicates smallpox protects all, not just those paying for
the vaccinations. These goods are often provided by the government.
To be contrasted with private
Quantity demanded - The amount of a product consumers
will purchase at a specific price.
Quota - A legal limit on the quantity of
a particular product that can be imported or exported.
Quantity supplied - The amount of a product producers will produce
and sell at a specific price.
Resources - All natural,
human, and human-made aids to production of goods and services (also called
Revenue - Payments received by businesses from selling goods
Sales tax - Taxes paid on the goods and services
Save - Set aside earnings (income) for a
Saving - Occurs when individuals, businesses,
and the economy as a whole do not consume all of current income (or output).
Scarcity - The condition that results
from the imbalance between relatively unlimited wants and the relatively
limited resources available for satisfying those wants.
Services - Activities that can satisfy
Shortage - The situation resulting when the quantity demanded
exceeds the quantity supplied of a good or service, usually because the
price is for some reason below the equilibrium price in the market.
Specialists - People who produce a
narrower range of goods and services than they consume (also called specialized
Specialization - The situation
in which people produce a narrower range of goods and services than they
Spend - Use earnings (income) to buy goods and services.
Standard of living - A minimum of necessities,
comforts, or luxuries held essential to maintaining a person or group in
customary or proper status or circumstances.
Standard of value - One of the functions of money whereby the
value of goods and services is expressed in money terms (prices).
Stock - A certificate reflecting ownership
of a corporation.
Store of value - One of the functions of money allowing people
to save current purchasing power to buy goods and services in a future
Substitutes - Products that can replace one another such as
butter and margarine.
Supply - A schedule of how much producers
are willing and able to sell at all possible prices during some time period.
Supply decrease - A decrease in the quantity supplied at every
price; a shift to the left of the supply curve.
Supply increase - An increase in the quantity supplied at every
price; a shift to the right of the supply curve.
Surplus - The situation resulting when the quantity supplied
exceeds the quantity demanded of a good or service, usually because the
price is for some reason below the equilibrium price in the market.
Tariff - A tax on an imported
Taxes - Required payments of money made
to governments by households and business firms.
Total cost - Cost of resources used in producing a product multiplied
by the quantity produced.
Total revenue - Selling price of a product multiplied by the
Trade - See Exchange.
Trade agreement - An international
agreement on conditions of trade in goods and services.
Trade-off - Giving up some of one thing to get some of another
Traditional economy - A mode of economic
organization which borrows economic decisions made at an earlier time or
by an earlier generation
Unemployment - The situation
in which people are willing and able to work at current wage rates, but
do not have jobs.
Wages - The payment resource
earners receive for their labor.
Work - Employment of people in jobs to make goods or services.
Workers - See Producers.