Glossary of economics

This glossary of economics is a list of definitions of terms and concepts used in economics, its sub-disciplines, and related fields.

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401a Retirement Plan

401k Retirement Plan

A type of retirement plan which is sponsored by an employer and in which the employer may match a portion of the employee's contributions. Most contributions are tax-deferred until retirement withdraws occur.

403b Retirement Plan

457 Retirement Plan

A

absolute advantage

Also called resource cost advantage.

The ability of a party (whether an individual, firm, or country) to produce a greater quantity of a good, product, or service than competitors using the same amount of resources.

abandonment of the gold standard

The decision by a government to abandon a monetary system in which the standard economic unit of account is based on a fixed quantity of gold.

adaptive expectations

A hypothetical process by which people form expectations about what will happen in the future based on what has happened in the past.

aggregate demand (AD)

Also called domestic final demand (DFD) or effective demand.

The total demand for goods and services in an economy. It specifies the amounts of goods and services that will be purchased at all possible price levels. Aggregate demand can also be interpreted as the demand for the gross domestic product of a country. It is often called effective demand, though this term also has a distinct meaning.

aggregate supply (AS)

Also called domestic final supply (DFS).

The total supply of goods and services in an economy.

aggregation problem

The difficult problem of finding a valid way to treat an empirical or theoretical aggregate as if it reacted like a less-aggregated measure, say, about behavior of an individual agent as described in general microeconomic theory.

agent

An actor or, more specifically, a decision maker in a model of some aspect of the economy.

agricultural economics

An applied field of economics concerned with the application of economic theory in optimizing the production and distribution of food.

allocative efficiency

A state of the economy in which production represents consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing. In the single-price model, at the point of allocative efficiency, price is equal to marginal cost.

antitrust law

Also called a competition law or anti-monopoly law.

Any law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies. Competition law is implemented through public and private enforcement. It is also known as "antitrust law" in the United States for historical reasons and as "anti-monopoly law" in China and Russia.

applied economics

The application of economic theory and econometrics in specific settings. As one of the two sets of fields of economics (the other being the core), it is typically characterized by the application of the core, i.e. economic theory and econometrics, to address practical issues in a range of fields.

appropriate technology

A movement (and its manifestations) encompassing technological choice and application that is small-scale, decentralized, labor-intensive, energy-efficient, environmentally sound, and locally autonomous.

arbitrage

The practice of taking advantage of a price difference between two or more markets by striking a combination of matching deals that capitalize upon the imbalance, with the profit being the difference between the market prices.

Arrow's impossibility theorem

Austrian School

A heterodox school of economic thought that is based on methodological individualism—the concept that social phenomena result from the motivations and actions of individuals.

autarky

The quality of being self-sufficient; the term is usually applied to political states or their economic systems. Autarky exists whenever an entity can survive or continue its activities without external assistance or international trade. If a self-sufficient economy also deliberately refuses all trade with the outside world, then it is called a closed economy.

automatic stabilizer

A feature of the structure of modern government budgets, particularly income taxes and welfare spending, that acts to dampen fluctuations in real GDP.

autonomous consumption

Also called exogenous consumption.

The consumption expenditure that occurs when income levels are zero. Such consumption is considered autonomous of income only when expenditure on these consumables does not vary with changes in income; generally, it may be required to fund necessities and debt obligations. If income levels are actually zero, this consumption counts as dissaving, because it is financed by borrowing or using up savings.

average cost

Also called unit cost.

A quantity equal to the total cost divided by the number of goods produced (the output quantity, Q). It is also equal to the sum of variable costs (total variable costs divided by Q) plus average fixed costs (total fixed costs divided by Q).

average fixed cost

The fixed costs (FC) of production divided by the quantity (Q) of output produced. Fixed costs are those costs that must be incurred in fixed quantity regardless of the level of output produced.

average variable cost

A firm's variable costs (labour, electricity, etc.) divided by the quantity of output produced. Variable costs are those costs which vary with the output.

average tax rate

The ratio of the total amount of taxes paid to the total tax base (taxable income or spending), expressed as a percentage.

B

backward induction

The process of reasoning backwards in time, from the end of a problem or situation, to determine a sequence of optimal actions. It proceeds by first considering the last time a decision might be made and choosing what to do in any situation at that time. Using this information, one can then determine what to do at the second-to-last time of decision. This process continues backwards until one has determined the best action for every possible situation (i.e. for every possible information set) at every point in time.

balance of payments

Also called balance of international payments and abbreviated B.O.P. or BoP.

A record or summary of all economic transactions between the residents of a country and the rest of the world in a particular period of time (e.g. over a quarter of a year or, more commonly, over a year). These transactions are made by individuals, firms and government bodies. Thus the balance of payments includes all external visible and non-visible transactions of a country.

balance of trade

Also called commercial balance or net exports (NX).

The difference between the monetary value of a nation's exports and imports over a certain period. Sometimes a distinction is made between a balance of trade for goods versus one for services. "Balance of trade" can be a misleading term because trade measures a flow of exports and imports over a given period of time, rather than a balance of exports and imports at a given point in time. Also, balance of trade does not necessarily imply that exports and imports are "in balance" with each other or anything else.

balanced budget

A budget, particularly that of a government, in which revenues are equal to expenditures. Thus, neither a budget deficit nor a budget surplus exists (the accounts "balance"). The term may also refer more generally to a budget that has no budget deficit but could possibly have a budget surplus. A cyclically balanced budget is a budget that is not necessarily balanced year-to-year, but is balanced over the economic cycle, running a surplus in boom years and running a deficit in lean years, with these offsetting over time.

bank

A financial institution that accepts deposits from the public and creates credit. Lending activities can be performed either directly or indirectly through capital markets. Due to their importance in the financial stability of a country, banks are highly regulated in most countries. Most nations have institutionalized a system known as fractional reserve banking, under which banks hold liquid assets equal to only a portion of their current liabilities. In addition to other regulations intended to ensure liquidity, banks are generally subject to minimum capital requirements based on an international set of capital standards, known as the Basel Accords.

bankruptcy

The inability to pay debt due to loss of income, increased spending, or an unforeseen financial crisis.

barriers to entry

In theories of competition in economics, a cost that must be incurred by a new entrant into a market that incumbents do not have or have not had to incur. Because barriers to entry protect incumbent firms and restrict competition in a market, they can contribute to distortionary prices and are therefore most important when discussing antitrust policy. Barriers to entry often cause or aid the existence of monopolies or give companies market power.

barter

In trade, a system of exchange in which participants in a transaction directly exchange goods or services for other goods or services without using a medium of exchange, such as money. Economists distinguish barter from gift economies in many ways; barter, for example, features immediate reciprocal exchange that is not delayed in time. Barter usually takes place on a bilateral basis, but may be multilateral (i.e. mediated through a trade exchange). In most developed countries, barter usually only exists parallel to monetary systems to a very limited extent. Market actors use barter as a replacement for money as the method of exchange in times of monetary crisis, such as when currency becomes unstable (e.g. by hyperinflation or a deflationary spiral) or simply unavailable for conducting commerce.

behavioral economics

The branch of economics that studies the effects of psychological, cognitive, emotional, cultural and social factors on the economic decisions of individuals and institutions and how those decisions vary from those implied by classical theory.

Bellman equation

bequest motive

Seeks to provide an economic justification for the phenomenon of intergenerational transfers of wealth; in other words, to explain why people leave money behind when they die.

Bertrand–Edgeworth model

A microeconomic model of price-setting oligopoly which studies what happens when there is a homogeneous product (i.e. consumers want to buy from the cheapest seller) where there is a limit to the output of firms which they are willing and able to sell at a particular price. This differs from the Bertrand competition model where it is assumed that firms are willing and able to meet all demand. The limit to output can be considered a physical capacity constraint which is the same at all prices (as in Edgeworth’s work) or to vary with price under other assumptions.

Black–Scholes model

Also called the Black–Scholes–Merton model.

A mathematical model for the dynamics of a financial market containing derivative investment instruments. From the partial differential equation in the model, known as the Black–Scholes equation, one can deduce the Black–Scholes formula, which gives a theoretical estimate of the price of European-style options and shows that the option has a unique price regardless of the risk of the security and its expected return (instead replacing the security's expected return with the risk-neutral rate). The formula led to a boom in options trading and provided mathematical legitimacy to the activities of the Chicago Board Options Exchange and other options markets around the world. It is widely used, although often with adjustments and corrections, by options market participants.

board of governors

The main governing body that directs the operations of the United States Federal Reserve System. Its seven members supervise the 12 Federal Reserve Districts.

bond

In finance, an instrument of indebtedness of the bond issuer to the holders. The most common types of bonds include municipal bonds and corporate bonds. The bond is a debt security, under which the issuer owes the holders a debt and (depending on the terms of the bond) is obliged to pay them interest (the coupon) or to repay the principal at a later date, termed the maturity date. Interest is usually payable at fixed intervals (semiannual, annual, or sometimes monthly). Very often the bond is negotiable, that is, the ownership of the instrument can be transferred in the secondary market. This means that once the transfer agents at the bank medallion stamp the bond, it is highly liquid on the secondary market.

borrower

See debtor.

break-even

Also called the break-even point (BEP).

The point at which total cost and total revenue are equal, i.e. "even". There is no net loss or gain, and one has "broken even", though opportunity costs have been paid and capital has received the risk-adjusted, expected return. In short, all costs that must be paid are paid, and there is neither profit nor loss.

Bretton Woods system

A monetary system which established the rules for commercial and financial relations among the United States, Canada, Western Europe, Australia, and Japan after the 1944 Bretton Woods Agreement. The Bretton Woods system was the first example of a fully negotiated monetary order intended to govern monetary relations among independent states. The chief features were an obligation for each country to adopt a monetary policy that maintained its external exchange rates within 1 percent by tying its currency to gold and the ability of the IMF to bridge temporary imbalances of payments; there was also a need to address the lack of cooperation among other countries and to prevent competitive devaluation of the currencies.

budget deficit

Also simply called spending.

The amount by which spending exceeds revenue over a particular period of time; it is the opposite of budget surplus. The term may be applied to the budget of a government, private company, or individual.

budget set

Also called an opportunity set.

The set of all possible consumption bundles that an individual can afford, given the prices of goods and the individual's income level. The budget set is bounded above by the budget line. Graphically speaking, all the consumption bundles that lie inside and on the budget constraint form the budget set. By most definitions, budget sets must be compact and convex.

budget surplus

big push model

A concept in development economics or welfare economics that emphasizes that a firm's decision whether to industrialize or not depends on its expectation of what other firms will do. It assumes economies of scale and oligopolistic market structure and explains when industrialization would happen.

business cycle

Also called the economic cycle or trade cycle.

The downward and upward movement of gross domestic product (GDP) around its long-term growth trend. The length of a business cycle is the period of time containing a single boom and contraction in sequence. These fluctuations typically involve shifts over time between periods of relatively rapid economic growth (expansions or booms) and periods of relative stagnation or decline (contractions or recessions).

business economics

A branch of applied economics which uses economic theory and quantitative methods to analyze business enterprises and the factors contributing to the diversity of organizational structures and the relationships of firms with labour, capital and product markets.

business sector

Also called the corporate sector or sometimes simply business.

The part of the economy made up by companies. It is generally considered a subset of the domestic economy, excluding the economic activities of general government, of private households, and of non-profit organizations serving individuals.

C

capacity utilization

The extent to which an enterprise or a nation uses its installed productive capacity. It is the relationship between output that is produced with the installed equipment and the potential output which could be produced with it if capacity was fully used.

capital

Any asset that can enhance one's power to perform economically useful work. Capital goods, real capital, or capital assets are already-produced, durable goods or any non-financial asset that is used in production of goods or services. Capital is distinct from land (or non-renewable resources) in that capital can be increased by human labor. At any given moment in time, total physical capital may be referred to as the capital stock (which is not to be confused with the capital stock of a business entity).

capital cost

A fixed, one-time expense incurred on the purchase of land, buildings, construction, and equipment used in the production of goods or in the rendering of services. In other words, it is the total cost needed to bring a project to a commercially operable status. Whether a particular cost is capital or not depends on many factors, such as accounting, tax laws, and materiality.

capital flight

Occurs when money or assets rapidly flow out of a country due to an event of economic consequence. Such events may include an increase in taxes on capital or capital holders or the government of the country defaulting on its debt that disturbs investors and causes them to lower their valuation of the assets in that country or otherwise to lose confidence in its economic strength.

capital good

A durable good that is used in the production of goods or services. Capital goods are one of the three types of producer goods, the other two being land and labour, which are also known collectively as primary factors of production. This classification originated with classical economics and has remained the dominant method for classification.

cartel

Any group of firms that colludes and acts as a single coordinated whole to restrict output and drive up prices.

central bank

Also called a reserve bank or monetary authority.

An institution that manages the currency, money supply, and interest rates of an entire state or nation. Central banks also usually oversee the commercial banking system of their respective countries. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the monetary base in the state, and usually also prints the national currency, which usually serves as the state's legal tender. Central banks also act as a "lender of last resort" to the banking sector during times of financial crisis. Most central banks usually also have supervisory and regulatory powers to ensure the solvency of member institutions, prevent bank runs, and prevent reckless or fraudulent behavior by member banks.

Certificate of Deposit (CD or COD)

A savings instrument that usually earns more interest than a savings account but is bound by limits set within a contract.

circular flow of income

Also simply called circular flow.

A model of the economy in which the major exchanges are represented as flows of money, goods and services, etc. between economic agents. The flows of money and goods exchanged in a closed circuit correspond in value, but run in the opposite direction. The circular flow analysis is the basis of national accounts and hence of macroeconomics.

circulation

classical economics

Or classical political economy, is a school of thought in economics that flourished, primarily in Britain, in the late 18th and early-to-mid 19th century. Its main thinkers are held to be Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Robert Malthus, and John Stuart Mill. These economists produced a theory of market economies as largely self-regulating systems, governed by natural laws of production and exchange (famously captured by Adam Smith's metaphor of the invisible hand).

command economy

An economy in which the government directs all economic activity.

commerce

Relates to "the exchange of goods and services, especially on a large scale". It includes legal, economic, political, social, cultural and technological systems that operate in a country or in international trade.

commodity

an economic good or service that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them.

comparative advantage

Also called opportunity cost advantage.

The ability to produce most efficiently given all of the other products that could be produced.

competition law

Also called an antitrust law or anti-monopoly law.

Any law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies.

competitive market

A market in which many sellers compete against each other to attract customers. Each seller has an incentive to sell at the lowest price possible to attract customers, so prices tend to be driven so low that the sellers can just barely make a profit.

complementary goods

Goods that are bought and used together.

compound interest

The addition of interest to the principal sum of a loan or deposit; it is often interpreted as "interest on interest". Compound interest is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then earned on the principal sum plus any previously accumulated interest. Contrast simple interest.

computational economics

A research discipline at the interface of economics, computer science, and management science which encompasses computational modeling of economic systems, whether agent-based, general-equilibrium, macroeconomic, or rational-expectations, computational econometrics and statistics, computational finance, computational tools for the design of automated internet markets, programming tools specifically designed for computational economics, and pedagogical tools for the teaching of computational economics.

consumer

A member of a household that spends on goods and services.

consumer choice

A theory of microeconomics that relates preferences to consumption expenditures and to consumer demand curves. It analyzes how consumers maximize the desirability of their consumption as measured by their preferences subject to limitations on their expenditures, by maximizing utility subject to a consumer budget constraint.

consumer confidence

An economic indicator that measures the degree of optimism that consumers feel about the overall state of the economy and their personal financial situation.

consumer price index (CPI)

Measures changes in the price level of market basket of consumer goods and services purchased by households. The CPI is a statistical estimate constructed using the prices of a sample of representative items whose prices are collected periodically. Sub-indices and sub-sub-indices are computed for different categories and sub-categories of goods and services, being combined to produce the overall index with weights reflecting their shares in the total of the consumer expenditures covered by the index. It is one of several price indices calculated by most national statistical agencies. The annual percentage change in a CPI is used as a measure of inflation. A CPI can be used to index (i.e. adjust for the effect of inflation) the real value of wages, salaries, and pensions; to regulate prices; and to deflate monetary magnitudes to show changes in real values. In most countries, the CPI, along with the population census, is one of the most closely watched national economic statistics.

consumer surplus

the difference between the maximum price a consumer is willing to pay and the actual price they do pay. If a consumer is willing to pay more for a unit of a good than the current asking price, they are getting more benefit from the purchased product than they would if the price was their maximum willingness to pay. They are receiving the same benefit, the obtainment of the good, with a smaller cost as they are spending less than they would if they were charged their maximum willingness to pay.

consumerism

Economic policies which emphasize consumption.

consumption

According to mainstream economists, only the final purchase of goods and services by individuals constitutes consumption, while other types of expenditure — in particular, fixed investment, intermediate consumption, and government spending — are placed in separate categories (see consumer choice). Other economists define consumption much more broadly, as the aggregate of all economic activity that does not entail the design, production and marketing of goods and services (e.g. the selection, adoption, use, disposal and recycling of goods and services).

consumption function

A mathematical function which describes a relationship between consumption and disposable income. The concept is believed to have been introduced into macroeconomics by John Maynard Keynes in 1936, who used it to develop the notion of a government spending multiplier.

contract curve

In microeconomics, the contract curve is the set of points representing final allocations of two goods between two people that could occur as a result of mutually beneficial trading between those people given their initial allocations of the goods. All the points on this locus are Pareto efficient allocations, meaning that from any one of these points there is no reallocation that could make one of the people more satisfied with his or her allocation without making the other person less satisfied. The contract curve is the subset of the Pareto efficient points that could be reached by trading from the people's initial holdings of the two goods.

contract theory

The study of how economic actors can and do construct contractual arrangements, generally in the presence of asymmetric information. Because of its connections with both agency and incentives, contract theory is often categorized within a field known as law and economics.

convexity

In the Arrow–Debreu model of general economic equilibrium, agents have convex budget sets and convex preferences: at equilibrium prices, the budget hyperplane supports the best attainable indifference curve. The profit function is the convex conjugate of the cost function. Convex analysis is the standard tool for analyzing textbook economics. Non‑convex phenomena in economics have been studied with nonsmooth analysis, which generalizes convex analysis.

corporation

A type of business organization owned by many people but treated by law as though it were an individual person; it can own property, pay taxes, make contracts, and contribute to political causes.

cost

1.  The value of money that is used up to produce a good or deliver a service, and hence is no longer available for further use. In business, the cost may be one of acquisition, in which case the amount of money expended to acquire a good or service is counted as the cost; in this case, money is the input that is gone in order to acquire the thing. This acquisition cost may be the sum of the cost of production as incurred by the original producer and of further costs of transaction as incurred by the acquirer over and above the price paid to the producer. Usually, the price designated by the producer also includes a mark-up for profit over the cost of production.

2.  More generally, a performance metric that is totaling up as a result of a process or as a differential for the result of a decision. Hence cost is the metric used in the standard modeling paradigm applied to economic processes. Costs (pl.) are often further described based on their timing or their applicability.

cost curve

A graph of the costs of production as a function of total quantity produced. In a free market economy, productively efficient firms optimize their production process by minimizing cost consistent with each possible level of production, and the result is a cost curve; and profit maximizing firms use cost curves to decide output quantities. There are various types of cost curves, all related to each other, including total and average cost curves; marginal ("for each additional unit") cost curves, which are equal to the differential of the total cost curves; and variable cost curves. Some are applicable to the short run, others to the long run.

cost of living

The cost of maintaining a certain standard of living. Changes in the cost of living over time are often operationalized in a cost-of-living index. Cost of living calculations are also used to compare the cost of maintaining a certain standard of living in different geographic areas. Differences in cost of living between locations can also be measured in terms of purchasing power parity rates.

cost overrun

Also called cost increase or budget overrun.

A situation involving unexpected incurred costs. A cost overrun occurs when an underestimation of the actual cost during budgeting results in costs that are in excess of budgeted amounts.

cost-benefit analysis (CBA)

Sometimes called benefit costs analysis (BCA).

A systematic approach to estimating the strengths and weaknesses of alternative options (for example in transactions, activities, or functional business requirements). It is often used to determine the option or options that provide the best approach to achieve benefits while preserving savings. Cost-benefit analysis may be used to compare potential (or completed) courses of actions, or estimate (or evaluate) the value against costs of a single decision, project, or policy. Common areas of application include commercial transactions, functional business decisions, policy decisions (especially government policy), and project investments.

cost-of-production theory of value

The theory that the price of an object or condition is determined by the sum of the cost of the resources that went into producing it. The cost can comprise any of the factors of production (including labor, capital, or land) as well as taxation.

credit bureau

An agency that tracks the credit, employment, and housing history of consumers and assigns them a credit score.

credit card

A payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods and services based on the cardholder's promise to the card issuer to pay them at a later time for the cost of the good or service plus other agreed-upon fees and charges. The card issuer (usually a bank) creates a revolving account and grants a line of credit to the cardholder, from which the cardholder can borrow money for payment to a merchant or as a cash advance.

credit score

A numerical value assigned to a person's potential ability to repay debt. A good credit score in the United States is approximately 700.

credit rating

An evaluation of the credit risk of a prospective debtor (an individual, business, company, or government), predicting their ability to pay back the debt, and an implicit forecast of the likelihood of the debtor defaulting on the debt. Credit rating represents an evaluation of a credit rating agency of the qualitative and quantitative information for the prospective debtor, including information provided by the prospective debtor and other non-public information obtained by the credit rating agency's analysts. A subset of credit rating called credit reporting or credit score is a numeric evaluation of an individual's credit worthiness, which is conducted by a credit bureau or consumer credit reporting agency.

credit union

A financial institution that is usually local and owned by its members.

creditor

A person or a firm that lends money to a borrower.

crowding out

A phenomenon that occurs when increased government involvement in a sector of a market economy substantially affects the remainder of the market, either on the supply or demand side of the market.

cultural economics

The branch of economics that studies the relationship between culture and economic outcomes. Here, "culture" is defined by shared beliefs and preferences of respective groups. Programmatic issues include whether and how much culture matters to economic outcomes and what its relation is to institutions. As a growing field in behavioral economics, the role of culture in economic behavior is increasingly being demonstrated to cause significant differentials in decision-making and the management and valuation of assets.

currency

Money in any form when in actual use or circulation as a medium of exchange, especially circulating banknotes and coins. A more general definition is that a currency is a "system" of money (monetary units) in common use, especially within a particular nation.

current account

A country's current account is one of the two components of its balance of payments, the other being the capital account (also known as the financial account). The current account consists of the balance of trade, net primary income or factor income (earnings on foreign investments minus payments made to foreign investors) and net cash transfers, that have taken place over a given period of time. The current account balance is one of two major measures of a country's foreign trade (the other being the net capital outflow). A current account surplus indicates that the value of a country's net foreign assets (i.e. assets less liabilities) grew over the period in question, and a current account deficit indicates that it shrank. Both government and private payments are included in the calculation. It is called the current account because goods and services are generally consumed in the current period.

cyclical unemployment

Unemployment resulting from the business cycle. It is unpredictable.

D

deadweight loss

Also called excess burden or allocative inefficiency.

A loss of economic efficiency that occurs when the free-market equilibrium for a good or service is not achieved. Deadweight loss can be caused by monopoly pricing in the case of artificial scarcity, an externality, a tax or subsidy, or a compulsory price ceiling or price floor such as a minimum wage.

debt

Total money owed.

debtor

An entity that owes a debt to another entity. The entity may be an individual, a firm, a government, a company, or another legal person. The counterparty to which the debt is owed is called a creditor. When the counterparty of the arrangement is a bank, the debtor is more often referred to as a borrower.

deficit spending

Also called budget deficit or simply deficit.

The amount by which spending exceeds revenue over a particular period of time; it is the opposite of budget surplus. The term may be applied to the budget of a government, private company, or individual.

deflation

A decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0% (a negative inflation rate); though inflation reduces the value of currency over time, deflation increases it. This allows more goods and services to be bought than before with the same amount of currency. Deflation is distinct from disinflation, which occurs when the inflation rate decreases but is still positive.

deflator

A value that allows data to be measured over time in terms of some base period, usually through a price index, in order to distinguish between changes in the money value of a gross national product (GNP) that come from a change in prices, and changes from a change in physical output. It is the measure of the price level for some quantity. A deflator serves as a price index in which the effects of inflation are nulled. It is the difference between real and nominal GDP.

demand

The whole range of quantities that a person or group with a given income and preferences demands at various prices.

demand curve

A line on a graph that represents how much of a good or service buyers are going to consume at various prices.

demand deposit

Demand deposits, bank money or scriptural money are funds held in demand deposit accounts in commercial banks. These account balances are usually considered money and form the greater part of the narrowly defined money supply of a country.

demand shock

A sudden event that increases or decreases demand for goods or services temporarily.

demographic economics

Also called population economics.

The application of economic analysis to demography, the study of human populations, including size, growth, density, distribution, and vital statistics.

depreciation

The gradual decrease in the economic value of the capital stock of a firm, nation, or other entity, either through physical depreciation, obsolescence, or changes in the demand for the services of the capital in question. If the capital stock is $K_{t}$ in one period $t$, gross (total) investment spending on newly produced capital is $I_{t}$ and depreciation is $D_{t}$, the capital stock in the next period, $K_{t+1}$, is $K_{t}+I_{t}-D_{t}$. The net increment to the capital stock is the difference between gross investment and depreciation, and is called net investment.

depression

A sustained, long-term decrease in economic activity in one or more economies. It is a more severe economic downturn than a recession, which is a slowdown in economic activity over the course of a normal business cycle.

deregulation

The process of removing or reducing economic regulations, or the total repeal of governmental regulation of the economy. It became common in advanced industrial economies in the 1970s and 1980s, as a result of new trends in economic thinking about the inefficiencies of government regulation, and the risk that regulatory agencies would be controlled by the regulated industry to its benefit, and thereby hurt consumers and the wider economy.

diminishing marginal utility

A situation where each additional, or marginal, unit of a good or service that is consumed brings less utility than the previous unit.

diminishing returns

The decrease in the marginal (incremental) output of a production process as the amount of a single factor of production is incrementally increased, while the amounts of all other factors of production stay constant. The law of diminishing returns states that in all productive processes, adding more of one factor of production while holding all others constant ("ceteris paribus"), will at some point yield lower incremental per-unit returns. It does not imply that adding more of a factor will decrease the total production, a condition known as negative returns, though in practice this is common.

discretionary income

Money available after one pays taxes.

disinflation

A decrease in the rate of inflation; a slowdown in the rate of increase of the general price level of goods and services in an economy's gross domestic product over time. It is the opposite of reflation. Disinflation is also distinct from deflation, which occurs when the inflation rate is negative.

disposable income

Money available after one pays taxes and obligatory bill payments.

dissaving

Negative saving, which occurs when spending is greater than disposable income. This spending may be financed by already accumulated savings, such as money in a savings account, or it can be borrowed.

distribution

The way total economic output, income, or wealth is distributed among individuals or among the factors of production (such as labor, land, and capital). In general theory and the national income and product accounts, each unit of output corresponds to a unit of income.

domestic final demand (DFD)

See aggregate demand.

domestic final supply (DFS)

See aggregate supply.

duopoly

A situation in which there are exactly two suppliers for a particular good or service.

dynamic stochastic general equilibrium (DSGE)

Also abbreviated DGE and SDGE.

A method in macroeconomics that attempts to explain economic phenomena, such as economic growth and business cycles, and the effects of economic policy, through econometric models based on applied general equilibrium theory and microeconomic principles.

E

econometrics

The application of statistical methods to economic data in order to give empirical content to economic relationships. More precisely, it is "the quantitative analysis of actual economic phenomena based on the concurrent development of theory and observation, related by appropriate methods of inference".

economic costs

Total costs, including money spent on production and opportunity costs.

economic development

Broad improvement in the economic well-being or quality of life of a nation, region, or community, often but not necessarily as a consequence of economic growth.

economic efficiency

economic equilibrium

A situation in which economic forces such as supply and demand are balanced and in which, in the absence of external influences, the values of economic variables do not change. For example, in the standard textbook model of perfect competition, equilibrium occurs at the point at which quantity demanded and quantity supplied are equal. Market equilibrium in this case is a condition in which a market price is established through competition such that the amount of goods or services sought by buyers is equal to the amount of goods or services produced by sellers. This price is often called the competitive price or market clearing price and will tend not to change unless demand or supply changes, and the quantity is called the "competitive quantity" or market clearing quantity. However, the concept of equilibrium in economics also applies to imperfectly competitive markets, where it takes the form of a Nash equilibrium.

economic growth

An increase in the inflation-adjusted market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP.

economic indicator

Any measurable unit of the economy which helps economists assess the past or make predictions about the future, such as unemployment rate and gross domestic product.

economic interdependence

The existence of necessary relationships between different sectors of the economy and how the decisions and actions of one will impact the others.

economic model

A theoretical construct representing an economic process by a set of variables and a set of logical and/or quantitative relationships between them. Economic models are usually simplified, often mathematical, frameworks designed to illustrate complex processes. Frequently, economic models posit structural parameters. A model may have various exogenous variables, and those variables may change to create various responses by economic variables. Methodological uses of models include investigation, theorizing, and fitting theories to the world.

economic profits

Also called economic rent.

Any monies collected by a firm above and beyond what is required to keep an entrepreneur owner interested in continuing in business.

economic rent

See economic profits.

economic shortage

Also called excess demand.

A situation in which the demand for a particular good or service exceeds its supply within a particular market. A shortage is the opposite of a surplus.

economic surplus

Also called excess supply.

A situation in which the supply of a good or service exceeds its demand within a particular market, often as a result of the current price being below the economic equilibrium.

economic system

Also called an economic order.

A system of production, resource allocation, and distribution of goods and services within a society or a given geographic area. It includes the combination of the various institutions, agencies, entities, decision-making processes, and patterns of consumption that comprise the economic structure of a given community. As such, an economic system is a type of social system. The mode of production is a related concept. All economic systems have three basic questions to ask: what to produce, how to produce it, and in what quantities and who receives the output of production.

economics

The social science that studies the production, distribution, and consumption of goods and services within economies.

economies of agglomeration

economies of scale

The cost advantages that enterprises obtain as a result of the increased efficiency offered by a certain scale of operation (typically measured by amount of output produced), with cost per unit of output decreasing with increasing scale. At the basis of economies of scale there may be technical, statistical, organizational, or related factors to the degree of market control.

economies of scope

The cost advantages that enterprises obtain as a result of the increased efficiency offered by variety rather than by volume, with cost per unit of output decreasing with increasing variety. In economics, "scope" is synonymous with broadening production through diversified products. For example, a gas station that sells gasoline can also sell soda, milk, baked goods, etc. through their customer service representatives, which may make the sale of gasoline more efficient.

economist

A practitioner in the discipline of economics.

economy

An area of the production, distribution, trade, and consumption of goods and services by different agents. In its broadest sense, an economy may be defined as "a social domain that emphasizes the practices, discourses, and material expressions associated with the production, use, and management of resources".

effective demand

elastic demand

Demand that is sensitive to changes in price, such that changes in price have a relatively large effect on the quantity of the good demanded. Contrast inelastic demand.

elasticity

The measurement of the proportional change of an economic variable in response to a change in another. Colloquially, elasticity is often interpreted as how easy it is for a supplier or consumer to change their behavior and substitute another good, the strength of an incentive over choices per the relative opportunity cost.

engineering economics

Previously known as engineering economy, is a subset of economics concerned with the use and "...application of economic principles" in the analysis of engineering decisions.

entrepreneurship

The efforts by a person, known as an entrepreneur, in organizing resources for the creation of something new or taking risks to create new innovations and production.

environmental economics

A sub-field of economics concerned particularly with environmental issues.

equal opportunity

A state of fairness in which job applicants are treated similarly, unhampered by artificial barriers or prejudices or preferences, except when particular distinctions can be explicitly justified.

equilibrium

The point at which quantity demanded and quantity supplied are equal and both consumer and producer are satisfied.

equilibrium price

The market price at which both the supplier and consumer will trade and both are satisfied.

equity

Also called economic equality.

The concept or idea of fairness in economics, particularly in regard to taxation or welfare economics. More specifically, it may refer to equal life chances regardless of identity, to provide all citizens with a basic and equal minimum of income, goods, and services or to increase funds and commitment for redistribution.

excess supply

Also called economic surplus.

A situation in which the quantity of a good or service supplied is more than the quantity demanded, and the price is above the equilibrium level determined by supply and demand; that is, the quantity of the product that producers wish to sell exceeds the quantity that potential buyers are willing to buy at the prevailing price. It is the opposite of an economic shortage.

exchange rate

The rate at which one currency is exchanged for another. It is also commonly regarded as the value of one country's currency relative to another currency.

excludability

expected utility hypothesis

expeditionary economics

An emerging field of economic enquiry that focuses on the rebuilding and reconstructing of economies in post-conflict nations and providing support to disaster-struck nations. It focuses on the need for good economic planning on the part of developed nations to help prevent the creation of failed states. It also emphasizes the need for the structuring on new firms to rebuild national economies.

experimental economics

externality

A cost or benefit that falls not on the person(s) directly involved in an activity, but on others. Externalities can be positive or negative.

F

factors of production

Inputs (resources) used to create goods and services, including land, labor, capital, and entrepreneurship.

federal funds rate target

Federal Open Market Committee (FOMC)

The twelve-member committee of the United States Federal Reserve that meets several times a year to decide the course of action that should be taken to control the money supply of the United States.

Federal Reserve System

Often simply the Federal Reserve or the Fed.

The central bank of the United States, created by Congress in 1913 and charged with the duty of regulating the money supply and monitoring its member banks.

finance

The study of money and how it is used. Specifically, it deals with the questions of how an individual, company, or government acquires the money needed – called capital in the company context – and how they then spend or invest that money. Finance is often split into three areas: personal finance, corporate finance, and public finance. At the same time, finance is about the overall "system", i.e. the financial markets that allow the flow of money, via investments and other financial instruments, between and within these areas; this "flow" is facilitated by the financial services sector. A major focus within finance is thus investment management — called money management for individuals, and asset management for institutions — and finance then includes the associated activities of securities trading, investment banking, financial engineering, and risk management.

financial economics

financial institution

Any firm, such as a bank, that is in the business of holding money for those who save and lending money to those who need loans.

financial markets

Markets where people trade the property rights to assets (like real estate or stocks) or where savers lend money to borrowers.

financial planning

A series of steps used by a person or a firm to achieve a financial goal.

financial risk

The risk assumed by a saver or investor on future outcomes that involve financial losses and gains.

financial transaction

An agreement or communication carried out between a buyer and a seller to exchange an asset for payment.

fiscal policy

A government’s policy on taxes and spending.

fixed costs

Costs that have to be paid even if a firm is not producing anything.

foreign exchange market

Also called the currency market or abbreviated Forex or FX.

A global decentralized or over-the-counter market for the trading of currencies. This market determines the foreign exchange rate. It includes all aspects of buying, selling and exchanging currencies at current or determined prices. In terms of trading volume, it is by far the largest market in the world, followed by the credit market.

free market

An economic system in which the prices for goods and services are self-regulated by the open market and by consumers. In a free market, the laws and forces of supply and demand are free from any intervention by a government or other authority and from all forms of economic privilege, monopolies, and artificial scarcities. Proponents of the concept of the free market contrast it with a regulated market in which a government intervenes in supply and demand through various methods such as tariffs used to restrict trade and to protect the local economy. In an idealized free-market economy, prices for goods and services are set freely by the forces of supply and demand and are allowed to reach their point of equilibrium without intervention by government policy.

free trade

Trade between countries that occurs with few or no trade barriers.

frictional unemployment

Unemployment that is a result of workers moving from one job to another, as opposed to structural unemployment.

full employment

full employment output (Y*)

How much output is produced in the economy when full employment exists in the labor market.

functions of money

The four classic functions or uses of money as summarized by William Stanley Jevons in 1875: a medium of exchange, a common measure of value (or unit of account), a standard of value (or standard of deferred payment), and a store of value. This analysis later became a fundamental concept of macroeconomics. Most modern textbooks now list only three functions, that of medium of exchange, unit of account, and store of value, not considering a standard of deferred payment as a distinguished function, but rather subsuming it in the others.

future value

G

GDP deflator

general equilibrium theory

gift economy

good

government revenue

The total revenue received by all three levels of government (federal, state, and local) in the form of taxes and tariffs.

government spending

The total expenditure made by all three levels of government (federal, state, and local) for public services.

gross domestic product (GDP)

The value of all goods and services produced in the economy in a given period of time, usually a quarter or a year.

growth recession

A situation in which economic growth is slow but not low enough to be a recession, yet unemployment still increases.

H

health economics

heterodox economics

household

The sector of the economy which purchases goods from the product market and sells labor, land, and entrepreneurship ability to the factor market in the circular flow market.

housing starts

The number of new houses being built during a period of time.

human capital

The knowledge and skills that people use to help them produce output.

hyperinflation

Inflation which occurs at an extremely high rate, usually in excess of 20 or 30 per cent per month.

I

implicit cost

import quota

import

incentive

income

income distribution

income effect

The change in consumption resulting from a change in income.

increasing returns

A situation where each additional amount of a resource used in a production process brings forth successively larger amounts of output.

indifference curve

Individual Retirement Account (IRA)

A retirement (savings) instrument that allows a person to save money through time while deferring taxes on that income until retirement.

industrial organization

industry

A sector of the economy in which different firms produce similar or identical goods or services.

inelastic demand

Demand that is not very sensitive to changes in price, such that changes in price have a relatively small effect on the quantity of the good demanded. Contrast elastic demand.

inflation

When the overall level of prices in the economy is rising.

inflation rate

A measure of how the overall level of prices in the economy changes over time. If the inflation rate is positive, prices are rising; if the inflation rate is negative, prices are falling.

information economics

interest

interest rate

The price you have to pay to borrow money.

international economics

intertemporal choice

inventory bounce

investment

Any increase in the economy's stock of capital.

investment fund

invisible hand

Adam Smith’s famous idea that when constrained by competition, each firm’s greed causes it to act in a socially optimal way, as if guided to do the right thing by an invisible hand.

IS–LM model

J

JEL classification codes

job hunting

joint product pricing

just price

A theory of ethics which attempts to set standards of fairness for economic transactions.

K

Keynesian economics

Also called Keynesianism.

A diverse set of macroeconomic theories about how in the short run (and especially during recessions) economic output can be strongly influenced by the total amount of spending that occurs within an economy, known as aggregate demand. Keynesian economists generally argue that because aggregate demand is often unstable and behaves erratically, it does not necessarily or predictably equal the aggregate supply, which can cause market economies to experience inefficient macroeconomic outcomes in the form of recessions (when demand is low) and inflation (when demand is high), and that these outcomes can be mitigated by monetary policy actions by a central bank and fiscal policy actions by a government authority, which can help stabilize output over the business cycle.

L

labor

labor economics

laissez-faire

Law of Demand

An economic rule stating that quantity demanded and price move in opposite directions, i.e. as demand increases, price decreases, and vice versa.

Law of Diminishing Marginal Utility

An economic rule stating that the additional satisfaction a consumer gets from purchasing one more unit of a product will decrease with each additional unit purchased.

law of increasing costs

law of supply

lease

lending

leprechaun economics

Distortion of national accounts data by corporate tax schemes.

liability

Financial responsibility for something.

loan

local tax

Any tax paid to a city or county, e.g. sales taxes, school taxes, or property taxes.

long run

long-run shutdown condition

A situation where a firm’s total revenues exceed its variable costs but are less than its total costs. The firm continues to operate until its fixed cost contracts expire.

long-term financing

loose money policy

A monetary policy that makes credit inexpensive and abundant, possibly leading to inflation.

MINING ECO OMI S

macroeconomics

The study of the economy as a whole, concentrating on economy-wide factors such as interest rates, inflation, and unemployment. Macroeconomics also encompasses the study of economic growth and how governments use monetary and fiscal policy to try to moderate the harm caused by recessions.

major trading partner

In international trading, a country or group of countries with which one country trades more than with others.

managerial economics

marginal cost

The additional increase in total cost when one more unit of output is produced.

marginal product of labor

marginal propensity to consume

marginal revenue

The additional income earned from selling one more unit of a good; sometimes equal to price.

marginal utility

The change in total utility that results from consuming the next unit of a good or service. Marginal utility can be positive or negative.

marginal value

marginalism

market

market basket

A bundle of goods and services selected to measure inflation. Economists define a market basket, such as the Consumer Price Index, and then track how much money it takes to buy this basket from one period to the next.

market economy

An economy in which almost all economic activity happens in markets, with little or no interference by the government; often referred to as a laissez-faire ("leave alone") economic system.

market failures

Situations where markets deliver socially non-optimal outcomes. Two common causes of market failure are asymmetric information and public goods.

market structure

The structure of a market as a whole, taking into consideration two main factors: the number of firms in the market and whether goods offered are identical, similar, or differentiated.

market production

Term that economists use to capture what happens when one individual offers to make or sell something to another individual at a price agreeable to both.

market system

markets

Places where buyers and sellers come together to trade money for a good or service.

mercantilism

microeconomics

A branch of economics that studies individual people and individual businesses. For people, microeconomics studies how they behave when faced with decisions about where to spend their money or how to invest their savings. For businesses, it studies how profit-maximising firms behave individually, as well as when competing against each other in markets.

monetarism

A school of thought in monetary economics which emphasizes the role of governments in controlling the amount of money in circulation (the money supply). Monetarists assert that variations in the money supply have major influences on national output in the short run and on price levels over longer periods, and that the objectives of monetary policy are best met by targeting the growth rate of the money supply rather than by engaging in discretionary policy.

monetary economics

monetary policy

Using changes in the money supply to change interest rates in order to stimulate or slow down economic activity.

monetary system

money

Anything customarily used as a medium of exchange, a unit of accounting, and a store of value.

money supply

monopolistic competition

A situation in which many firms with slightly different products compete. Production costs are above what may be achieved by perfectly competitive firms, but society benefits from the product differentiation.

monopoly

A firm with no competitors in its industry. A monopoly firm produces less output, has higher costs, and sells its output for a higher price than it would if constrained by competition.

monopsony

mortgage

motivation

multiplier

mutual fund

N

Nash equilibrium

national tax

Any tax paid to a national or federal government, e.g. income tax, tariffs, and social security taxes.

national wealth

The total value of capital and private property that is owned within a country.

natural monopoly

An industry in which one large producer can produce output at a lower cost than many small producers. It undersells its rivals and ends up as the only firm surviving in its industry.

natural resource economics

need

Any good or service that is fundamentally necessary for survival, such as food, clothing, and shelter.

nominal interest rates

Interest rates that measure the returns to a loan in terms of money borrowed and money returned (as opposed to real interest rates).

nominal prices

Money prices, which can change over time due to inflation. (See also real prices.)

nominal wages

Wages measured in money. (See also real wages.)

non-convexity

non-price determinant of demand

Any reason other than price that changes the will to buy a good or service, for example, fads, income, taste, future expectation, and population.

non-rivalry

O

oligopoly

An industry with only a few firms. If these firms collude, they form a cartel, which may reduce output and drive up profits in the same way a monopoly does.

oligopsony

open-market operations

The buying and selling of government bonds by a central bank; that is, transactions that take place in the public, or open, bond market.

opportunity cost

The value of the next best alternative thing that could have been done. It measures what is given up in order to do the most preferred thing.

organizational economics

P

Pareto efficiency

Also called Pareto optimality.

participation

partnership

A business that two or more individuals own and operate together.

per capita

A unit of account per person, usually placed at the end of an economic indicator.

perfect competition

A situation where numerous small firms producing identical products compete against each other in a given industry. Perfect competition leads to firms producing the socially optimal output level at the minimum possible cost per unit.

personal property

Possessions such as jewelry, furniture, and real estate that people can amass through time.

physical capital

All human-made goods that are used to produce other goods and services, such as tools, machines, and buildings.

physiocracy

population economics

See demographic economics.

preference

price

The amount of money it takes to buy a product or produce a product.

price ceiling

A market intervention in which the government ensures that the price of a good or service stays below the free market price.

price controls

price elasticity of demand

price elasticity of supply

price floor

A market intervention in which the government keeps the price of a good or service above its free-market price.

price index

A normalized average of price relatives for a given class of goods or services in a given region and during a given period of time. It is a statistic designed to help to compare how these price relatives, taken as a whole, differ between geographical locations or time periods. Notable price indices include consumer price index, producer price index, and GDP deflator.

price level

pricing

prime rate

Also called the prime lending rate.

The interest rate at which a bank will agree to lend to customers with good credit. Floating interest rates are often expressed as a percentage above or below the prime rate.

producer

An entity, either a person or firm, which supplies goods or services.

producer price index

producer surplus

The gain that producers receive when they can sell their output at a price higher than the minimum amount for which they are willing to make it.

product differentiation

production

production possibilities curve

A graph showing the maximal combinations of goods and services that can be produced from a fixed amount of resources in a given period of time.

productive efficiency

A term describing firms that produce goods and services at the lowest possible cost.

production set

profit

profit motive

progressive tax

A tax schedule that states that the more income one earns, the higher the tax rate will be.

proportional tax

Also called a flat tax.

A tax schedule that states that regardless of income, the same tax rate will be applied to all income earners.

proxemics

public economics

Or economics of the public sector, is the study of government policy through the lens of economic efficiency and equity. Public economics builds on the theory of welfare economics and is ultimately used as a tool to improve social welfare.

public good

Goods or services that cannot be profitably produced by private firms because they are impossible to provide to just one person; if you provide them to one person, you have to provide them to everybody. Public goods non-excludable (you can’t prevent anyone from consuming them) and non-rival (it costs no extra to supply one extra person).

pure competition

purchasing power parity (PPP)

Q

quantitative easing (QE)

quantity demanded

The amount of a good or service that a consumer is able and willing to purchase at a given price based on their income and preferences.

quantity supplied

The amount of a good or service that a supplier is able and willing to produce at a given market price.

quantity theory of money

The theory that the overall level of prices in the economy is proportional to the quantity of money circulating in the economy.

quota

A limited quantity of a product that can be produced, imported, or exported.

R

rate of profit

rational choice

The idea of making choices by using logic and that people will choose the most beneficial of the options afforded.

rational expectations

The theory that people optimally change their behaviour in response to policy changes. Depending on the situation, their behavioural changes can greatly limit the effectiveness of policy changes.

rationing

real income effect

The change in consumption resulting from a change in income, adjusted for inflation.

real interest rates

Interest rates that compensate for inflation by measuring the returns to a loan in terms of units of stuff lent and units of stuff returned (as opposed to nominal interest rates).

real GDP

Gross domestic product that has been adjusted for inflation by applying the price deflator.

real prices

How much of one kind of thing (such as hours worked) you have to give up to get a good or service, no matter what happens to nominal prices.

real wages

Wages measured not in terms of money itself (as nominal wages are) but rather in terms of how much output that money can buy.

recessions

Part of the business cycle during which an economy's total output falls.

recoveries

Part of the business cycle during which an economy’s total output expands.

reflation

regional science

regressive tax

A tax schedule that states that the more income one earns, the lower the tax burden.

regulation

Government restrictions on a business firm.

retail sales

Purchases of finished goods and services by households and firms.

returns to scale

revenue

Total income from sales of output.

rights

right to work law

A state law forbidding labor unions from forcing workers to join and pay union dues.

risk aversion

risk-return relationship

The direct relationship between the risk of an investment and its expected return or profit; the higher the risk, the higher the opportunity for gain or loss and vice versa.

rivalry

S

saving

scarcity

Any situation in which people do not have enough resources to satisfy all of their wants. The phenomenon of scarcity is what creates the need for economics.

sector

A portion or component of the larger economy, such as households, firms, or the government.

service

service economy

shift work

short run

shortage

short-run shutdown condition

A situation in which a firm’s total revenues are less than its variable costs, and the firm is better off shutting down immediately and losing only its fixed costs.

shrinkflation

social behavior

social choice theory

social mobility

socialist economics

sociality

socially optimal output level

The output level that maximises the benefits that society can get from its limited supply of resources.

socioeconomics

Also called social economics.

sole proprietorship

A business owned and operated by one person.

stagflation

A simultaneous economic phenomenon during which inflation and unemployment are both rising.

standard of living

state tax

Any tax paid to a state government, e.g. sales taxes, state income tax, and license plate fees.

sticky prices

Prices that are slow to adjust to shocks. Price stickiness can cause recessions to linger.

Stockholm School

structural unemployment

Unemployment created due to a decrease in demand for the skills of a worker.

substitution effect

When consumers react to an increase in a good's price by consuming less of that good and more of other goods.

substitute good

A product that can satisfy the utility of another.

sunk costs

supply

The total amount of a certain type of good that has been produced and is available.

supply and demand

An economic model of markets that separates buyers from sellers and then summarises each group’s behaviour with a single line on a graph. The buyers’ behaviour is captured by the demand curve, whereas the sellers’ behaviour is captured by the supply curve. By putting these two curves on the same graph, economists can show how buyers and sellers interact in markets to determine how much of any particular item is going to be sold, as well as the price at which it is likely to be sold.

supply chain

supply curve

A line on a graph that represents how much of a good or service sellers are going to produce at various prices.

supply schedule

A chart that lists how much of a good a supplier will offer at different prices.

supply shock

A sudden shortage of a good.

supply-side economics

surplus

T

tariff

tax

tax rate

terms of trade

The rules that countries impose on each other in order to trade with each other.

theory of the firm

thermoeconomics

time value of money

total cost

total surplus

The sum of producer surplus and consumer surplus.

trade

traditional economy

An economy in which production and distribution are handled along the lines of long-standing cultural traditions.

transaction cost

a cost in making any economic trade when participating in a market.

transport economics

trough

U

underemployment

Working at a job for which one is overqualified, or working part-time when full-time work is desired.

unemployment

Under-utilization of any factor of production, most commonly referring to labor.

unit of account

unitary elastic

unskilled labor

Labor that requires no specialized skills, education, or training to perform.

urban economics

utilitarianism

utility

The usefulness of a good or service in satisfying a need or a want.

V

value

value-added tax (VAT)

variable costs

Any cost that changes in proportion to the amount of goods or services that a firm produces. Variable costs are also the sum of marginal costs over all units produced.

velocity of money

Also called the velocity of circulation of money.

Refers to how fast money passes from one holder to the next. It can refer to the income velocity of money, which is the frequency with which the average same unit of currency is used to purchase newly domestically produced goods and services within a given time period. In other words, it is the number of times one unit of money is spent to buy goods and services per unit time.

W

wage

The monetary compensation (or remuneration, personnel expenses, labor) paid by an employer to an employee in exchange for work done. Payment is typically calculated as a fixed amount for each task completed (a task wage or piece rate), or at an hourly or daily rate (wage labour), or based on some other easily measured quantity of work done.

want

Wants are often distinguished from needs. A need is something that is necessary for survival (such as food and shelter), whereas a want is simply something that a person would like to have. Some economists have rejected this distinction and maintain that all of these are simply wants, with varying levels of importance. By this viewpoint, wants and needs can be understood as examples of the overall concept of demand.

wealth

The abundance of valuable financial assets or physical possessions which can be converted into a form that can be used for transactions. This includes the core meaning as held in the originating old English word weal, which is from an Indo-European word stem. The modern concept of wealth is of significance in all areas of economics, especially for growth economics and development economics, yet the meaning of wealth is context-dependent. Individuals or companies possessing a substantial net worth are often referred to as wealthy. Net worth is defined as the current value of one's assets less liabilities (excluding the principal in trust accounts).

wealth effect

The change in spending that accompanies a change in perceived wealth. Usually the wealth effect is positive: spending changes in the same direction as perceived wealth.

welfare

A type of government support for the citizens of that society. Welfare may be provided to people of any income level, as with social security (and is then often called a social safety net), but it is usually intended to ensure that people can meet their basic human needs such as food and shelter. Welfare attempts to provide a minimal level of well-being, usually either a free- or a subsidized-supply of certain goods and social services, such as healthcare, education, and vocational training.

welfare economics

A branch of economics that uses microeconomic techniques to evaluate well-being (welfare) at the aggregate (economy-wide) level.

willingness to accept (WTA)

The minimum amount of money that а person is willing to accept to abandon a good or to put up with something negative, such as pollution. It is equivalent to the minimum monetary amount required for sale of a good or acquisition of something undesirable to be accepted by an individual.

willingness to pay (WTP)

The maximum price at or below which a consumer will definitely buy one unit of a product. This corresponds to the standard economic view of a consumer reservation price. Some researchers, however, conceptualize WTP as a range.

Y

yield

In finance, the yield on a security is the amount of cash (in percentage terms) that returns to the owners of the security, in the form of interest or dividends received from it. Normally, it does not include the price variations, distinguishing it from the total return. Yield applies to various stated rates of return on stocks (common and preferred, and convertible), fixed income instruments (bonds, notes, bills, strips, zero coupon), and some other investment type insurance products (e.g. annuities).

Z

zero-sum game

In game theory and economic theory, a zero-sum game is a mathematical representation of a situation in which each participant's gain or loss of utility is exactly balanced by the losses or gains of the utility of the other participants. If the total gains of the participants are added up and the total losses are subtracted, they will sum to zero. Thus, cutting a cake, where taking a larger piece reduces the amount of cake available for others as much as it increases the amount available for that taker, is a zero-sum game if all participants value each unit of cake equally (see marginal utility).

See also

• Outline of economics
• Index of economics articles