glossary

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.

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

A model of an economy showing the interactions between households and business firms as they exchange goods and services

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.

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. I

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 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.

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 years.

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 GDP.

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.

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 country.

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 value.

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.

Goods

Objects that can satisfy people's wants.

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 firms.

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 money.

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 per year.

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 services.

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.

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

he 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 years.

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.

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 and services.

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 and buildings.

Public goods

A commodity whose benefits are indivisibly spread among the entire community, whether or not particular individuals desire to consume the public good.

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 productive resources).

Revenue

Payments received by businesses from selling goods and services.

Sales tax

Taxes paid on the goods and services people buy.

Save

Set aside earnings (income) for a future use.

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 people's wants.

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 workers).

Specialization

The situation in which people produce a narrower range of goods and services than they consume.

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 time period.

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 good

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 quantity demanded.

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 thing.