Economics Resource Guide Glossary

Comprehensive vocabulary flashcards covering key microeconomic and macroeconomic terms, concepts, regulatory bodies, and formulas from the 2026–2027 Economics Resource Guide.

Administered rates

Interest rates that the Fed sets or administers to affect the policy rate (Fed funds rate) and overall economic conditions; these rates include the interest on reserve balances rate (IOR) and the discount rate.

Aggregate demand curve

A graphical depiction of the relationship between the level of desired expenditures in an economy and the price level.

Aggregate supply curve

A graphical depiction of the relationship between the quantity of goods and services firms wish to supply and the price level.

American Society of Civil Engineers (ASCE)

A professional organization for civil engineers in the United States; ASCE is well known for its "Infrastructure Report Card," which grades the condition of U.S. roads, bridges, and other public works.

Ample reserve policy

The use of the Fed’s administered rates to affect the policy rate (Fed funds rate) and overall financial conditions; most effective when the supply of bank reserves is at a level where small changes to the supply do not affect the demand for reserves. This has been the official monetary policy of the U.S. since 2008.

Average labor productivity

Total output divided by the quantity of labor employed in its production.

Bank run

A sudden rush of depositors seeking to withdraw funds from the banking system.

Barriers to entry

Conditions that prevent firms from freely entering or exiting a market.

Benefit-cost analysis (BCA)

A method used to decide whether a project is worth doing by comparing its total expected benefits with its total expected costs.

Benefit-cost ratio (B/C ratio)

The total benefits of a project divided by its total costs.

Business cycle

Fluctuations in aggregate economic activity.

Capital

One of three factors of production; in classical economics, capital refers to money or physical assets, such as plows or mature tree crops.

Capital costs

Large, one-time expenses needed to build or buy long-lasting facilities and equipment.

Capital goods

Long-lived goods that are themselves produced and are used to produce other goods and services, but are not used up in the production process.

Cartel

A group of firms that collude in a given market to restrain competition, often making quota arrangements among themselves.

Civil Aeronautics Board

A U.S. federal agency that regulated commercial airlines from 1938 to 1985; it controlled routes, approved fares, and decided which airlines could enter certain markets.

Clean Air Act

A 1970 act that authorized the development of comprehensive federal and state regulations to limit emissions from both stationary (industrial) sources and mobile sources.

Coase Theorem

The proposition that if private parties can bargain without cost over the allocation of resources, then they can solve the problem of externalities on their own.

Comparative advantage

The ability to produce a good or service at a lower opportunity cost than other producers.

Competitive market

A market with many buyers and sellers trading a homogenous good or service in which each buyer and seller is a price taker.

Complements

Two goods for which a rise in the price of one leads to a decline in the demand for the other.

Congestion pricing

A policy that charges higher fees to use roads when they are most crowded to manage congestion.

Consumer Price Index (CPI)

An index constructed by comparing the cost of purchasing a fixed basket of goods at different times.

Consumer surplus

The difference between the amount that a buyer would be willing to pay for a good or service and the price actually paid.

Consumption

Spending by households on goods and services, with the exception of the purchase of new housing.

Crowding out

The decrease in private investment that occurs as a result of a reduction in government saving or an increase in government borrowing.

Currency

Coins and bills in the hands of the public.

Cyclical unemployment

Unemployment caused by deviations of output from its potential level.

Deadweight loss

The reduction in total surplus that results from a market distortion such as a tax.

Demand curve

A graphical representation of the quantity of a good or service demanded as a function of the price.

Demand schedule

A table showing the relationship between the price of a good or service and the quantity demanded.

Depression

A severe recession.

Deregulation

The process of reducing or removing government rules and restrictions on businesses or industries, usually to allow more competition and market freedom.

Derived demand

Demand for a good or service that exists only because it helps satisfy the demand for something else.

Design–bid–build (DBB)

A traditional project delivery method where an owner first hires a designer to create detailed plans, then solicits bids from contractors, and finally awards construction to the lowest responsible bidder.

Diminishing returns to scale

The property whereby each additional increase in inputs results in a smaller increase in the quantity produced.

Discount rate

The interest rate used to convert future costs and benefits into their present value.

Discrete choice model

A type of mathematical model used to predict the decisions people make when choosing between a set of distinct options.

E-commerce

The buying and selling of goods and services over the internet.

Economic impact

The effect an activity, project, or policy has on the economy, measured through changes in jobs, income, business activity, or overall growth in a community, region, or country.

Economic impact analysis (EIA)

A study that measures how a project, policy, or event affects the economy of a region, often by estimating changes in jobs, income, spending, and business activity.

Economic indicators

Statistics that show the overall health and direction of an economy, such as unemployment rates, inflation, gross domestic product (GDP), and consumer spending.

Economic profit

The difference between the revenue realized by a producer and the opportunity cost of production.

Economic regulation

Government rules that control prices, entry, or services in an industry to limit monopoly power, ensure fair competition, or protect consumers.

Economies of agglomeration

The cost savings and productivity gains that occur when people, firms, and institutions locate close to one another.

Economies of density

The cost savings and productivity gains that occur from increased intensity of use.

Elastic demand

Demand that changes a lot in response to a change in price.

Elasticity

The percentage change in quantity demanded or supplied as a result of a one percent change in price.

Entrepreneur

An individual who takes on the risk of attempting to create new products or services, establish new markets, or develop new methods of production.

Environmental Protection Agency (EPA)

A U.S. federal agency created in 1970 to protect human health and the environment.

Equilibrium

A situation in which the forces in a system are in balance so that the situation is stable and unchanging.

Excludability

The ability to prevent buyers from enjoying the benefits of consuming a good or service without paying for it.

Excludable good

A good that an individual can prevent another individual from using.

Expansion

A period between a trough and a peak in economic activity.

External costs

Costs created by an activity that are not paid by the person or business doing it but instead fall on others or on society.

Externality

When the action of one person affects the well-being of someone else, but where neither party pays nor is paid for these effects.

Federal funds rate

The rate that banks charge other banks when they lend reserves.

Final goods

Goods or services that are purchased by their ultimate user.

Financial markets

The institutions through which individuals with savings can supply these funds to persons or firms that wish to borrow money to purchase consumption goods or invest in physical capital.

First-best pricing

A pricing rule where goods or services are sold at their marginal cost, leading to the most efficient use of resources.

Fiscal policy

The use of taxes and spending to influence aggregate demand and through it the level of overall economic activity.

Fixed cost

A cost of production that is independent of the quantity produced; costs that do not change with the amount of output or usage.

Foreign direct investment

When a company or individual acquires assets in a foreign country that they will manage directly.

Frictional unemployment

Unemployment that results because it takes time for workers to search for the jobs that are best suited to their tastes and skills.

Gains from trade

The benefits that both individuals or nations realize from mutually beneficial exchange.

Generalized cost

The total cost of a trip that includes not just money spent, but also the time spent traveling.

Government purchases

Spending on goods and services by federal, state, and local governments.

Gross Domestic Product (GDP)

The market value of final goods and services produced in an economy during a specified period of time.

Gross Domestic Product (GDP) per capita

Estimate of national output (gross domestic product), divided by the population; its key advantage as a measure of economic performance is in giving an average level of income per person, which can be compared between countries.

High-occupancy toll (HOT) lanes

A special highway lane that vehicles with two or more people can use for free, but for which solo drivers must pay a toll.

Human capital

Skills and experience that are acquired through education, training, and on-the-job experience that increase a worker’s productivity; considered an important factor in facilitating improvements in productivity and economic growth.

Imperfect competition

The case of a market with a small number of sellers, so that sellers have market power.

Inferior good

A good for which the quantity demanded falls as buyers’ income increases.

Inelastic demand

Demand that changes very little in response to a change in price.

Inflation

A general increase in prices.

Institutions

The “rules of the game” in a society, which shape the costs and benefits of economic decisions.

Interest on reserve balances rate (IOR)

The interest rate that the Fed pays banks to hold money in their reserves; this rate serves as a “floor” for the policy rate (Fed funds rate) and is the primary tool of monetary policy in the U.S.

Intermediary

A third party who acts as a link between two others who wish to transact business.

Intermediate good

A good or service that is used in the process of producing other goods and services.

Internal costs

The costs directly paid by a person or business when producing or using a good or service.

Internal rate of return (IRR)

The discount rate at which a project’s net present value (NPV) equals zero.

Inter-regional and international trade

The exchange of goods and services either between regions within a country (inter-regional) or between different countries (international).

Interstate Commerce Commission

The first federal regulatory agency in the United States; created in 1887 to oversee railroads and later expanded to regulate trucking, buses, and other carriers; abolished in 1995, with its remaining functions transferred to the Surface Transportation Board.

Investment

Spending on capital equipment, inventories, and structures, including household purchases of new housing.

Keynesian model

A model of short-run aggregate economic fluctuations inspired by the analysis of British economist John Maynard Keynes, which attributes short-run deviations in output from potential to variations in the level of aggregate demand or aggregate supply.

Labor force

The sum of those individuals who are employed and those who are seeking paid work but have not found it.

Labor force participation rate

The fraction of the working-age population who are in the labor force.

Law of demand

Holding other things equal, the quantity demanded is negatively related to the price.

Law of supply

Holding other things equal, the quantity supplied is positively related to the price.

Limited reserve policy

The use of the required reserve ratio, the discount rate, and open market operations by the central bank to manage the money supply in order to affect overall financial conditions; the official monetary policy of the U.S. prior to 2008.

Limited reserve system

A banking system where the banks are required to hold a specified amount of reserves (the required reserve ratio); if banks do not meet the reserve requirement, they must borrow from other banks or the central bank.

Liquidity

The ease with which a nonmonetary asset may be converted into money.

Logrolling

The practice of elected officials trading votes.

Marginal cost

The additional cost of producing or serving one more unit of a good or service.

Marginal cost pricing

See definition for first-best pricing (a pricing rule where goods or services are sold at their marginal cost, leading to the most efficient use of resources).

Marginal revenue

The additional money a business earns from selling one more unit of a good or service.

Market failure

Any situation in which a market does not do what market theorists believe it should—allocate goods and services efficiently; externalities and monopoly/oligopoly are two commonly discussed failures.

Market power

A situation in which one firm, or a group of them acting as a cartel, can control prices in a market, often by restricting output.

Mergers and acquisitions

When two companies combine into one (a merger) or when one company buys another (an acquisition).

Minimum accepted rate of return (MARR)

The lowest rate of return that an organization or investor is willing to accept for a project to be considered worthwhile.