Essential Economics Glossary Flashcards

A complete glossary of flashcards covering key microeconomics and macroeconomics definitions from the provided lecture notes.

Equilibrium Price

The price where quantity demanded is equal to quantity supplied.

Equilibrium Quantity

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

Excess Demand (Shortage)

At the existing price, the quantity demanded exceeds the quantity supplied.

Excess Supply (Surplus)

At the existing price, quantity supplied exceeds the quantity demanded.

Inferior Good

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

Law of Demand

The common relationship that a higher price leads to a lower quantity demanded of a good or service, and a lower price leads to a higher quantity demanded, all else equal.

Law of Supply

The common relationship that a higher price leads to a greater quantity supplied and a lower price leads to a lower quantity supplied, all else equal.

Nondurable Good

A short-lived good like food and clothing.

Durable Good

A long-lasting good like a car or a refrigerator.

Normal Good

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

Price Ceiling

A legal maximum price set by the government.

Price Control

Government laws to regulate prices instead of letting market forces determine prices.

Price Floor

A legal minimum price set by the government.

Producer Surplus

The extra benefit producers receive from selling a good or service, measured by the price received minus the minimum price they would have accepted.

Quantity Demanded

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

Quantity Supplied

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

Shift in Demand

When a change in an economic factor (other than price) causes a different quantity to be demanded at every price.

Shift in Supply

When a change in an economic factor (other than price) causes a different quantity to be supplied at every price.

Social Surplus (Total Surplus)

The sum of consumer surplus and producer surplus.

Substitute

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

Supply

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

Supply Curve

A graphical line showing the relationship between price (vertical axis) and quantity supplied (horizontal axis).

Supply Schedule

A table showing a range of prices for a good or service and the quantity supplied at each price.

Business Cycle

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

Depreciation

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

Depression

An especially lengthy and deep decline in output.

Double Counting

A potential mistake in measuring GDP where output is counted more than once as it travels through stages of production.

Factors of Production (Inputs)

Resources such as labor, materials, and machinery used to produce goods and services.

Final Good and Service

Output used directly for consumption, investment, government, and trade purposes (contrast with intermediate good).

GDP Deflator

A measure of inflation based on the prices of all GDP components.

GDP Per Capita

Gross Domestic Product divided by total population.

Gross Domestic Product (GDP)

The value of the output of all final goods and services produced within a country in a year.

Gross National Product (GNP)

Includes output produced domestically plus output produced by domestic labor and business abroad in a year.

Intermediate Good

Output provided to other businesses at an intermediate stage of production, not for final users.

Inventory

Goods that have been produced but not yet sold.

National Income

Includes all income earned: wages, profits, rent, and profit income.

Net National Product (NNP)

Gross National Product (GNP) minus depreciation.

Nominal Value

An economic statistic as actually announced, not adjusted for inflation (contrast with real value).

Peak

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

Real Value

An economic statistic after it has been adjusted for inflation (contrast with nominal value).

Recession

A significant decline in national output.

Standard of Living

All elements that affect overall well-being and happiness, whether traded in markets or not.

Structure

A building used as a residence, factory, office, retail store, or similar purpose.

Trade Balance

The gap between a nation's exports and imports.

Trade Deficit

Exists when a nation's imports exceed its exports ($\text{Imports} - \text{Exports}$).

Trade Surplus

Exists when a nation's exports exceed its imports ($\text{Exports} - \text{Imports}$).

Trough

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

Adjustable-Rate Mortgage (ARM)

A home loan in which the interest rate varies automatically with market interest rates.

Base Year

An arbitrary benchmark year assigned an index number of 100, used to easily calculate percentage inflation over time.

Basket of Goods and Services

A hypothetical set of items with specified quantities representing typical consumer purchases, used to measure price changes.

Consumer Price Index (CPI)

A measure of inflation calculated from the price level of a fixed basket representing average consumer purchases.

Core Inflation Index

A measure calculated by taking the CPI and excluding volatile variables (like food and energy) to track persistent trends.

Cost-of-Living Adjustments (COLAs)

A contractual provision guaranteeing wage increases that keep pace with inflation.

Deflation

Negative inflation; a sustained drop in the general price level of an economy.

Employment Cost Index

A measure of inflation based on wages paid in the labor market.

Exchange Rate

The price of one currency expressed in terms of another currency.

Hyperinflation

An extreme outburst of high inflation, often occurring during rapid transitions from controlled to market economies.

Index Number

A unit-free baseline number (usually centered around 100) derived from price levels to simplify inflation calculations.

Indexed

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

Inflation

A general and ongoing rise in price levels across an economy.

International Price Index

A measure of inflation based on the prices of exported and imported merchandise.

Producer Price Index (PPI)

A measure of inflation based on prices paid for supplies and inputs by producers.

Quality/New Goods Bias

A tendency for fixed-basket inflation metrics to overstate cost-of-living rises by ignoring quality improvements or new products.

Substitution Bias

A tendency for fixed-basket inflation metrics to overstate cost-of-living rises by ignoring consumer shifts away from goods with rising prices.

Adverse Selection of Wage Cuts

The argument that cutting wages across the board causes the highest-performing employees to leave first.

Cyclical Unemployment

Unemployment directly tied to the business cycle, rising during economic downturns and recessions.

Discouraged Workers

Individuals who have stopped looking for work due to a perceived lack of suitable job openings.

Efficiency Wage Theory

The hypothesis that worker productivity increases if an employer pays wages above the market equilibrium rate.

Frictional Unemployment

Unemployment occurring naturally as workers transition between jobs or enter the workforce.

Implicit Contract

An unwritten agreement that employers will protect wages during downturns, and workers will not demand huge raises during booms.

Insider-Outsider Model

A model distinguishing existing experienced workers ("insiders") from new or prospective hires ("outsiders").

Labor Force Participation Rate

The percentage of adults in an economy who are either employed or actively seeking work.

Natural Rate of Unemployment

The persistent baseline unemployment rate in a healthy economy resulting from combined economic, social, and political factors.

Out of the Labor Force

Individuals who are neither working nor actively seeking employment.

Relative Wage Coordination Argument

The theory that across-the-board wage cuts are difficult to implement because workers resist relative pay reductions.

Structural Unemployment

Unemployment resulting from a permanent mismatch between worker skills and employer requirements.

Underemployed

Individuals working at jobs below their skill level or working fewer hours than desired.

Unemployment Rate

The percentage of the active labor force that is without a job and actively seeking work.