Economics Vocabulary

Scarcity

The resources we use to produce goods and services are limited.

Economics

The study of choices when there is scarcity.

Factors of Production

The resources used to produce goods and services; also known as production inputs or resources

Natural Resources

Resources provided by nature and used to produce goods and services.

Labor

Human effort, including both physical and mental effort, used to produce goods and services.

Physical Capital

The stock of equipment, machines, structures, and infrastructure that if used to produce goods and services.

Human Capital

The knowledge and skills acquired by a worker through education and experience and used to produce goods and services.

Entrepreneurship

The effort used to coordinate the factors of production--natural resources, labor, physical capital, and human capital--to produce and sell products.

Positive Analysis

Answers the question "What is?" or "What will be?"

Normative Analysis

Answers the question "What ought to be?"

Economic Model

A simplified representation of an economic environment, often employing a graph.

Variable

A measure of something that can take on different values.

Ceteris Paribus

The Latin expression meaning that the other variables are held fixed.

Marginal Change

A small, one-unit change in value.

Macroeconomics

The study of the nation's economy as a whole; focuses on the issues of inflation,umemployment, and economic growth.

Microeconomics

The study of choices made by households, firms, and government and how these choices affect the markets for goods and services.

Positive Relationship

A relationship in which two variables move in the same direction.

Negative Relationship

A relationship in which two variables move in the opposite direction.

Slope of a Curve

The vertical difference between the two points (the rise) divided by the horizontal difference (the run).

Opportunity Cost

What you sacrifice to get something.

Production Possibilities Curve

A curve that shows the possible combinations of products that an economy can produce, given that its productive resources are fully employed and efficiently used.

Marginal Benefit

The additional benefit resulting from a small increase in some activity.

Marginal Cost

The additional cost resulting from small increase in some activity.

Nominal Value

The face value of an amount of money.

Real Value

The value of an amount of money in terms of what it can buy.

Comparitive Advantage

The ability of one person or nation to produce a good at a lower opportunity cost than another person or nation.

Absolute Advantage

The ability of one person or nation to produce a product at a lower resource cost than another person or nation.

Import

A good or service produced in another country and purchased by the residents of the home country.

Export

A good or service produced in the home country and sold in another country.

Market Economy

An economy in which people specialize and exchange goods and services in markets.

Centrally Planned Economy

An economy in which a government bureaucracy decides how much of each product to produce, how to produce the good, and who gets the good.

Perfectly Competitive Market

A market with many sellers and buyers of a homogeneous product and no barriers to entry.

Quantity Demanded

The amount of product that consumers are willing and able to buy.

Demand Schedule

A table that shows the relationship between the price of a product and the quantity demanded, ceteris paribus.

Individual Demand Curve

A curve that shows the relationship between the price of a good and quantity demanded by an individual consumer, ceteris paribus.

Law of Demand

There is a negative relationship between price and quantity demanded, ceteris paribus.

Change in Quantity Demanded

A change in the quantity consumers are willing and able to buy when the price changes; represented graphically by the movement along the demand curve.

Market Demand Curve

A curve showing the relationship between price and quantity demanded by all consumers, ceteris paribus.

Quantity Supplied

The amount of product that firms are willing and able to sell.

Supply Schedule

A table that shows the relationship between the price of a product and a quantity supplied, ceteris paribus.

Individual Supply Curve

A curve showing the relationship between price and quantity supplied by a single firm, ceteris paribus.

Law of Supply

There is a positive relationship between price and quantity supplied, ceteris paribus.

Change in Quantity Supplied

A change in the quantity firms are willing and able to sell when the price changes; represented graphically by movement along the supply curve.

Minimum Supply Price

The lowest price at which a product will be supplied.

Market Supply Curve

A curve showing the relationship between the market price and quantity supplied by all firms, ceterid paribus.

Market Equilibrium

A situation in which the quantity demanded equals the quantity supplied at the prevailing market price.

Excess Demand

A situation in which, at the prevailing price, the quantity demanded exceeds the quantity supplied.

Excess Supply

A situation in which the quantity supplied exceeds the quantity demanded at the prevailing price.

Change in Demand

A shift of the demand curve caused by a change in a variable other than the price of the poduct.

Normal Good

A good for which an increase in income increases demand.

Inferior Good

A good for which an increase in income decreases demand.

Substitutes

Two goods for which an increase in the price of one good increases the demand for the other good.

Complements

Two goods for which a decrease in the price of one good increases the demand for the other good.

Change in Supply

A shift of the supply curve caused by a change in a variable other than the price of the product.

Inflation

Sustained increases in the prices of all goods.

Gross Domestic Product (GDP)

The total market value of final goods and services produced within an economy in a given year.

Intermediate Goods

Goods used in the production process that are not final goods and services.

Real GDP

A measure of GDP that controls for changes in prices.

Nominal GDP

The value of GDP in current dollars.

Economic Growth

Sustained increases in the real GDP of an economy over a long period of time.

Consumption Expenditures

Purchases of newly produced goods and services by households.

Private Investment Expenditures

Purchases of newly produced goods and services by firms.

Gross Investment

Total new investment expenditures.

Depreciation

Reduction in the value of capital goods over a one-year period due to physical wear and tear and also to obsolescence; also called capital consumption allowance.

Net Investment

Gross investment minus depreciation.

Government Purchases

Purchases of newly produces goods and services by local, state, and federal governments.

Transfer Payments

Payments from government to individuals that do not correspond to the production of goods and services.

Net Exports

Exports minus imports.

Trade Deficit

The excess of imports over exports.

Trade Surplus

The excess of exports over imports.

National Income

The total income earned by a nation's residents both domestically and abroad in the production of goods and services.

Gross National Product

GDP plus net income earned abroad.

Personal Income

Income, including transfer payments, received by households.

Personal Disposable Income

Personal income that households retain after paying income taxes.

Value Added

The sum of all the income--wages, interest. profits, and rent-- generated by an organization. For a firm, we can measure the value added by the dollar value of the firm's sales minus the dollar value of the goods and services purchased from other firms.

GDP Deflator

An index that measures how the prices of goods and services included in the GDP change over time.

Chain-weighted Index

A method for calculating changes in prices that uses and average of base years from neighboring years.

Recession

Commonly defined as six consecutive months of declining real GDP.

Peak

The date at which the recession starts.

Trough

The date at which the output stops falling in a recession.

Expansion

The period after a trough in a business cycle during which the economy recovers.

Depression

The common name for a severe recession.

Labor Force

The total number of workers, both the employed and the unemployed.

Unemployment Rate

The percentage of the labor force that is unemployed.

Labor Force Participation Rate

The percentage of the population over 16 years of age that is in the labor force.

Discouraged Workers

Worker who left the labor force because they could not find jobs.

Seasonal Unemployment

The component umemployment attributed to seasonal factors.

Cyclical Unemployment

Unemployment thar occurs during flucuations in real GDP.

Frictional Unemployment

Unemployment that occurs with the normal workings of the economy, such as workers taking time to search for suitable jobs and firms taking time to search for qualified workers.

Structural Unemployment

Umemployment that occurs when there is a mismatch of skills and jobs.

Natural Rate of Unemployment

The level of unemployment at which there is no cyclical unemployment. It consists of only frictional and structural umemployment.

Full Employment

The level of umemployment that occurs when the umemployment rate is a the natural rate.

Unemployment Insurance

Payments unemployed people receive from the government.

Consumer Price Index

A price index that measures the cost of a fixed basket of goods chosen to represent the consumption pattern of a typical consumer.

Cost-of-living

Adjustments (COLAs)

Automatic increases in wages ot other payments that are tied to the CPI.

Inflation Rate

The percentage rate of change in the price level.

Deflation

Negative inflation or falling prices of goods and services.

Anticipated Inflation

Inflation that is expected.

Unaticipated Inflation

Inflation that is not expected.

Menu Costs

The costs associated with changing prices and printing new price lists when there is inflation.