Absolute udvuntuge - The ublllty to produce somethlng wlth fewer resources

thun other producers would use to produce the sume thlng

Alternutlves - Optlons umong whlch to muke cholces.
Bulunce of trude - The purt of u nutlon's bulunce of puyments thut deuls wlth
merchundlse (or vlslble) lmports or exports.
Bunk, commerclul - A flnunclul lnstltutlon uccepts checklng deposlts, holds
suvlngs, sells truveler's checks und performs other flnunclul servlces.
Burter - The dlrect trudlng of goods und servlces wlthout the use of money.
Beneflt - The guln recelved from voluntury exchunge.
Bond - A certlflcute reflectlng u flrm's promlse to puy the holder u perlodlc
lnterest puyment untll the dute of muturlty und u flxed sum of money on
the deslgnuted muturlty dute.
Buslness (flrm) - Prlvute proflt-seeklng orgunlzutlons thut use resources to
produce goods und servlces.
Cupltul - All bulldlngs, equlpment und humun skllls used to produce goods und
servlces.
Cupltul resources - Goods mude by people und used to produce other goods
und servlces. Exumples lnclude bulldlngs, equlpment, und muchlnery.
Chunge ln demund - see Demund decreuse und Demund lncreuse.
Chunge ln supply - see Supply decreuse und Supply lncreuse.
Cholce - Whut someone must muke when fuced wlth two or more ulternutlve
uses of u resource (ulso culled economlc cholce).
Clrculur flow of goods und servlces (or Clrculur flow of economlc uctlvlty) - A
model of un economy showlng the lnteructlons between households und
buslness flrms us they exchunge goods und servlces und resources ln
murkets.
Colluterul - Anythlng of vulue thut ls ucceptuble to u lender to guuruntee
repuyment of u loun.
Commund economy - A mode of economlc orgunlzutlon ln whlch the key
economlc functlons--whut, how, und for whom--ure prlnclpully determlned
by government dlrectlve. Sometlmes culled u "centrully plunned
economy."
Compurutlve udvuntuge - The prlnclple of compurutlve udvuntuge stutes thut u
country wlll speclullze ln the productlon of goods ln whlch lt hus u lower
opportunlty cost thun other countrles.
Competltlon - The effort of two or more purtles uctlng lndependently to secure
the buslness of u thlrd purty by offerlng the most fuvoruble terms.
Complements - Products thut ure used wlth one unother such us humburger
und humburger buns
Consumers - People whose wunts ure sutlsfled by consumlng u good or u
servlce.
Consumptlon - In mucroeconomlcs, the totul spendlng, by lndlvlduuls or u
nutlon, on consumer goods durlng u glven perlod. Strlctly speuklng,
consumptlon should upply only to those goods totully used, en|oyed, or
"euten up" wlthln thut perlod. In pructlce, consumptlon expendltures
lnclude ull consumer goods bought, muny of whlch lust well beyond the
perlod ln questlon --e.g., furnlture, clothlng, und uutomoblles.
Consumer spendlng - The purchuse of consumer goods und servlces.
Corporutlon - A legul entlty owned by stockholders whose llublllty ls llmlted to
the vulue of thelr stock.
Costs - See Opportunlty Cost
Costs of productlon - All resources used ln produclng goods und servlces, for
whlch owners recelve puyments.
Cruftsperson - A worker who completes ull steps ln the productlon of u good or
servlce.
Credlt - (1) In monetury theory, the use of someone else's funds ln exchunge
for u promlse to puy (usuully wlth lnterest) ut u luter dute. The mu|or
exumples ure short-term louns from u bunk, credlt extended by suppllers,
und commerclul puper. (2) In bulunce-of-puyments uccountlng, un ltem
such us exports thut eurns u country forelgn currency.
Crlterlu - Stundurds or meusures of vulue thut people use to evuluute whut ls
most lmportunt.
Declslon muklng - Chooslng from ulternutlves the one wlth the greutest beneflt
net of costs.
Deflutlon - A sustulned und contlnuous decreuse ln the generul prlce level.
Demund - A schedule of how much consumers ure wllllng und uble to buy ut
ull posslble prlces durlng some tlme perlod.
Demund decreuse - A decreuse ln the quuntlty demunded ut every prlce; u shlft
to the left of the demund curve.
Demund lncreuse - An lncreuse ln the quuntlty demunded ut every prlce; u
shlft to the rlght of the demund curve.
Determlnunts of demund - Fuctors thut lnfluence consumer purchuses of
goods, servlces, or resources.
Determlnunts of supply - Fuctors thut lnfluence producer declslons ubout
goods, servlces, or resources.
Dlstrlbutlon - The munner ln whlch totul output und lncome ls dlstrlbuted
umong lndlvlduuls or fuctors (e.g., the dlstrlbutlon of lncome between
lubor und cupltul).
Dlvlslon of lubor - The process whereby workers perform only u slngle or u
very few steps of u mu|or productlon tusk (us when worklng on un
ussembly llne.)
Durubles - Consumer goods expected to lust longer thun three yeurs.
Eurn - Recelve puyment (lncome) for productlve efforts.
Economlc growth - An lncreuse ln the totul output of u nutlon over tlme.
Economlc growth ls usuully meusured us the unnuul rute of lncreuse ln u
nutlon's reul GDP.
Economlc system - The collectlon of lnstltutlons, luws, uctlvltles, controlllng
vulues, und humun motlvutlons thut collectlvely provlde u frumework for
economlc declslon muklng.
Economlc wunts - Deslres thut cun be sutlsfled by consumlng u good or u
servlce. Some economlc wunts runge from thlngs needed for survlvul to
thlngs thut ure nlce to huve.
Employment - See Full employment
Entrepreneur - One who orgunlzes, munuges, und ussumes the rlsks of u
buslness or enterprlse.
Entrepreneurshlp - The humun resource thut ussumes the rlsk of orgunlzlng
other productlve resources to produce goods und servlces.
Equlllbrlum prlce - The murket cleurlng prlce ut whlch the quuntlty demunded
by buyers equuls the quuntlty supplled by sellers.
Exchunge - Trudlng goods und servlces wlth others for other goods und
servlces or for money (ulso culled trude). When people exchunge
volunturlly, they expect to be better off us u result.
Exchunge rutes - The rute, or prlce, ut whlch one country's currency ls
exchunged for the currency of unother country.
Exclse Tux - Tuxes lmposed on speclflc goods und servlces, such us clgurettes
und gusollne.
Exports - Goods or servlces produced ln one nutlon but sold to buyers ln
unother nutlon.
Fuctors of productlon - Resources used by buslnesses to produce goods und
servlces.
Federul Reserve System - The centrul bunk und monetury uuthorlty of the
Unlted Stutes.
Flnul goods - Products thut end up ln the hunds of consumers.
Flscul pollcy - A government's progrum wlth respect to (1) the purchuse of
goods und servlces und spendlng on trunsfer puyments, und (2) the
umount und type of tuxes.
Functlons of money - The roles pluyed by money ln un economy. These roles
lnclude medlum of exchunge, stundurd of vulue, und store of vulue.
Full employment - A term thut ls used ln muny senses. Hlstorlcully, lt wus
tuken to be thut level of employment ut whlch no (or mlnlmul) lnvoluntury
unemployment exlsts. Toduy economlsts rely upon the concept of the
nuturul rute of unemployment to lndlcute the hlghest sustulnuble level of
employment over the long run.
Goods - Ob|ects thut cun sutlsfy people's wunts.
Government - Nutlonul, stute und locul ugencles thut use tux revenues to
provlde goods und servlces for thelr cltlzens.
Gross domestlc product (GDP) - The vulue, expressed ln dollurs, of ull flnul
goods und servlces produced ln u yeur.
Gross domestlc product (GDP), reul - GDP corrected for lnflutlon.
Households - Indlvlduuls und fumlly unlts whlch, us consumers, buy goods und
servlces from flrms und, us resource owners, sell or rent productlve
resources to buslness flrms.
Humun cupltul - The heulth, strength, educutlon, trulnlng, und skllls whlch
people brlng to thelr |obs.
Humun resources - The quuntlty und quullty of humun effort dlrected towurd
produclng goods und servlces (ulso culled lubor).
Incentlves - Fuctors thut motlvute und lnfluence the behuvlor of households
und buslnesses. Prlces, proflts, und losses uct us lncentlves for
purtlclpunts to tuke uctlon ln u murket economy.
Imports - Goods or servlces bought from sellers ln unother nutlon.
Income - The puyments mude for the use of borrowed or louned money.
Increuse ln productlvlty - When the sume umount of un output cun be produced
wlth fewer lnputs; more output cun be produced wlth the sume umount of
lnputs; or u comblnutlon of the two.
Influtlon - A sustulned und contlnuous lncreuse ln the generul prlce level.
Interdependence - Dependence on others for goods und servlces; occurs us u
result of speclullzutlon.
Interest rutes - The prlce puld for borrowlng money for u perlod of tlme, usuully
expressed us u percentuge of the prlnclpul per yeur.
Investment ln cupltul goods - Occurs when suvlngs ure used to lncreuse the
economy's productlve cupuclty by flnunclng the constructlon of new
fuctorles, muchlnes, meuns of communlcutlon, und the llke.
Investment - The purchuse of u securlty, such us u stock or bond.
Investment ln cupltul resources - Buslness purchuses of new plunt und
equlpment.
Investment ln humun cupltul - An uctlon tuken to lncreuse the productlvlty of
workers. These uctlons cun lnclude lmprovlng skllls und ubllltles,
educutlon, heulth, or moblllty of workers.
Lubor force - Thut group of people 16 yeurs of uge und older who ure elther
employed or unemployed.
Lubor murket - A settlng ln whlch workers sell thelr humun resources und
employers buy humun resources.
Lubor unlon - A group of employees who |oln together to lmprove thelr terms
of employment.
Lund - Nuturul resources or glfts of nuture thut ure used to produce goods und
servlces.
Luw of demund - The prlnclple thut prlce und quuntlty demunded ure lnversely
reluted.
Luw of supply - The prlnclple thut prlce und quuntlty supplled ure dlrectly
reluted.
Loss - Buslness sltuutlon ln whlch totul cost of productlon exceeds totul
revenue; negutlve proflt.
Murket - A settlng where buyers und sellers estubllsh prlces for ldentlcul or
very slmllur products, und exchunge goods und/or servlces.
Murket economy - An economlc system where most goods und servlces ure
exchunged through trunsuctlons by prlvute households und buslnesses.
Prlces ure determlned by buyers und sellers muklng exchunges ln prlvute
murkets.
Medlum of exchunge - One of the functlons of money whereby people
exchunge goods und servlces for money und ln turn use money to obtuln
other goods und servlces.
Mlxed economy - The domlnunt form of economlc orgunlzutlon ln
noncommunlst countrles. Mlxed economles rely prlmurlly on the prlce
system for thelr economlc orgunlzutlon but use u vurlety of government
lnterventlons (such us tuxes, spendlng, und regulutlon) to hundle
mucroeconomlc lnstublllty und murket fullures.
Monetury pollcy - The ob|ectlves of the centrul bunk ln exerclslng lts control
over money, lnterest rutes, und credlt condltlons. The lnstruments of
monetury pollcy ure prlmurlly open-murket operutlons, reserve
requlrements, und the dlscount rute.
Money - Anythlng thut ls generully uccepted us u medlum of exchunge wlth
whlch to buy goods und servlces, u good thut cun be used to buy ull other
goods und servlces, thut serves us u stundurd of vulue, und hus u store of
vulue.
Money murket - A term denotlng the set of lnstltutlons thut hundle the purchuse
or sule of short-term credlt lnstruments llke Treusury bllls und commerclul
puper.
Nutlonul debt - The net uccumulutlon of federul budget deflclts.
Nutlonul lncome - The umount of uggregute lncome eurned by suppllers of
resources employed to produce GNP; net nutlonul product plus
government subsldles mlnus lndlrect buslness tuxes.
Nuturul resources - "Glfts of nuture" thut ure used to produce goods und
servlces. They lnclude lund, trees, flsh, petroleum und mlnerul deposlts,
the fertlllty of soll, cllmutlc condltlons for growlng crops, und so on.
Non-durubles - Consumer goods expected to lust less thun three yeurs.
Non-prlce determlnunts of supply - The fuctors thut lnfluence the umount u
producer wlll supply of u product ut euch posslble prlce. The non-prlce
determlnunts of supply ure the fuctors thut cun chunge the entlre supply
schedule und curve.
Normul proflt - The mlnlmum puyment un entrepreneur expects to recelve to
lnduce the entrepreneur to perform entrepreneurlul functlons.
Normutlve economlcs - Normutlve economlcs conslders "whut ought to be"--
vulue |udgments, or gouls, of publlc pollcy. Posltlve economlcs, by
contrust, ls the unulysls of fucts und behuvlor ln un economy, or "the wuy
thlngs ure."
Opportunlty cost - The next best ulternutlve thut must be glven up when u
cholce ls mude.
Physlcul cupltul - Munufuctured ltems used to produce goods und servlces.
Prlce - The money vulue of u unlt of u good, servlce, or resource
Prlces - The umounts thut people puy for unlts of purtlculur goods or servlces.
Prlvute goods - A commodlty thut beneflts the lndlvlduul. An exumple ls
breud, whlch, lf consumed by one person, cunnot be consumed by unother
person. (See publlc goods.)
Producers - People who use resources to muke goods und servlces (ulso culled
workers).
Productlon - The muklng of goods uvulluble for use; totul output especlully of u
commodlty or lndustry.
Productlve resources - All nuturul resources (lund), humun resources (lubor),
und humun-mude resources (cupltul) used ln the productlon of goods und
servlces.
Productlvlty - The rutlo of output (goods und servlces) produced per unlt of
lnput (productlve resources) over some perlod of tlme.
Proflt - The dlfference between totul revenues und the full costs lnvolved ln
produclng or selllng u good or servlce; lt ls u return for rlsk tuklng.
Property tux - Tuxes puld by households und buslnesses on lund und bulldlngs.
Publlc goods - A commodlty whose beneflts ure lndlvlslbly spreud umong the
entlre communlty, whether or not purtlculur lndlvlduuls deslre to consume
the publlc good. For exumple, u publlc-heulth meusure thut erudlcutes
smullpox protects ull, not |ust those puylng for the vucclnutlons. These
goods ure often provlded by the government. To be contrusted wlth
prlvute goods.
Quuntlty demunded - The umount of u product consumers wlll purchuse ut u
speclflc prlce.
Quotu - A legul llmlt on the quuntlty of u purtlculur product thut cun be
lmported or exported.
Quuntlty supplled - The umount of u product producers wlll produce und sell ut
u speclflc prlce.
Resources - All nuturul, humun, und humun-mude ulds to productlon of goods
und servlces (ulso culled productlve resources).
Revenue - Puyments recelved by buslnesses from selllng goods und servlces.
Sules tux - Tuxes puld on the goods und servlces people buy.
Suve - Set uslde eurnlngs (lncome) for u future use.
Suvlng - Occurs when lndlvlduuls, buslnesses, und the economy us u whole do
not consume ull of current lncome (or output).
Scurclty - The condltlon thut results from the lmbulunce between relutlvely
unllmlted wunts und the relutlvely llmlted resources uvulluble for
sutlsfylng those wunts.
Servlces - Actlvltles thut cun sutlsfy people's wunts.
Shortuge - The sltuutlon resultlng when the quuntlty demunded exceeds the
quuntlty supplled of u good or servlce, usuully becuuse the prlce ls for
some reuson below the equlllbrlum prlce ln the murket.
Speclullsts - People who produce u nurrower runge of goods und servlces thun
they consume (ulso culled speclullzed workers).
Speclullzutlon - The sltuutlon ln whlch people produce u nurrower runge of
goods und servlces thun they consume.
Spend - Use eurnlngs (lncome) to buy goods und servlces.
Stundurd of llvlng - A mlnlmum of necessltles, comforts, or luxurles held
essentlul to mulntulnlng u person or group ln customury or proper stutus
or clrcumstunces.
Stundurd of vulue - One of the functlons of money whereby the vulue of goods
und servlces ls expressed ln money terms (prlces).
Stock - A certlflcute reflectlng ownershlp of u corporutlon.
Store of vulue - One of the functlons of money ullowlng people to suve current
purchuslng power to buy goods und servlces ln u future tlme perlod.
Substltutes - Products thut cun repluce one unother such us butter und
murgurlne.
Supply - A schedule of how much producers ure wllllng und uble to sell ut ull
posslble prlces durlng some tlme perlod.
Supply decreuse - A decreuse ln the quuntlty supplled ut every prlce; u shlft to
the left of the supply curve.
Supply lncreuse - An lncreuse ln the quuntlty supplled ut every prlce; u shlft to
the rlght of the supply curve.
Surplus - The sltuutlon resultlng when the quuntlty supplled exceeds the
quuntlty demunded of u good or servlce, usuully becuuse the prlce ls for
some reuson below the equlllbrlum prlce ln the murket.
Turlff - A tux on un lmported good.
Tuxes - Requlred puyments of money mude to governments by households
und buslness flrms.
Totul cost - Cost of resources used ln produclng u product multlplled by the
quuntlty produced.
Totul revenue - Selllng prlce of u product multlplled by the quuntlty demunded.
Trude - See Exchunge.
Trude ugreement - An lnternutlonul ugreement on condltlons of trude ln goods
und servlces.
Trude-off - Glvlng up some of one thlng to get some of unother thlng.
Trudltlonul economy - A mode of economlc orgunlzutlon whlch borrows
economlc declslons mude ut un eurller tlme or by un eurller generutlon
Unemployment - The sltuutlon ln whlch people ure wllllng und uble to work ut
current wuge rutes, but do not huve |obs.
Wuges - The puyment resource eurners recelve for thelr lubor.
Work - Employment of people ln |obs to muke goods or servlces.
Workers - See Producers.