AP Economics

Question 1

absolute advantage

Answer 1

The ability to produce more of a good or service than another person or society witht the same number of inputs. alternatively, it means one person or society can make a unit of output with fewer units of input than its counterpart.

Question 2

accounting profit

Answer 2

Total revenue a firm receives minus its explicit costs. Economic profit plus normal profit.

Question 3

aggregate demand (AD)

Answer 3

A schedule or curve that shows the total quantity demanded for all goods and services of a nation at various price levels in a given period of time.

Question 4

aggregate supply

Question 5

allocative efficiency

Answer 5

the amount of production that benefits society the most; distribution of productive resources to achieve the most desirable combination of goods.

It is achieved when the marginal benefit of production equals the marginal cost. Also known as the socially optimal level of output. A society is allocatively efficient when it is choosing to make the mix of goods that best satisfy the wants of its population. Firms are allocatively efficient if change of price equals the marginal cost

Question 6

appreciation

Answer 6

an increase in the value of one currency relative to another, resulting from an increase in demand for or a decrease in supply of the currency on the foreign exchange market.

Question 7

average fixed cost (AFC)

Answer 7

Fixed cost divided by a firm’s quantity of output. Decreases at a decreasing rate as output rises.

Question 8

asset

Answer 8

an item of worth that can be spent or sold; a way to carry wealth from the present into the future. Bonds, land, stocks, and money are all assets.

Question 9

automatic stabilizers

Answer 9

built in mechanisms in the tax code and transfer payment programs that increase government spending and reduce tax revenue automaticaly when aggregate demand decreases. They reduce spending and collect more in tax revenues when aggregate demand increases.

Question 10

average product (AP)

Answer 10

The total product of a firm divided by the amount of a particular input used to produce the total product. Meets marginal product at its point.

Question 11

The ability to produce more of a good or service than another person or society witht the same number of inputs. alternatively, it means one person or society can make a unit of output with fewer units of input than its counterpart.

Answer 11

absolute advantage

Question 12

Total revenue a firm receives minus its explicit costs. Economic profit plus normal profit.

Answer 12

accounting profit

Question 13

A schedule or curve that shows the total quantity demanded for all goods and services of a nation at various price levels in a given period of time.

Answer 13

aggregate demand (AD)

Answer 14

aggregate supply

Question 15

the amount of production that benefits society the most; distribution of productive resources to achieve the most desirable combination of goods.

It is achieved when the marginal benefit of production equals the marginal cost. Also known as the socially optimal level of output. A society is allocatively efficient when it is choosing to make the mix of goods that best satisfy the wants of its population. Firms are allocatively efficient if change of price equals the marginal cost

Answer 15

allocative efficiency

Question 16

an increase in the value of one currency relative to another, resulting from an increase in demand for or a decrease in supply of the currency on the foreign exchange market.

Answer 16

appreciation

Question 17

Fixed cost divided by a firm’s quantity of output. Decreases at a decreasing rate as output rises.

Answer 17

average fixed cost (AFC)

Question 18

an item of worth that can be spent or sold; a way to carry wealth from the present into the future. Bonds, land, stocks, and money are all assets.

Answer 18

asset

Question 19

built in mechanisms in the tax code and transfer payment programs that increase government spending and reduce tax revenue automaticaly when aggregate demand decreases. They reduce spending and collect more in tax revenues when aggregate demand increases.

Answer 19

automatic stabilizers

Question 20

The total product of a firm divided by the amount of a particular input used to produce the total product. Meets marginal product at its point.

Answer 20

average product (AP)

Question 21

average total cost (ATC)

Answer 21

the sum of average fixed cost and average variable cost: total cost divided by output. Generally forms a U-shape, meeting marginal cost at its minimum point.

Question 22

average variable cost (AVC)

Answer 22

Variable cost divided by the quantity of a firm’s output. Generally forms a U-shape, meeting marginal cost at its minimum point.

Question 23

balance of payments

Answer 23

measures all the monetary exchanges between one nation and all other nations. Includes the current account, the financial account, and the official reserves accounr.

Question 24

balance of trade

Answer 24

balance of trade includes only goods and services.

the difference between a country’s imports and exports.

also the biggest portion of a country’s balance of payment

Question 25

balance sheet

Answer 25

also known as a T-account, this table shows the assets and liabilities of a financial institution, such as a commercial bank.

Question 26

barriers to entry

Answer 26

anything that prohibits or discourages new firms from ntering into a market. Perfect competition and monopolistic competition are assumed to have no significant barriers to the entry of new firms or the exit of existing firms from the industry in the long run. Entry can be blocked, as it is in monopolies, by legal barriers, control of an input necessary to production of a good, or extreme economies of scale.

Question 27

bonds

Answer 27

bonds are not money

bonds are pieces of paper that represent debt owed by the issuer (corportaion or gov) to the holder (investor or saver). the price of bonds on secondary markets is inversely related to the interest rate.

Question 28

breakeven point

Answer 28

output at which a firm’s total cost and total revenue are equal (TR=TC); an output at which a firm has neither an economic profit nor a loss, at which it earns only a normal profit

Question 29

budget deficit

Answer 29

when a government spends more than it collects in tax revenues in a given year.

Question 30

budget surplus

Answer 30

when a government collects more in tax revenues than it spends in a given year

Question 31

the sum of average fixed cost and average variable cost: total cost divided by output. Generally forms a U-shape, meeting marginal cost at its minimum point.

Answer 31

average total cost (ATC)

Question 32

Variable cost divided by the quantity of a firm’s output. Generally forms a U-shape, meeting marginal cost at its minimum point.

Answer 32

average variable cost (AVC)

Question 33

measures all the monetary exchanges between one nation and all other nations. Includes the current account, the financial account, and the official reserves accounr.

Answer 33

balance of payments

Question 34

balance of trade includes only goods and services.

the difference between a country’s imports and exports.

also the biggest portion of a country’s balance of payment

Answer 34

balance of trade

Question 35

also known as a T-account, this table shows the assets and liabilities of a financial institution, such as a commercial bank.

Answer 35

balance sheet

Question 36

anything that prohibits or discourages new firms from ntering into a market. Perfect competition and monopolistic competition are assumed to have no significant barriers to the entry of new firms or the exit of existing firms from the industry in the long run. Entry can be blocked, as it is in monopolies, by legal barriers, control of an input necessary to production of a good, or extreme economies of scale.

Answer 36

barriers to entry

Question 37

bonds are not money

bonds are pieces of paper that represent debt owed by the issuer (corportaion or gov) to the holder (investor or saver). the price of bonds on secondary markets is inversely related to the interest rate.

Answer 37

bonds

Question 38

output at which a firm’s total cost and total revenue are equal (TR=TC); an output at which a firm has neither an economic profit nor a loss, at which it earns only a normal profit

Answer 38

breakeven point

Question 39

when a government spends more than it collects in tax revenues in a given year.

Answer 39

budget deficit

Question 40

when a government collects more in tax revenues than it spends in a given year

Answer 40

budget surplus

Question 41

business cycle

Answer 41

a model showing the short-run periods of contraction and expansion in output experienced by an economy over a period of time.

Question 42

capital

Answer 42

the tools, machines, factories, and buildings used to produce goods and services.

Includes physical capital, which ranges from hammers to industrial robots and human capital, which is “know-how” or specialized skills that get fused to labor through education and training.

Question 43

capital account

Answer 43

see financial account

measures the flow of funds for investment in real assets (such as factories or office buildings) or financial assets (such as stocks and bonds) between a nation and the rest of the world. Foreign direct investment and portfolio investment are two components of the financial account. Formerly known as the capital account

Question 44

capitalism

Answer 44

economic system based largely on markets as the main mechanism for allocating scarce resourcees that are privately owned by individuals

Question 45

cartel

Answer 45

a group of producers in an industry who collude in order to function as a monopoly. cartels are illegal in many countries and tend to be rare and unstable due to the incentives their member firms often have to cheat on agreed prices and/or quantities

Question 46

central bank

Answer 46

institution in a country that controls the money supply and conducts monetary policy. central banks alter money supply to influence interest rates in most modern economies. Some of the most well-known and important central banks are the Bank of England, the Bank of Japan, the European Central Bank, and the Federal Reserve.

Question 47

ceteris paribus

Answer 47

“Other things being equal.”

The assumption that all variables remain constant except for those being studied by the economist. Ceteris paribus allows economists to understand the relationship between economic variables. As in science, economists like to try to isolate one factor that may be changing at a given time to better understand cause and effect.

Question 48

circular flow

Answer 48

a model or diagram showing how households and firms interact in product and resource markets. Circular flow models help visualize how expenditures become income and how market types relate to one another. Complex versions of the circular flow can include activities of government in regulating or participating in various markets and/or international trade.

Question 49

classical economic theory

Answer 49

the view that an economy will self-correct from periods of economic shock if left alone. Also known as “laissez-faire” and derived from the thinking of Adam Smith, Thomas Malthus, and David Ricardo. Neoclassical theories are up-to-date versions of similar belief systems.

Question 50

collusion

Answer 50

agreement by producers in an industry to cooperate and set prices instead of competing with one another. Considered an unethical or illegal practice, collusion makes oligopolies function more like monopolies.

Question 51

a model showing the short-run periods of contraction and expansion in output experienced by an economy over a period of time.

Answer 51

business cycle

Question 52

the tools, machines, factories, and buildings used to produce goods and services.

Includes physical capital, which ranges from hammers to industrial robots and human capital, which is “know-how” or specialized skills that get fused to labor through education and training.

Answer 52

capital

Question 53

see financial account

measures the flow of funds for investment in real assets (such as factories or office buildings) or financial assets (such as stocks and bonds) between a nation and the rest of the world. Foreign direct investment and portfolio investment are two components of the financial account. Formerly known as the capital account

Answer 53

capital account

Question 54

economic system based largely on markets as the main mechanism for allocating scarce resourcees that are privately owned by individuals

Answer 54

capitalism

Question 55

a group of producers in an industry who collude in order to function as a monopoly. cartels are illegal in many countries and tend to be rare and unstable due to the incentives their member firms often have to cheat on agreed prices and/or quantities

Answer 55

cartel

Question 56

institution in a country that controls the money supply and conducts monetary policy. central banks alter money supply to influence interest rates in most modern economies. Some of the most well-known and important central banks are the Bank of England, the Bank of Japan, the European Central Bank, and the Federal Reserve.

Answer 56

central bank

Question 57

“Other things being equal.”

The assumption that all variables remain constant except for those being studied by the economist. Ceteris paribus allows economists to understand the relationship between economic variables. As in science, economists like to try to isolate one factor that may be changing at a given time to better understand cause and effect.

Answer 57

ceteris paribus

Question 58

a model or diagram showing how households and firms interact in product and resource markets. Circular flow models help visualize how expenditures become income and how market types relate to one another. Complex versions of the circular flow can include activities of government in regulating or participating in various markets and/or international trade.

Answer 58

circular flow

Question 59

the view that an economy will self-correct from periods of economic shock if left alone. Also known as “laissez-faire” and derived from the thinking of Adam Smith, Thomas Malthus, and David Ricardo. Neoclassical theories are up-to-date versions of similar belief systems.

Answer 59

classical economic theory

Question 60

agreement by producers in an industry to cooperate and set prices instead of competing with one another. Considered an unethical or illegal practice, collusion makes oligopolies function more like monopolies.

Answer 60

collusion

Question 61

command economy

(communist)

Answer 61

an economic system in which government planners make most of the choices for the economy and answer the basic questions of what to produce, how to produce, and for whom to produce. Often contrasted with market economy because these are the two basic extremes; societies can choose strategies for managing the scarcity problem that place them along the spectrum between these two extreme.

Question 62

comparative advantage

Answer 62

the ability to produce a good or service at a lower opportunity cost than someone else. Comparative is the basis of mutually beneficial specialization and trade for societies and individuals/

Question 63

complementary goods

Answer 63

goods that are consumed together, such as cars and gasoline or peanut butter and jelly. Complementary goods have a negative cross-price elasticity of demand.

Question 64

concentration ratio

Answer 64

sum total of the percentage market shares of the largest firms in an industry. For example the four-firm concentration ratio would be the total market share of each of the four biggest firms. Gives an indication of the pricing power firms have and therefore of the market structure in which the product is sold.

Question 65

constant returns to scale

Answer 65

this exists when a firm’s long-run average total cost remains constant as the firm’s size increases. Between minimum and maximum efficient scale, a firm neither experiences economies nor disconomies of scale as it grows.

Question 66

consumer(s)

Answer 66

people who buy goods and services. Often a household is considered to be a fundamental unit consumption

Question 67

consumer price index

(CPI)

Answer 67

an index that measures the price of a fixed market basket of consumer goods bought by a typical consumer. The CPI is used to calculate the inflation rate in a nation.

Question 68

consumer suplus

Answer 68

the difference between the equilibrium price in the market and the price consumers are actually willing to pay for a good or service. The economic gain consumers experience by purchasing in the market. On a graph, consumer surplus is represented as the area beneath the demand curve, above the price paid, and to the left of the quantity purchased.

Question 69

consumption (C)

Answer 69

a component of a nation’s aggregate demand; measures the total spending by domestic households on goods and services.

Question 70

contractionary fiscal policy

Answer 70

A demand-side policy whereby government increases taxes or decreases its expenditures in order to reduce aggregate demand. Could be used in a period of high inflation to bring down the inflation rate.

Question 71

an economic system in which government planners make most of the choices for the economy and answer the basic questions of what to produce, how to produce, and for whom to produce. Often contrasted with market economy because these are the two basic extremes; societies can choose strategies for managing the scarcity problem that place them along the spectrum between these two extreme.

Answer 71

command economy

(communist)

Question 72

the ability to produce a good or service at a lower opportunity cost than someone else. Comparative is the basis of mutually beneficial specialization and trade for societies and individuals/

Answer 72

comparative advantage

Question 73

goods that are consumed together, such as cars and gasoline or peanut butter and jelly. Complementary goods have a negative cross-price elasticity of demand.

Answer 73

complementary goods

Question 74

sum total of the percentage market shares of the largest firms in an industry. For example the four-firm concentration ratio would be the total market share of each of the four biggest firms. Gives an indication of the pricing power firms have and therefore of the market structure in which the product is sold.

Answer 74

concentration ratio

Question 75

this exists when a firm’s long-run average total cost remains constant as the firm’s size increases. Between minimum and maximum efficient scale, a firm neither experiences economies nor disconomies of scale as it grows.

Answer 75

constant returns to scale

Question 76

people who buy goods and services. Often a household is considered to be a fundamental unit consumption

Answer 76

consumer(s)

Question 77

an index that measures the price of a fixed market basket of consumer goods bought by a typical consumer. The CPI is used to calculate the inflation rate in a nation.

Answer 77

consumer price index

(CPI)

Question 78

the difference between the equilibrium price in the market and the price consumers are actually willing to pay for a good or service. The economic gain consumers experience by purchasing in the market. On a graph, consumer surplus is represented as the area beneath the demand curve, above the price paid, and to the left of the quantity purchased.

Answer 78

consumer suplus

Question 79

a component of a nation’s aggregate demand; measures the total spending by domestic households on goods and services.

Answer 79

consumption (C)

Question 80

A demand-side policy whereby government increases taxes or decreases its expenditures in order to reduce aggregate demand. Could be used in a period of high inflation to bring down the inflation rate.

Answer 80

contractionary fiscal policy

Question 81

copyright

Answer 81

the government protection of someone’s intellectual property from being taken or sold by another. Serves as a barrier to entry of new firms, giving the owner of the copyright monopoly power

Question 82

cost-push inflation

Answer 82

inflation resulting from a decrease in AS (from higher wage rates and raw material prices, such as the price of oil) and accoompanied by a decrease in real output and employment. Also refferred to “stagflation” or “adverse aggregate supply shock.”

Question 83

cross-price elasticity of demand

Answer 83

the percentage change in the quantity demanded for one good divided by the percentage change in the price of a related good. Cross-price elasticity determines whether goods are complements (if negative) or substitutes (if positive)

Question 84

crowding-out effect

Answer 84

the rise in interest rates and the resulting decrease in investment spending in the economy caused by increased government borrowing in the loanable funds market. Seen as a disadvantageous side effect of expansionary fiscal policy.

Question 85

current account

Answer 85

measures the balance of trade in goods and services and the flow of income between one nation and all other nations. It also records monetary gifts or grants that flow into or out of a country. Equal to a country’s net exports, or its exports minus its imports.

Question 86

cyclical unemployment

Answer 86

unemployment caused by the business cycle. Not included in the natrual rate of unemployment. When a nation is in a recession or below full-employment output, there willbe a cyclical unemployment.

Question 87

deadweight loss

Answer 87

the loss of consumer and producer surplus that occurs when a quantity other than the equilibrium quantity prevails inthe market. Deadweight loss results from over or underproduction of a good and is associated with allocative inefficiency

Question 88

deflation

Answer 88

a decrease in the average price level of a tation’s output over time.

Question 89

demand

Answer 89

the relationship between quantity of a good that consumers wish to purchase in a given time period and price of the good. This inverse relationship and the price of the good. this inverse relationship can be expressed as a graphical curve or a tabular schedule or as a function in terms of P and Qd

Question 90

demand curve

Answer 90

a downward-sloping curve showing the inverse relationship between quantity demanded and price.

Question 91

the government protection of someone’s intellectual property from being taken or sold by another. Serves as a barrier to entry of new firms, giving the owner of the copyright monopoly power

Answer 91

copyright

Question 92

inflation resulting from a decrease in AS (from higher wage rates and raw material prices, such as the price of oil) and accoompanied by a decrease in real output and employment. Also refferred to “stagflation” or “adverse aggregate supply shock.”

Answer 92

cost-push inflation

Question 93

the percentage change in the quantity demanded for one good divided by the percentage change in the price of a related good. Cross-price elasticity determines whether goods are complements (if negative) or substitutes (if positive)

Answer 93

cross-price elasticity of demand

Question 94

the rise in interest rates and the resulting decrease in investment spending in the economy caused by increased government borrowing in the loanable funds market. Seen as a disadvantageous side effect of expansionary fiscal policy.

Answer 94

crowding-out effect

Question 95

measures the balance of trade in goods and services and the flow of income between one nation and all other nations. It also records monetary gifts or grants that flow into or out of a country. Equal to a country’s net exports, or its exports minus its imports.

Answer 95

current account

Question 96

unemployment caused by the business cycle. Not included in the natrual rate of unemployment. When a nation is in a recession or below full-employment output, there willbe a cyclical unemployment.

Answer 96

cyclical unemployment

Question 97

the loss of consumer and producer surplus that occurs when a quantity other than the equilibrium quantity prevails inthe market. Deadweight loss results from over or underproduction of a good and is associated with allocative inefficiency

Answer 97

deadweight loss

Question 98

a decrease in the average price level of a tation’s output over time.

Answer 98

deflation

Question 99

the relationship between quantity of a good that consumers wish to purchase in a given time period and price of the good. This inverse relationship and the price of the good. this inverse relationship can be expressed as a graphical curve or a tabular schedule or as a function in terms of P and Qd

Answer 99

demand

Question 100

a downward-sloping curve showing the inverse relationship between quantity demanded and price.

Answer 100

demand curve

Question 101

demand deposit

Answer 101

a deposit in a commercial bank against which checks may be written. Also known as a “checkable deposit”

Question 102

demand-pull inflation

Answer 102

inflation resulting from an increase in AD without a corresponding increase in AS

Question 103

depreciation

Answer 103

A decrease in the value of one currency relative to another, resulting from a decrease in demand for or an increase in the supply of the currency on the foreign exchange market.

Question 104

derived demand

Answer 104

demand for goods and services which creates a demand for the factors of production used to produce those goods and services. Thus, demand for resources is derived from (and changes with) the demand for the products those resources make

Question 105

determinants of demand

Answer 105

the factors that cause demand to either increase or decreas. the determinants of demand include: tastes and preferences, income, market size, prices of related goods, and expectations of future price, availability, or income.

Question 106

determinants of supply

Answer 106

the factors that cause supply to either increase or decrease. the determinants of supply include: technology, input prices, government taxes and subsidies, seller expectations, related prices, and number of suppliers

Question 107

devaluation

Answer 107

when a government intervenes in the market for its own currency to weaken it relative to another currency. Usually achieved through direct intervention in the foreign exchange (FOREX) market or through the use of monetary policy that affects interest rates, and thereby affects internaional demand for the currency.

Question 108

diminishing marginal returns

Answer 108

this happens when marginal product is decreasing as an input is added to the production process. Overuse of fixed input causes extra units of a variable input to add less and less to production.

This principle explains the slope of marginal product and marginal cost curves.

Question 109

diminishing marginal utility

Answer 109

each additional unit of a good or service that is consumed gives less additional satisfaction or utility than the previous unit that was consumed. One of the reasons why price and quantity demanded have an incerse relationship.

Question 110

discount rate

Answer 110

one of the three tools of monetary policy, it is the interest rate that the federal government charges on the loans it makes to commercial banks.

Question 111

a deposit in a commercial bank against which checks may be written. Also known as a “checkable deposit”

Answer 111

demand deposit

Question 112

inflation resulting from an increase in AD without a corresponding increase in AS

Answer 112

demand-pull inflation

Question 113

A decrease in the value of one currency relative to another, resulting from a decrease in demand for or an increase in the supply of the currency on the foreign exchange market.

Answer 113

depreciation

Question 114

demand for goods and services which creates a demand for the factors of production used to produce those goods and services. Thus, demand for resources is derived from (and changes with) the demand for the products those resources make

Answer 114

derived demand

Question 115

the factors that cause demand to either increase or decreas. the determinants of demand include: tastes and preferences, income, market size, prices of related goods, and expectations of future price, availability, or income.

Answer 115

determinants of demand

Question 116

the factors that cause supply to either increase or decrease. the determinants of supply include: technology, input prices, government taxes and subsidies, seller expectations, related prices, and number of suppliers

Answer 116

determinants of supply

Question 117

when a government intervenes in the market for its own currency to weaken it relative to another currency. Usually achieved through direct intervention in the foreign exchange (FOREX) market or through the use of monetary policy that affects interest rates, and thereby affects internaional demand for the currency.

Answer 117

devaluation

Question 118

this happens when marginal product is decreasing as an input is added to the production process. Overuse of fixed input causes extra units of a variable input to add less and less to production.

This principle explains the slope of marginal product and marginal cost curves.

Answer 118

diminishing marginal returns

Question 119

each additional unit of a good or service that is consumed gives less additional satisfaction or utility than the previous unit that was consumed. One of the reasons why price and quantity demanded have an incerse relationship.

Answer 119

diminishing marginal utility

Question 120

one of the three tools of monetary policy, it is the interest rate that the federal government charges on the loans it makes to commercial banks.

Answer 120

discount rate

Question 121

diseconomies of scale

Answer 121

this exists when a firm’s long-run average total cost increases as the firm’s size increases. The firm becomes less productively efficient as output rises in the long run. Also known as decreasing returns to scale

Question 122

disposable income

Answer 122

the portion of income that an individual can choose to spend or save; after-tax income. Disposable income is the main factor that drives both spending and savings decisions.

Question 123

dissaving

Answer 123

negative savings, as might be done at very low levels of income. Dissaving is accomplished either through drawing down prior accumulated wealth or by borrowing.

Question 124

dominant strategy

Answer 124

in game theory, a strategy in which a player always chooses independent of the other player’s choice. For a choice to be a dominant strategy, it must be the best response a player could choose for every one of the choices available to the other player.

Question 125

economic growth

Answer 125

an increase in the potential output of goods and services in a nation over time.

Question 126

economic profit

Answer 126

profits earned by a firm over and above normal profit. Areas of profit shown on economics graphs are economic profit and encourage new firms to join industries in which they can expect to earn more than normal profit. Economic losses similarly lead firms to leave an industry.

Question 127

economic rent

Answer 127

amount paid to a factor of production in excess of the amount needed to encourage that quantity to be provided. Associated with perfectly inelastic supply, such as of land or individual and unique talents

Question 128

economic resources

Answer 128

land, labor, capital, and entrepreneurial ability that are used in the production of goods and services. They are “economic” resources because they are scarce (limited in supply and desired).

Also known as “factors of production”.

Question 129

economics

Answer 129

the study of the choices that presumptively rational people make to get what they need and want given the condition of scarcity.

This field of inquiry is divided into macroeconomics - which concerns itself with how societies manage scarcity - and microeconomics - which primarily forcuses on how firms and households make choices based on incentives to achieve their objectives.

Question 130

economies of scale

Answer 130

this exists when a firm’s long-run average total cost declines as the firm’s size increases. The firm becomes more productively efficient as output rises in the long run.

aka known as increasing returns to scale.

Question 131

this exists when a firm’s long-run average total cost increases as the firm’s size increases. The firm becomes less productively efficient as output rises in the long run. Also known as decreasing returns to scale

Answer 131

diseconomies of scale

Question 132

the portion of income that an individual can choose to spend or save; after-tax income. Disposable income is the main factor that drives both spending and savings decisions.

Answer 132

disposable income

Question 133

negative savings, as might be done at very low levels of income. Dissaving is accomplished either through drawing down prior accumulated wealth or by borrowing.

Answer 133

dissaving

Question 134

in game theory, a strategy in which a player always chooses independent of the other player’s choice. For a choice to be a dominant strategy, it must be the best response a player could choose for every one of the choices available to the other player.

Answer 134

dominant strategy

Question 135

an increase in the potential output of goods and services in a nation over time.

Answer 135

economic growth

Question 136

profits earned by a firm over and above normal profit. Areas of profit shown on economics graphs are economic profit and encourage new firms to join industries in which they can expect to earn more than normal profit. Economic losses similarly lead firms to leave an industry.

Answer 136

economic profit

Question 137

amount paid to a factor of production in excess of the amount needed to encourage that quantity to be provided. Associated with perfectly inelastic supply, such as of land or individual and unique talents

Answer 137

economic rent

Question 138

land, labor, capital, and entrepreneurial ability that are used in the production of goods and services. They are “economic” resources because they are scarce (limited in supply and desired).

Also known as “factors of production”.

Answer 138

economic resources

Question 139

the study of the choices that presumptively rational people make to get what they need and want given the condition of scarcity.

This field of inquiry is divided into macroeconomics - which concerns itself with how societies manage scarcity - and microeconomics - which primarily forcuses on how firms and households make choices based on incentives to achieve their objectives.

Answer 139

economics

Question 140

this exists when a firm’s long-run average total cost declines as the firm’s size increases. The firm becomes more productively efficient as output rises in the long run.

aka known as increasing returns to scale.

Answer 140

economies of scale

Question 141

elastic

Answer 141

describes a rate of change in quantity that is greater (in percentage terms) than the rate of change in price. The upper halves of linear demand curves are elastic, corresponding with the quantities at which marginal revenue is positive.

Question 142

elasticity

Answer 142

the sensitivity or responsiveness of quantity changes relative to changes in other factors, often prices.

Question 143

entrepreneur

Answer 143

an individual who possesses the factor of production called entrepreneurship. Entrepreneurs run firms that attempt to maximize profit.

Question 144

entrepreneurial ability

Answer 144

the ability of individuals to take risks and combine land, labor, and capital in new ways in order to make profits by providing a good or service instead of selling their labor to an employer.

Question 145

equilibrium

Answer 145

the condition that exists in the market when a single price and quantity result from the intersection of supply and demand. The unique price-quantity combination at which neither a shortage, nor a surplus exists.

Question 146

estate tax

Answer 146

a tax assessed on the total balue of a person’s private property after he/she dies; often assessed only on large estates. Estate taxes are used to decrease income inequalitiy.

Question 147

excess capacity

Answer 147

the difference in the long run between the quantity produced by a monopolistically competitive firm and the quantity that would minimize its ATC curve. Underutilization of the factories or productive capabilities of each firm; amount by which a firm would increase production in order to be productively efficient.

Question 148

excess reserves

Answer 148

the amount by which a bank’s actual reserves exceed its required reserves. Banks can lend excess reserves; when they do, they expand the money supply. the amount of exces reserves in the banking system determines the equilibrium interest rate

Question 149

exchange rate

Answer 149

the price of one currency in terms of another currency, determined in the FOREX market

Question 150

excise tax

Answer 150

a per-unit tax on the production of a good or service. Excise taxes tend to reduce supply, decreasing quantty of a good that is sold and increasing the price that buyers pay.

Question 151

describes a rate of change in quantity that is greater (in percentage terms) than the rate of change in price. The upper halves of linear demand curves are elastic, corresponding with the quantities at which marginal revenue is positive.

Answer 151

elastic

Question 152

the sensitivity or responsiveness of quantity changes relative to changes in other factors, often prices.

Answer 152

elasticity

Question 153

an individual who possesses the factor of production called entrepreneurship. Entrepreneurs run firms that attempt to maximize profit.

Answer 153

entrepreneur

Question 154

the ability of individuals to take risks and combine land, labor, and capital in new ways in order to make profits by providing a good or service instead of selling their labor to an employer.

Answer 154

entrepreneurial ability

Question 155

the condition that exists in the market when a single price and quantity result from the intersection of supply and demand. The unique price-quantity combination at which neither a shortage, nor a surplus exists.

Answer 155

equilibrium

Question 156

a tax assessed on the total balue of a person’s private property after he/she dies; often assessed only on large estates. Estate taxes are used to decrease income inequalitiy.

Answer 156

estate tax

Question 157

the difference in the long run between the quantity produced by a monopolistically competitive firm and the quantity that would minimize its ATC curve. Underutilization of the factories or productive capabilities of each firm; amount by which a firm would increase production in order to be productively efficient.

Answer 157

excess capacity

Question 158

the amount by which a bank’s actual reserves exceed its required reserves. Banks can lend excess reserves; when they do, they expand the money supply. the amount of exces reserves in the banking system determines the equilibrium interest rate

Answer 158

excess reserves

Question 159

the price of one currency in terms of another currency, determined in the FOREX market

Answer 159

exchange rate

Question 160

a per-unit tax on the production of a good or service. Excise taxes tend to reduce supply, decreasing quantty of a good that is sold and increasing the price that buyers pay.

Answer 160

excise tax

Question 161

expansionary fiscal policy

Answer 161

a demand-side policy whereby government decreases taxes or increases its expenditures in order to increase aggregate demand. Could be used in a period

Question 162

expansionary monetary policy

Answer 162

a demand-side policy whereby the central bank increases the supply of money, decreasing interest rates and increasing aggregate demand. Could be used to bring down high unemployment rates.

Question 163

explicit cost

Answer 163

costs that a business’ owners pay out to others. Accounting profit factors only explicit costs. Implicit costs, or normal profit, are the other nonmonetary costs.

Question 164

exports (X)

Answer 164

the spending by foreigners on domestically produced goods and services. Counts as an injection into a nation’s circular flow of income.

Question 165

externality

Answer 165

a positive or negative side effect of market activity; spillover cost or benefit. Costs incurred by those who do not produce the product and benefits that accrue to those who are not the purchasers are both examples of externalities

Question 166

factor markets

Answer 166

the markets in which the factors of production are bought by firms and sold by households. Factor markets are sometimes called resource markets.

Question 167

factors of production

Answer 167

the resources used to produce goods and services. These include land, labor, capital, and entrepreneurial ability.

Question 168

federal funds rate (FFR)

Answer 168

the interest rate banks charge one another on overnight loans made out of their excess reserves. The FFR is the interest rate targeted by the FED through its open market operations.

Question 169

Federal Open Market Committee

Answer 169

Federal Reserve governors and bank presidents, serving together, are responsible for setting the direction of monetary policy. The FOMC meets at least eight times each year and sets the target for th Federal Funds Rate, a benchmark interest rate in the economy

Question 170

federal reserve

Answer 170

the Unitied States’ central banking system. The Fed is composed of a Board of Governors in Washington D.C., and twelve regional banks. The Fed serves as the main agent of monetary policy, acts as a bank for member banks, and regulates the banking sector.

Question 171

a demand-side policy whereby government decreases taxes or increases its expenditures in order to increase aggregate demand. Could be used in a period

Answer 171

expansionary fiscal policy

Question 172

a demand-side policy whereby the central bank increases the supply of money, decreasing interest rates and increasing aggregate demand. Could be used to bring down high unemployment rates.

Answer 172

expansionary monetary policy

Question 173

costs that a business’ owners pay out to others. Accounting profit factors only explicit costs. Implicit costs, or normal profit, are the other nonmonetary costs.

Answer 173

explicit cost

Question 174

the spending by foreigners on domestically produced goods and services. Counts as an injection into a nation’s circular flow of income.

Answer 174

exports (X)

Question 175

a positive or negative side effect of market activity; spillover cost or benefit. Costs incurred by those who do not produce the product and benefits that accrue to those who are not the purchasers are both examples of externalities

Answer 175

externality

Question 176

the markets in which the factors of production are bought by firms and sold by households. Factor markets are sometimes called resource markets.

Answer 176

factor markets

Question 177

the resources used to produce goods and services. These include land, labor, capital, and entrepreneurial ability.

Answer 177

factors of production

Question 178

the interest rate banks charge one another on overnight loans made out of their excess reserves. The FFR is the interest rate targeted by the FED through its open market operations.

Answer 178

federal funds rate (FFR)

Question 179

Federal Reserve governors and bank presidents, serving together, are responsible for setting the direction of monetary policy. The FOMC meets at least eight times each year and sets the target for th Federal Funds Rate, a benchmark interest rate in the economy

Answer 179

Federal Open Market Committee

Question 180

the Unitied States’ central banking system. The Fed is composed of a Board of Governors in Washington D.C., and twelve regional banks. The Fed serves as the main agent of monetary policy, acts as a bank for member banks, and regulates the banking sector.

Answer 180

federal reserve

Question 181

financial account

Answer 181

measures the flow of funds for investment in real assets (such as factories or pffice buildings) or financial assets (such as stocks and bonds) between a nation and the rest of the world. Foreign direct investment and portfolio investment are two components of the financial account. Formerly known as the Capital Account.

Question 182

firm

Answer 182

an organization that produces a good or service in order to make a profit for its owner or owners. Many people refer to a firm as a business. A fundamnetal assumption of economics is that firms seek to maximize profit.

Question 183

fiscal policy

Answer 183

changes in government spending and tax collection implemented by government with the aim of either increasing or decreasing aggregate demand to achieve the macroeconomic objectives of full employment and price-level stability.

Question 184

fixed cost

Answer 184

a short-run cost that does not change as a firm’s production changes. Fixed costs are incurred prior to producing even the first unit.

Question 185

fixed exchange rate system

Answer 185

when a government or central bank takes action to manage or fix the value of its currency relative to another currency on the FOREX market

Question 186

floating exchange rate system

Answer 186

when a currency’s exchange rate is determined by the free interation of supply and demand in internaional FOREX markets

Question 187

FOREX market (foreign exchange market)

Answer 187

the market in which internaional buyers and sellers exchange foreign currencies for one another to buy and sell goods, services, and assets from various countries. It is where a currency’s exchange rate relative to other currencies is determined

Question 188

fractional reserve banking

Answer 188

a banking system in which banks hold only a fraction of depostis as required reserves and can lend some of the money deposited by their customers to other borrowers.

Question 189

frictional unemployment

Answer 189

unemployment of workers who have employable skills, such as those who are voluntarily moving between jobs or recent graduates who are looking for their first job.

Question 190

full employment

Answer 190

when an economy is producing at a level of output at whcih almost all the nation’s resources are employed. The unemployment trate when an economy is at full employment equals the natural rate, and includes only frictional and structural unemployment. Full employment output is also referred to as “potential output.”

Question 191

measures the flow of funds for investment in real assets (such as factories or pffice buildings) or financial assets (such as stocks and bonds) between a nation and the rest of the world. Foreign direct investment and portfolio investment are two components of the financial account. Formerly known as the Capital Account.

Answer 191

financial account

Question 192

an organization that produces a good or service in order to make a profit for its owner or owners. Many people refer to a firm as a business. A fundamnetal assumption of economics is that firms seek to maximize profit.

Answer 192

firm

Question 193

changes in government spending and tax collection implemented by government with the aim of either increasing or decreasing aggregate demand to achieve the macroeconomic objectives of full employment and price-level stability.

Answer 193

fiscal policy

Question 194

a short-run cost that does not change as a firm’s production changes. Fixed costs are incurred prior to producing even the first unit.

Answer 194

fixed cost

Question 195

when a government or central bank takes action to manage or fix the value of its currency relative to another currency on the FOREX market

Answer 195

fixed exchange rate system

Question 196

when a currency’s exchange rate is determined by the free interation of supply and demand in internaional FOREX markets

Answer 196

floating exchange rate system

Question 197

the market in which internaional buyers and sellers exchange foreign currencies for one another to buy and sell goods, services, and assets from various countries. It is where a currency’s exchange rate relative to other currencies is determined

Answer 197

FOREX market (foreign exchange market)

Question 198

a banking system in which banks hold only a fraction of depostis as required reserves and can lend some of the money deposited by their customers to other borrowers.

Answer 198

fractional reserve banking

Question 199

unemployment of workers who have employable skills, such as those who are voluntarily moving between jobs or recent graduates who are looking for their first job.

Answer 199

frictional unemployment

Question 200

when an economy is producing at a level of output at whcih almost all the nation’s resources are employed. The unemployment trate when an economy is at full employment equals the natural rate, and includes only frictional and structural unemployment. Full employment output is also referred to as “potential output.”

Answer 200

full employment

Question 201

game theory

Answer 201

the study of strategic decision making used in economics and many other disciplines in which analysis of interdependent choices choices is performed. To an economist, a game is a situation in which a discrete number of players can be identified, each has specific strategies or choices, and the payoffs to each player can be quantified (or approximated) for strategic analysis. Oligopoly’s few firms and interdependent pricing and output decisions incolce the same strategy present in many games.

Question 202

GDP deflator

Answer 202

the price index for all final goods and services used to adjust the nominal GDP into real GDP

Question 203

gift tax

Answer 203

a tax placed on gifts received from another person; often applied only to large monetary gifts. Gift taxes are used to decrease income inequality.

Question 204

Gini coefficient

Answer 204

the ratio of the area above the Lorenz curbe to the total area below the line of equality. Gini coefficients range between zero and one. Societies with higher Gini coefficients hae more unequally distributed wealth or income.

Question 205

gross domestic product (GDP)

Answer 205

the total market value of all final goods and services produced during a given time period within a country’s borders. Equal to the total income of the nation’s households or the total expenditures on the nation’s output.

Question 206

homogenous products

Answer 206

products that are identical or so similar that consumers can’t or don’t distinguish between the products made by various firms. Perfectly competitive industries are assumed to feature many firms producing goods that cannot be distinguished from one another and therefore are perfectly substitutable for one another.

Question 207

human capital

Answer 207

the value skills integrated into labor through education, training, knowledge, and health. An important determinant of aggregate supply and the level of economic growth in a nation

Question 208

implicit cost

Answer 208

normal profit.

fair market value of the resources owned by the entrepreneur that the firm uses. in particular, this includes the wages or salary that the entrepreneur could have earned working for another firm. Can be referred to as implicit cost, because these are nonmonetary costs incurred by the firm.

Question 209

imports (M)

Answer 209

Spending on goods and services produced in foreign nations. Counts as a leakage from a nation’s circular flow of income.

Question 210

income effect

Answer 210

Consumer’s buying power changes inversely to changes in price. This is one reason for the inverse relationship expressed in the law of demand. Consumers buy fewer units at higher prices because their same nomial income has less purchasing power.

Question 211

the study of strategic decision making used in economics and many other disciplines in which analysis of interdependent choices choices is performed. To an economist, a game is a situation in which a discrete number of players can be identified, each has specific strategies or choices, and the payoffs to each player can be quantified (or approximated) for strategic analysis. Oligopoly’s few firms and interdependent pricing and output decisions incolce the same strategy present in many games.

Answer 211

game theory

Question 212

the price index for all final goods and services used to adjust the nominal GDP into real GDP

Answer 212

GDP deflator

Question 213

a tax placed on gifts received from another person; often applied only to large monetary gifts. Gift taxes are used to decrease income inequality.

Answer 213

gift tax

Question 214

the ratio of the area above the Lorenz curbe to the total area below the line of equality. Gini coefficients range between zero and one. Societies with higher Gini coefficients hae more unequally distributed wealth or income.

Answer 214

Gini coefficient

Question 215

the total market value of all final goods and services produced during a given time period within a country’s borders. Equal to the total income of the nation’s households or the total expenditures on the nation’s output.

Answer 215

gross domestic product (GDP)

Question 216

products that are identical or so similar that consumers can’t or don’t distinguish between the products made by various firms. Perfectly competitive industries are assumed to feature many firms producing goods that cannot be distinguished from one another and therefore are perfectly substitutable for one another.

Answer 216

homogenous products

Question 217

the value skills integrated into labor through education, training, knowledge, and health. An important determinant of aggregate supply and the level of economic growth in a nation

Answer 217

human capital

Question 218

normal profit.

fair market value of the resources owned by the entrepreneur that the firm uses. in particular, this includes the wages or salary that the entrepreneur could have earned working for another firm. Can be referred to as implicit cost, because these are nonmonetary costs incurred by the firm.

Answer 218

implicit cost

Question 219

Spending on goods and services produced in foreign nations. Counts as a leakage from a nation’s circular flow of income.

Answer 219

imports (M)

Question 220

Consumer’s buying power changes inversely to changes in price. This is one reason for the inverse relationship expressed in the law of demand. Consumers buy fewer units at higher prices because their same nomial income has less purchasing power.

Answer 220

income effect

Question 221

income elasticity of demand

Answer 221

the percentage change in the quantity demanded divided by the percentage change in consumers’ income. Measures whether and how much buying increases(typically) or decreases(in unusual cases of less-desirable goods) when income rises. Income elasticity of demand determines whether goods are normal(if positive) or inferior (if negative)

Question 222

increasing marginal returns

Answer 222

this happens when both total and marginal product increase as an input is added to the production process. This principle explains why marginal product initially slopes up and why marginal cost initially slopes down.

Question 223

inelastic

Answer 223

describes a rate of change in quantity that is less (in percentage terms) than the rate of change in price. The lower halves of linear demand curves are inelastic, corresponding to quantities at which marginal revenue is negative.

Question 224

inferior good

Answer 224

a good whose demand varies inversely with consumers’ incomes

Question 225

inflation

Answer 225

a rise in the average level of prices in the economy over time (percentage change in the CPI)

Question 226

inflationary gap

Answer 226

the difference between a nation’s equilibrium level of output and its full employment level of output when the nation is overheating (producing beyond its full employment level).

Question 227

inflationary spiral

Answer 227

the rapid increase in average price level resulting from demand-pull inflation leading to higher wages, causing cost-push inflation

Question 228

interdependence

Answer 228

the condition in which the decisions of producers are based on the possible decisions of other producers. Oligopolies feature interdependence because firms must take into consideration the actions of other firms when determining their optimal price and quantity

Question 229

interest rate

Answer 229

the opportunity cost of money.

either the cost of borrowing money or the cost of spending money (the IR is what would be given up by not saving money)

Conversely, this is the place a lender is paid for allowing someone else to use money for a time

Question 230

inventory

Answer 230

the stock of merchandise a firm has produced but notyet sold. Changes in inventory are considered part of investment for the purposes of calculating GDP.

Question 231

the percentage change in the quantity demanded divided by the percentage change in consumers’ income. Measures whether and how much buying increases(typically) or decreases(in unusual cases of less-desirable goods) when income rises. Income elasticity of demand determines whether goods are normal(if positive) or inferior (if negative)

Answer 231

income elasticity of demand

Question 232

this happens when both total and marginal product increase as an input is added to the production process. This principle explains why marginal product initially slopes up and why marginal cost initially slopes down.

Answer 232

increasing marginal returns

Question 233

describes a rate of change in quantity that is less (in percentage terms) than the rate of change in price. The lower halves of linear demand curves are inelastic, corresponding to quantities at which marginal revenue is negative.

Answer 233

inelastic

Question 234

a good whose demand varies inversely with consumers’ incomes

Answer 234

inferior good

Question 235

a rise in the average level of prices in the economy over time (percentage change in the CPI)

Answer 235

inflation

Question 236

the difference between a nation’s equilibrium level of output and its full employment level of output when the nation is overheating (producing beyond its full employment level).

Answer 236

inflationary gap

Question 237

the rapid increase in average price level resulting from demand-pull inflation leading to higher wages, causing cost-push inflation

Answer 237

inflationary spiral

Question 238

the condition in which the decisions of producers are based on the possible decisions of other producers. Oligopolies feature interdependence because firms must take into consideration the actions of other firms when determining their optimal price and quantity

Answer 238

interdependence

Question 239

the opportunity cost of money.

either the cost of borrowing money or the cost of spending money (the IR is what would be given up by not saving money)

Conversely, this is the place a lender is paid for allowing someone else to use money for a time

Answer 239

interest rate

Question 240

the stock of merchandise a firm has produced but notyet sold. Changes in inventory are considered part of investment for the purposes of calculating GDP.

Answer 240

inventory

Question 241

investment (I)

Answer 241

a component of aggregate demand, it includes all spending on capital equipment, inventories, and technology by firms. This does not include financial investment, which is the purchase of financial assets (stocks and bonds). Also includes household purchasing of newly constructed residences.

Question 242

Keynesian economics

Answer 242

economic theory based on the ideas of John Maynard Keynes, who argued that periods of low employmentand output would not self-correct quickly and that government action to stimulate aggregate demand was useful in these times

Question 243

kinked demand model

Answer 243

type of oligopoly in which firms act to ignore competitor price increases but match competitor price decreases

Question 244

labor

Answer 244

people’s mental and/or physical effort and skill used in producing goods and services

Question 245

land

Answer 245

natural resources used in producing goods and services. An economist’s definition of land includes land area and the minerals, oil, timber, and other useful bounty that the land provides. Sometimes it is even used so broadly as to be nearly synonymous with raw materials.

Question 246

law of demand

Answer 246

the price and quantity demanded of a good are inversely related because of income effect, substitution effect, and diminishing marginal utility

Question 247

law of increasing marginal cost

Answer 247

the cost of producing each additional unit of a good or service incurs a greater cost than the previous unit. Results from the need to use resources that are less and less well-suited to production of that good as quantity produced increases

Question 248

law of increasing opportunity cost

Answer 248

as the production of one goodincreases, producers must sacrifice ever-increasing amounts of other goods because factors of production are not perfectly interchangeable between the production of bothgoods. Explains production possibilities frontiers that are concave to teh origin.

Question 249

law of supply

Answer 249

the price and quantity supplied of a good are directly related. higher prices induce increased production quantities

Question 250

liability

Answer 250

a debt with a monetary value

Question 251

a component of aggregate demand, it includes all spending on capital equipment, inventories, and technology by firms. This does not include financial investment, which is the purchase of financial assets (stocks and bonds). Also includes household purchasing of newly constructed residences.

Answer 251

investment (I)

Question 252

economic theory based on the ideas of John Maynard Keynes, who argued that periods of low employmentand output would not self-correct quickly and that government action to stimulate aggregate demand was useful in these times

Answer 252

Keynesian economics

Question 253

type of oligopoly in which firms act to ignore competitor price increases but match competitor price decreases

Answer 253

kinked demand model

Question 254

people’s mental and/or physical effort and skill used in producing goods and services

Answer 254

labor

Question 255

natural resources used in producing goods and services. An economist’s definition of land includes land area and the minerals, oil, timber, and other useful bounty that the land provides. Sometimes it is even used so broadly as to be nearly synonymous with raw materials.

Answer 255

land

Question 256

the price and quantity demanded of a good are inversely related because of income effect, substitution effect, and diminishing marginal utility

Answer 256

law of demand

Question 257

the cost of producing each additional unit of a good or service incurs a greater cost than the previous unit. Results from the need to use resources that are less and less well-suited to production of that good as quantity produced increases

Answer 257

law of increasing marginal cost

Question 258

as the production of one goodincreases, producers must sacrifice ever-increasing amounts of other goods because factors of production are not perfectly interchangeable between the production of bothgoods. Explains production possibilities frontiers that are concave to teh origin.

Answer 258

law of increasing opportunity cost

Question 259

the price and quantity supplied of a good are directly related. higher prices induce increased production quantities

Answer 259

law of supply

Question 260

a debt with a monetary value

Answer 260

liability

Question 261

liquidity

Answer 261

the property of being easily spent on goods and services. Assets are more liquid the more easily spent they are; money is the most liquid of all assets, whereas real estate is not a liquid way to hold wealth.

Question 262

loanable funds market

Answer 262

the market in which the demand for private investment and the supply of household savings intersect to determine the equilibrium real interest rate

Question 263

long run

Answer 263

in microeconomics, the production period in which all of a firm’s inputs can be varied and in which firms can enter or exit various industries. In macroeconomics, the time period in which GDP will equal potential GDP, wages will be flexible, and unemployment will gravitate back to the natural rate.

Question 264

long run aggregate supply (LRAS)

Answer 264

the level of output to which an economy will always return in the long run. The LRAS curve intersects the horizontal axis at the full employment or potential level of output.

Question 265

long run averate total cost (LRATC)

Answer 265

a graph which shows a firm’s average total cost as it varies its size and displays economies of sclae (if downward sloping), constantreturns to scale (if horizontal), or diseconomies of scale(if upward sloping)

Question 266

lorenz curve

Answer 266

a graph that shows the relative equality of the income or wealth distribution in a society

Question 267

M1

Answer 267

A measure of the money supply including currency and checkable deposits

Question 268

M2

Answer 268

a more broadly defined component of the money supply. Equal to M1 plus savings deposits, money-market deposits,mutual funds, and small-time deposits.

Question 269

M3 and MZM

Answer 269

broader yet measures of the money supply including more near monies than M2. MZM stands for “money zero maturity”

Question 270

macroeconomic equilibrium

Answer 270

the level of output at which a nation is producing at any particular period of time. May be below its full employment level (if the economy is in recession) or beyond its full employment level (if the economy is overheating)

Question 271

the property of being easily spent on goods and services. Assets are more liquid the more easily spent they are; money is the most liquid of all assets, whereas real estate is not a liquid way to hold wealth.

Answer 271

liquidity

Question 272

the market in which the demand for private investment and the supply of household savings intersect to determine the equilibrium real interest rate

Answer 272

loanable funds market

Question 273

in microeconomics, the production period in which all of a firm’s inputs can be varied and in which firms can enter or exit various industries. In macroeconomics, the time period in which GDP will equal potential GDP, wages will be flexible, and unemployment will gravitate back to the natural rate.

Answer 273

long run

Question 274

the level of output to which an economy will always return in the long run. The LRAS curve intersects the horizontal axis at the full employment or potential level of output.

Answer 274

long run aggregate supply (LRAS)

Question 275

a graph which shows a firm’s average total cost as it varies its size and displays economies of sclae (if downward sloping), constantreturns to scale (if horizontal), or diseconomies of scale(if upward sloping)

Answer 275

long run averate total cost (LRATC)

Question 276

a graph that shows the relative equality of the income or wealth distribution in a society

Answer 276

lorenz curve

Question 277

A measure of the money supply including currency and checkable deposits

Answer 277

M1

Question 278

a more broadly defined component of the money supply. Equal to M1 plus savings deposits, money-market deposits,mutual funds, and small-time deposits.

Answer 278

M2

Question 279

broader yet measures of the money supply including more near monies than M2. MZM stands for “money zero maturity”

Answer 279

M3 and MZM

Question 280

the level of output at which a nation is producing at any particular period of time. May be below its full employment level (if the economy is in recession) or beyond its full employment level (if the economy is overheating)

Answer 280

macroeconomic equilibrium

Question 281

macroeconomics

Answer 281

the study of entire nations’ economies and the interactions beteen households, firms, government, and foreigners

Question 282

marginal analysis

Answer 282

decision-making which involves a comparison of marginal (extra) benefits and marginal costs

Question 283

marginal benefit

Answer 283

the additional benefit of doing one more bit of something, such as consuming one more unit of a good or service. The rate of change or slope of total benefit.

Question 284

marginal cost (MC)

Answer 284

the additional cost of doing one more bit of something, such as producing one extra unit of a good or service; change in total cost divided by change in output. the slope of the total cost and variable cost curves

Question 285

marginal factor cost (MFC)

Answer 285

the cost of employing one additional unit of a factor; change in total cost divided by change in quantity of the factor in question (often labor). Bears a close relationship to labor supply.

Also called marginal resource costs (MRC)

Question 286

marginal private benefit (MPB)

Answer 286

the private benefit of consuming an additional unit of of a good or service

benefit obtained by the consumer only.

Question 287

marginal private cost (MPC)

Answer 287

the private cost of producing an additional unit of output; costs incurred by the producer/seller only.

Question 288

marginal product (MP)

Answer 288

the additional output which is produced when an additional unit of input, often labor, is added to the production process.

Also referred to as marginal physical product (MPP)

Question 289

marginal propensity to consume (MPC)

Answer 289

the fraction of any change in income spent on domestically produced goods and services: equal to the change in consumption divided by the change in disposable income.

Question 290

marginal propensity to save (MPS)

Answer 290

the fraction of any change in income that is saved; equal to the change in savings divided by the change in disposable income.

Question 291

the study of entire nations’ economies and the interactions beteen households, firms, government, and foreigners

Answer 291

macroeconomics

Question 292

decision-making which involves a comparison of marginal (extra) benefits and marginal costs

Answer 292

marginal analysis

Question 293

the additional benefit of doing one more bit of something, such as consuming one more unit of a good or service. The rate of change or slope of total benefit.

Answer 293

marginal benefit

Question 294

the additional cost of doing one more bit of something, such as producing one extra unit of a good or service; change in total cost divided by change in output. the slope of the total cost and variable cost curves

Answer 294

marginal cost (MC)

Question 295

the cost of employing one additional unit of a factor; change in total cost divided by change in quantity of the factor in question (often labor). Bears a close relationship to labor supply.

Also called marginal resource costs (MRC)

Answer 295

marginal factor cost (MFC)

Question 296

the private benefit of consuming an additional unit of of a good or service

benefit obtained by the consumer only.

Answer 296

marginal private benefit (MPB)

Question 297

the private cost of producing an additional unit of output; costs incurred by the producer/seller only.

Answer 297

marginal private cost (MPC)

Question 298

the additional output which is produced when an additional unit of input, often labor, is added to the production process.

Also referred to as marginal physical product (MPP)

Answer 298

marginal product (MP)

Question 299

the fraction of any change in income spent on domestically produced goods and services: equal to the change in consumption divided by the change in disposable income.

Answer 299

marginal propensity to consume (MPC)

Question 300

the fraction of any change in income that is saved; equal to the change in savings divided by the change in disposable income.

Answer 300

marginal propensity to save (MPS)

Question 301

marginal revenue (MR)

Answer 301

the change in total revenue that results from the firm producing and selling one more unit of a good. Positive marginal revenue correlates with the elastic region of a demand curve

Question 302

marginal revenue product (MRP)

Answer 302

the added revenue a firm gains when employing an additional unit of a factor. Change in total revenue divided by change in the quantity of the factor in question (often labor)

bears a close relationship to labor demand

Question 303

marginal social benefit (MSB)

Answer 303

the benefit to society of consuming an additional unit of a good or service. This includes marginal private benefit and the external benefits that are captured by non-buyers.

Question 304

marginal social cost (MSC)

Answer 304

the cost to society of producing an additional unit of ouput. This includes marginal private costs and those external costs that are incurred by third parties

Question 305

marginal utility

Answer 305

the additional satisfaction or usefulness a consumer gets from consuming an additional unit of a good or service; change in total utility divided by change in quantity consumed

Question 306

market

Answer 306

a forum for interactions between demanders wishing to make purchases and suppliers wishing to make sales. Markets exist wherever buyers and sellers meet to exchange goods, services, or the factors of production

Question 307

market economy

Answer 307

an economic system that relies on individuals pursuing their own self-interest in the market in order to cope with scarcity.

capitalist economy

In market systems, prices are used to guide production decisions in a decentralized manner. Buyers “vote” with their spending dollars, making those goods more expensive, therby encouraging producers to make more of goods that are more desired and useful. Contrasted with command economy in which production decisions are made centrally

Question 308

market failure

Answer 308

the failure of a market to provide a good/service or to allocate goods/services in a socially optimal manner. Market failure may result from inadequate competition, from externalities, from informaional advantages on the part of the buyer or seller, or high transaction costs

Question 309

microeconomics

Answer 309

the study of the interactions between consumers and the producers in markets for individual products

Question 310

monetarism

Answer 310

the macroeconomic view that the main cause of changes in aggregate ouput and the price level are fluctuations in the money supply

Question 311

the change in total revenue that results from the firm producing and selling one more unit of a good. Positive marginal revenue correlates with the elastic region of a demand curve

Answer 311

marginal revenue (MR)

Question 312

the added revenue a firm gains when employing an additional unit of a factor. Change in total revenue divided by change in the quantity of the factor in question (often labor)

bears a close relationship to labor demand

Answer 312

marginal revenue product (MRP)

Question 313

the benefit to society of consuming an additional unit of a good or service. This includes marginal private benefit and the external benefits that are captured by non-buyers.

Answer 313

marginal social benefit (MSB)

Question 314

the cost to society of producing an additional unit of ouput. This includes marginal private costs and those external costs that are incurred by third parties

Answer 314

marginal social cost (MSC)

Question 315

the additional satisfaction or usefulness a consumer gets from consuming an additional unit of a good or service; change in total utility divided by change in quantity consumed

Answer 315

marginal utility

Question 316

a forum for interactions between demanders wishing to make purchases and suppliers wishing to make sales. Markets exist wherever buyers and sellers meet to exchange goods, services, or the factors of production

Answer 316

market

Question 317

an economic system that relies on individuals pursuing their own self-interest in the market in order to cope with scarcity.

capitalist economy

In market systems, prices are used to guide production decisions in a decentralized manner. Buyers “vote” with their spending dollars, making those goods more expensive, therby encouraging producers to make more of goods that are more desired and useful. Contrasted with command economy in which production decisions are made centrally

Answer 317

market economy

Question 318

the failure of a market to provide a good/service or to allocate goods/services in a socially optimal manner. Market failure may result from inadequate competition, from externalities, from informaional advantages on the part of the buyer or seller, or high transaction costs

Answer 318

market failure

Question 319

the study of the interactions between consumers and the producers in markets for individual products

Answer 319

microeconomics

Question 320

the macroeconomic view that the main cause of changes in aggregate ouput and the price level are fluctuations in the money supply

Answer 320

monetarism

Question 321

monetary policy

Answer 321

the central bank’s manipulation of the supply of money aimed at raising or lowering interest rates to stimulate or contract the level of aggregate demand to promote the macroeconomic objectives of price-level stability and full employment

Question 322

money

Answer 322

any object that can be used to facilitate the exchange of goods and services in a market

Question 323

money demand

Answer 323

the sum of the transaction demand and the asset demand for money. Inversely related to the nominal interest rate.

Question 324

money market

Answer 324

the market where the supply of money is set by the central bank; includes the downward-sloping money-demand curve and a vertical money-supply curve. The “price” of money is the nominal interest rate

Question 325

money supply

Answer 325

the vertical curve representing the total supply of excess reserves in a nation’s banking system. Determined by the monetary policy actions of the central banks

Question 326

monopolistic competition

Answer 326

a relatively competitive market suturcture in which many firms compete, each having a limited ability to set prices and earn economic profits because of product differentiation. Because there are no barriers to entry of new firms, in the long run each firm earns only normal profit

Question 327

monopoly

Answer 327

a market with one seller. Monopolies face the entire market demand curve and therefore a steeper MR that lies below demand. No other companies make close substitute goods for the monopolist’s and entry in the market is blocked, making long-run profits possible

Question 328

monopsony

Answer 328

a market dominated by a single consumer. The monopsony model is used to show why in labor markets with only one large firm hiring all the labor in an area, wages and employment will be lower than if there were several firms bidding for labor resources.

Monopsonies often give rise to union formation

Question 329

multiplier effect

Answer 329

the increase in total spending in an economy resulting from an initial injection of new spending. The size of the multiplier effect depends upon the spending multiplier.

Question 330

Nash Equilibrium

Answer 330

Situation in game theory that once reached is likely to remain stable. In a Nash equilibrium, neither player has an incentive to deviate from his or her strategic choice given the choice(s) of his or her rivals

Question 331

the central bank’s manipulation of the supply of money aimed at raising or lowering interest rates to stimulate or contract the level of aggregate demand to promote the macroeconomic objectives of price-level stability and full employment

Answer 331

monetary policy

Question 332

any object that can be used to facilitate the exchange of goods and services in a market

Answer 332

money

Question 333

the sum of the transaction demand and the asset demand for money. Inversely related to the nominal interest rate.

Answer 333

money demand

Question 334

the market where the supply of money is set by the central bank; includes the downward-sloping money-demand curve and a vertical money-supply curve. The “price” of money is the nominal interest rate

Answer 334

money market

Question 335

the vertical curve representing the total supply of excess reserves in a nation’s banking system. Determined by the monetary policy actions of the central banks

Answer 335

money supply

Question 336

a relatively competitive market suturcture in which many firms compete, each having a limited ability to set prices and earn economic profits because of product differentiation. Because there are no barriers to entry of new firms, in the long run each firm earns only normal profit

Answer 336

monopolistic competition

Question 337

a market with one seller. Monopolies face the entire market demand curve and therefore a steeper MR that lies below demand. No other companies make close substitute goods for the monopolist’s and entry in the market is blocked, making long-run profits possible

Answer 337

monopoly

Question 338

a market dominated by a single consumer. The monopsony model is used to show why in labor markets with only one large firm hiring all the labor in an area, wages and employment will be lower than if there were several firms bidding for labor resources.

Monopsonies often give rise to union formation

Answer 338

monopsony

Question 339

the increase in total spending in an economy resulting from an initial injection of new spending. The size of the multiplier effect depends upon the spending multiplier.

Answer 339

multiplier effect

Question 340

Situation in game theory that once reached is likely to remain stable. In a Nash equilibrium, neither player has an incentive to deviate from his or her strategic choice given the choice(s) of his or her rivals

Answer 340

Nash Equilibrium

Question 341

natural monopoly

Answer 341

a market condition in which a firm is able to prevent competition because its economy of scale allows it to produce at a lower average total cost than any smaller competitor could.

Question 342

natural rate of unemployment (NRU)

Answer 342

the level of unemployment that prevails in an economy that is producing at its full employment level of output. Includes structural and frictional unemployment. While countries’ NRUs can vary, the NRU n the US tends to be closeto 5 percent

Question 343

negative externality

Answer 343

a side effect of production or consumption which places a cost on someone other than the consumer or producer of the good or service. These unpaid costs to society lead goods of this type to be overproduced in unregulated markets.

Question 344

net exports (NX or X_N)

Answer 344

a component of aggregate demand that equals the income earned fromt he sale of exports tot he rest of the world minus expenditures by domestic consumers on imports

Question 345

nominal

Answer 345

unadjusted for inflation. Nominal values may be inflation adjusted into real values. Nominal GDP is converted to real GDP by using a price index. Nominal interest rates are converted into real rates by way of the Fisher equation

Question 346

non-exludable good

Answer 346

a good that provides benefits which cannot be denied to non-payers. Non-excludability often leads to the free rider problem in which people who would otherwise buy a good choose not to and end up receibing most or all of the benefit anyway.

Question 347

non-rival good

Answer 347

a good that lends itself to shared consumption; one person’s consumption of the good or service does not prevent another person from consuming the exact same unit of the good or service.

Question 348

normal good

Answer 348

a good whose demand varies directly with consumers’ incomes

Question 349

normal profit

Answer 349

fair market value of the resources owned by the entrepreneur that the firm uses. In particular, this includes the wages or salary that the entrepreneur could have earned working for another firm. Can be referred to as implicit cost, because these are nonmonetary costs incurred by the firm.

Question 350

official reserves

Answer 350

to balance the two accounts in the balance of payments (current and financial accounts), a country’s official foreign exchange reserves measures the net effect of all the money flows fromt he other accounts.

Question 351

a market condition in which a firm is able to prevent competition because its economy of scale allows it to produce at a lower average total cost than any smaller competitor could.

Answer 351

natural monopoly

Question 352

the level of unemployment that prevails in an economy that is producing at its full employment level of output. Includes structural and frictional unemployment. While countries’ NRUs can vary, the NRU n the US tends to be closeto 5 percent

Answer 352

natural rate of unemployment (NRU)

Question 353

a side effect of production or consumption which places a cost on someone other than the consumer or producer of the good or service. These unpaid costs to society lead goods of this type to be overproduced in unregulated markets.

Answer 353

negative externality

Question 354

a component of aggregate demand that equals the income earned fromt he sale of exports tot he rest of the world minus expenditures by domestic consumers on imports

Answer 354

net exports (NX or X_N)

Question 355

unadjusted for inflation. Nominal values may be inflation adjusted into real values. Nominal GDP is converted to real GDP by using a price index. Nominal interest rates are converted into real rates by way of the Fisher equation

Answer 355

nominal

Question 356

a good that provides benefits which cannot be denied to non-payers. Non-excludability often leads to the free rider problem in which people who would otherwise buy a good choose not to and end up receibing most or all of the benefit anyway.

Answer 356

non-exludable good

Question 357

a good that lends itself to shared consumption; one person’s consumption of the good or service does not prevent another person from consuming the exact same unit of the good or service.

Answer 357

non-rival good

Question 358

a good whose demand varies directly with consumers’ incomes

Answer 358

normal good

Question 359

fair market value of the resources owned by the entrepreneur that the firm uses. In particular, this includes the wages or salary that the entrepreneur could have earned working for another firm. Can be referred to as implicit cost, because these are nonmonetary costs incurred by the firm.

Answer 359

normal profit

Question 360

to balance the two accounts in the balance of payments (current and financial accounts), a country’s official foreign exchange reserves measures the net effect of all the money flows fromt he other accounts.

Answer 360

official reserves

Question 361

oligopoly

Answer 361

a market structure in which a few firms dominate and behave interdependently. Entry of new firms is often quite difficult because of the size of existing firms, meaning that firms may be able to earn positive economic profit in the long run.

Question 362

open-market operations

Answer 362

the central bank’s buying and selling of government bonds on the open market from commercial banks and the public. This is aimed at increasing or decreasing the level of reserves in the banking system and thereby affects the interest rate and the level of aggregate demand

Question 363

opportunity cost

Answer 363

that which is given up when a choice is made about the use of a scarce resource. Opportunity cost includes explicit costs (money payments made) and implicit costs (nonmonetary costs or sacrifices).

Question 364

patent

Answer 364

a government-granted license to be the sole producer of a new good or service. Similar in function to a copyright because it is a source of monopoly power for the sole legal producer

Question 365

payoff matrix

Answer 365

a grid that shows the outcomes of decisions made by producers in a game. Based on a payoff matrix, dominant strategies can be determined

Question 366

perfect competition

Answer 366

a market condition in which sellers are so numerous that each has no influence over price.

firms trade in homogenous goods and are unable to place barriers to entry or exit from the market so they only earn normal profit in the long run.

Question 367

perfect price discrimination

Answer 367

the ability of a monopolist to charge each individual consumer the highest price the consumer would willingly pay for a good or service. because each buyer pays his or her reservation price, there is no consumer surplus if a firm perfectly price discriminates

Question 368

phllips curve (long run)

Answer 368

a vertical curve at the natural rate of unemployment showing that in the long run there is no trade-off between the price level and the level of unemployment in an economy

Question 369

phillips curve (short run)

Answer 369

A downward-sloping curve showing the short run inverse relationship between the level of inflation and the level of unemployment.

Question 370

positive externality

Answer 370

a side effect of production or consumption which provides a benefit to someone other than the consumer or the producer of the good or service. Positive externalities tend to result in underproduction of the good or service in question.

Question 371

a market structure in which a few firms dominate and behave interdependently. Entry of new firms is often quite difficult because of the size of existing firms, meaning that firms may be able to earn positive economic profit in the long run.

Answer 371

oligopoly

Question 372

the central bank’s buying and selling of government bonds on the open market from commercial banks and the public. This is aimed at increasing or decreasing the level of reserves in the banking system and thereby affects the interest rate and the level of aggregate demand

Answer 372

open-market operations

Question 373

that which is given up when a choice is made about the use of a scarce resource. Opportunity cost includes explicit costs (money payments made) and implicit costs (nonmonetary costs or sacrifices).

Answer 373

opportunity cost

Question 374

a government-granted license to be the sole producer of a new good or service. Similar in function to a copyright because it is a source of monopoly power for the sole legal producer

Answer 374

patent

Question 375

a grid that shows the outcomes of decisions made by producers in a game. Based on a payoff matrix, dominant strategies can be determined

Answer 375

payoff matrix

Question 376

a market condition in which sellers are so numerous that each has no influence over price.

firms trade in homogenous goods and are unable to place barriers to entry or exit from the market so they only earn normal profit in the long run.

Answer 376

perfect competition

Question 377

the ability of a monopolist to charge each individual consumer the highest price the consumer would willingly pay for a good or service. because each buyer pays his or her reservation price, there is no consumer surplus if a firm perfectly price discriminates

Answer 377

perfect price discrimination

Question 378

a vertical curve at the natural rate of unemployment showing that in the long run there is no trade-off between the price level and the level of unemployment in an economy

Answer 378

phllips curve (long run)

Question 379

A downward-sloping curve showing the short run inverse relationship between the level of inflation and the level of unemployment.

Answer 379

phillips curve (short run)

Question 380

a side effect of production or consumption which provides a benefit to someone other than the consumer or the producer of the good or service. Positive externalities tend to result in underproduction of the good or service in question.

Answer 380

positive externality

Question 381

price ceiling

Answer 381

a price ceiling is a legal maximum price and is effective if set below the equilibrium price. This results in the quantity demanded exceeding the quantity supplied at the ceiling price. Hence a shortage exists in the market

Question 382

price discrimination

Answer 382

the ability of some producers to charge consumers differnt prices for the same good or service. When firms price discriminate they sell some units at high prices and other units at lower prices, usually on the basis of different costumers’ willingness to pay.

Question 383

price elasticity of demand

Answer 383

the responsiveness of quantity changes relative to price changes; the percentage change of quantity demanded divided by te percentage change in price.

Question 384

price elasticity of supply

Answer 384

the percentage change in quantity supplied divided by the percentage change in the price of a good or service.

Question 385

price floor

Answer 385

a price floor is a legal minimum price set above the equilibrium price.

This results in the quantity supplied exceeding the quantity demanded at the floor price. Hence a surplus exists in the market.

Question 386

price leadership model

Answer 386

type of oligopoly in which one firm functionally sets the price for the industry. Other firms defer to the price leader either due to its size or traditional role as the anchor firm in the industry.

Question 387

price taker

Answer 387

firms in perfect competition are price takers because they cannot control the market price for the good they sell. Due to the number of sellers of homogenous goods, each seller can sell any quantity it wants at the market price. Above this price, they would sell zero units. This means they face demand curves which are horizontal or perfectly elastic

Question 388

producers

Answer 388

people who make and sell goods and services; suppliers

Question 389

producer surplus

Answer 389

the difference between the market equilibrium price and the lowest price producers would willingly accept for a good or service.

On a graph, producer surplus is represented by the area beneath the price received, above the supply (or marginal cost) curve, and to the left of quantity sold.

Question 390

product differentiation

Answer 390

the efforts by firms to make their products appear different from those of their competitors. aka non-price competition, this involves firms making all sorts of claims about the relative quality of their product or service. Location, reliability, friendly employees, community tradition, social responsibility, popularity with the masses, an air of exclusivity related to the product are all types of claims firms make to differentiate their products and justify higher prices without losing much market share.

Question 391

a price ceiling is a legal maximum price and is effective if set below the equilibrium price. This results in the quantity demanded exceeding the quantity supplied at the ceiling price. Hence a shortage exists in the market

Answer 391

price ceiling

Question 392

the ability of some producers to charge consumers differnt prices for the same good or service. When firms price discriminate they sell some units at high prices and other units at lower prices, usually on the basis of different costumers’ willingness to pay.

Answer 392

price discrimination

Question 393

the responsiveness of quantity changes relative to price changes; the percentage change of quantity demanded divided by te percentage change in price.

Answer 393

price elasticity of demand

Question 394

the percentage change in quantity supplied divided by the percentage change in the price of a good or service.

Answer 394

price elasticity of supply

Question 395

a price floor is a legal minimum price set above the equilibrium price.

This results in the quantity supplied exceeding the quantity demanded at the floor price. Hence a surplus exists in the market.

Answer 395

price floor

Question 396

type of oligopoly in which one firm functionally sets the price for the industry. Other firms defer to the price leader either due to its size or traditional role as the anchor firm in the industry.

Answer 396

price leadership model

Question 397

firms in perfect competition are price takers because they cannot control the market price for the good they sell. Due to the number of sellers of homogenous goods, each seller can sell any quantity it wants at the market price. Above this price, they would sell zero units. This means they face demand curves which are horizontal or perfectly elastic

Answer 397

price taker

Question 398

people who make and sell goods and services; suppliers

Answer 398

producers

Question 399

the difference between the market equilibrium price and the lowest price producers would willingly accept for a good or service.

On a graph, producer surplus is represented by the area beneath the price received, above the supply (or marginal cost) curve, and to the left of quantity sold.

Answer 399

producer surplus

Question 400

the efforts by firms to make their products appear different from those of their competitors. aka non-price competition, this involves firms making all sorts of claims about the relative quality of their product or service. Location, reliability, friendly employees, community tradition, social responsibility, popularity with the masses, an air of exclusivity related to the product are all types of claims firms make to differentiate their products and justify higher prices without losing much market share.

Answer 400

product differentiation

Question 401

production function

Answer 401

the amount of output varies as inputs are added in production. Typically, output increases as inputs are added, but often at a decreasing rate

Question 402

production possibilities curve (PPC)

Answer 402

an economic model that shows all of teh p ossible combinations of two goods that could be produced using scarce factors of production and available technology.

aka production possibilities frontier

Question 403

productive efficiency

Answer 403

the condition that exists when the least amount of waste happens in producing as much output as possible. When a society is using all its resources to produce goods and services, it is productively efficient.

Firms are productively efficient if they produce the quantity that minimizes average total cost.

Question 404

productivity

Answer 404

the output per unit of input of a resource. An important determinant of the level of aggregate supply in a nation; strongly correlated with real wages

Question 405

profit

Answer 405

the revenue a firm has remaining after paying all of its costs. see economic, normal, and accounting profit

Question 406

progressive tax

Answer 406

a tax which takes a greater percentage of income from households with high income than households with low income. The US income tax is set up in a progressive manner, with higher-income earners in higher tax brackets than low income earners.

Question 407

proportional tax

Answer 407

a tax which takes the same percentage of income from all households

Question 408

protectionism

Answer 408

the use of tariffs, quotas, or subsidies to give domestic producers a competitive advantage over foreign producers.

Meant to protect domestic production and employment from foreign competition.

Question 409

public good

Answer 409

a good or service that is provided by the government. goods tend to work best as public goods if they are non-rival and non-excludable. Public goods are financed by tax revenue and provided in the socially optimal quantity

Question 410

quantity demanded

Answer 410

the amount of a good or service that consumers are willing and able to buy at a given price in a specified period of time

Question 411

the amount of output varies as inputs are added in production. Typically, output increases as inputs are added, but often at a decreasing rate

Answer 411

production function

Question 412

an economic model that shows all of teh p ossible combinations of two goods that could be produced using scarce factors of production and available technology.

aka production possibilities frontier

Answer 412

production possibilities curve (PPC)

Question 413

the condition that exists when the least amount of waste happens in producing as much output as possible. When a society is using all its resources to produce goods and services, it is productively efficient.

Firms are productively efficient if they produce the quantity that minimizes average total cost.

Answer 413

productive efficiency

Question 414

the output per unit of input of a resource. An important determinant of the level of aggregate supply in a nation; strongly correlated with real wages

Answer 414

productivity

Question 415

the revenue a firm has remaining after paying all of its costs. see economic, normal, and accounting profit

Answer 415

profit

Question 416

a tax which takes a greater percentage of income from households with high income than households with low income. The US income tax is set up in a progressive manner, with higher-income earners in higher tax brackets than low income earners.

Answer 416

progressive tax

Question 417

a tax which takes the same percentage of income from all households

Answer 417

proportional tax

Question 418

the use of tariffs, quotas, or subsidies to give domestic producers a competitive advantage over foreign producers.

Meant to protect domestic production and employment from foreign competition.

Answer 418

protectionism

Question 419

a good or service that is provided by the government. goods tend to work best as public goods if they are non-rival and non-excludable. Public goods are financed by tax revenue and provided in the socially optimal quantity

Answer 419

public good

Question 420

the amount of a good or service that consumers are willing and able to buy at a given price in a specified period of time

Answer 420

quantity demanded

Question 421

quantity supplied

Answer 421

the amount of a good or service that producers are willing and able to sell at a given price in a specified period of time

Question 422

rational expectations theory

Answer 422

the hypothesis that business firms and households expect monetary and fiscal policies to have certain effects on the economy and take, in pursuit of their own self-interests, actions which make these policies ineffective at changing real output and only result in changes in the price level

Question 423

recession

Answer 423

a contraction in total output of goods and services in a nation. could be caused by a decrease in aggregate demand or in aggregate supply

Question 424

recessionary gap

Answer 424

the difference between an economy’s equilibrium level of output and its full employment level of output when an economy is below full employment

Question 425

regressive tax

Answer 425

a tax which takes a greater percentage of income from households with low income than households with high income

Question 426

required reserves

Answer 426

the proportion of a bank’s total deposits it is required to keep in reserve with the central bank. Determined by the required reserve ratio

Question 427

rival

Answer 427

the condition in which one person’s consumption of a good or service prevents another person from consuming the exact same unit of the good or service

Question 428

scarcity

Answer 428

the fundamental problem of economics. The condition that exists because people’s wants and needs are greater than the available resources to meet those wants and needs

Question 429

self-correction

Answer 429

the idea that an economy producing at an equilibrium level of output that is below or above its full employment will return on its own to its full employment level if left to its own devices. Requires flexible wages and prices and is associated with classical economic views.

Question 430

short run

Answer 430

in microeconomics, the period of production time in which at least one input is constant. In macroeconomics, the period of time in which wages are presumed to be sticky, therefore output may stray from potential and unemployment may vary from the natural rate.

Question 431

the amount of a good or service that producers are willing and able to sell at a given price in a specified period of time

Answer 431

quantity supplied

Question 432

the hypothesis that business firms and households expect monetary and fiscal policies to have certain effects on the economy and take, in pursuit of their own self-interests, actions which make these policies ineffective at changing real output and only result in changes in the price level

Answer 432

rational expectations theory

Question 433

a contraction in total output of goods and services in a nation. could be caused by a decrease in aggregate demand or in aggregate supply

Answer 433

recession

Question 434

the difference between an economy’s equilibrium level of output and its full employment level of output when an economy is below full employment

Answer 434

recessionary gap

Question 435

a tax which takes a greater percentage of income from households with low income than households with high income

Answer 435

regressive tax

Question 436

the proportion of a bank’s total deposits it is required to keep in reserve with the central bank. Determined by the required reserve ratio

Answer 436

required reserves

Question 437

the condition in which one person’s consumption of a good or service prevents another person from consuming the exact same unit of the good or service

Answer 437

rival

Question 438

the fundamental problem of economics. The condition that exists because people’s wants and needs are greater than the available resources to meet those wants and needs

Answer 438

scarcity

Question 439

the idea that an economy producing at an equilibrium level of output that is below or above its full employment will return on its own to its full employment level if left to its own devices. Requires flexible wages and prices and is associated with classical economic views.

Answer 439

self-correction

Question 440

in microeconomics, the period of production time in which at least one input is constant. In macroeconomics, the period of time in which wages are presumed to be sticky, therefore output may stray from potential and unemployment may vary from the natural rate.

Answer 440

short run

Question 441

short run aggregate supply (SRAS)

Answer 441

positive relationship between the aggregate amount of GDP produced and the price level in an economy in the short run, when it is presumed that prices of goods are flexible but wage rates are fixed.

Question 442

shortage

Answer 442

the condition that exists when the quantity demanded exceeds the quantity supplied. Indication of price being lower than equilibrium level.

Question 443

socially optimal

Answer 443

the market condition that is met when the marginal social benefit equals the marginal social cost. aka the allocatively efficient level of output. Socially optimal levels of output incur no deadweight loss.

Question 444

specialization

Answer 444

a person or society’s decision to focus production on a particular good or service, leading it to trade with others for remaining goods it needs. To achieve maximum benefit, the person or society should specialize according to their comparative advantage

Question 445

spillover

Answer 445

see externality. For spillover benefits, see positive externality.

spillover costs see negative externality

Question 446

stagflation

Answer 446

a macroeconomic situation in which both inflation and unemployment increase. Caused by a negative supply shock.

Question 447

sticky wage and price model

Answer 447

the SRAS curve is sometimes referred to as the “sticky wage and price model,” because workers’ wage demands take time to adjust to changes in the overall price level, and therefore, in the short run an economy may produce well below or beyond its full employment level of output.

Question 448

stock

Answer 448

ownership of a corporation is divided into shares of stock. Each share represents ownership of a small percentage of the firm, and often entitles the owner to participate in the governance of the firm and to earn shares of the firm’s profits, called dividends

Question 449

structural unemployment

Answer 449

unemployment caused by changes in the structure of demand for goods and in technology; workers who are unemployed because they do not match what is in demand by producers in the economy or whose skills have been left behind by economic advancement

Question 450

subsidy

Answer 450

a payment from the government that is made to either a consumer or producer of a good/service. subsidies function like a negative tax: they encourage production and/or consumption of a good by reducing the cost of production.

Question 451

positive relationship between the aggregate amount of GDP produced and the price level in an economy in the short run, when it is presumed that prices of goods are flexible but wage rates are fixed.

Answer 451

short run aggregate supply (SRAS)

Question 452

the condition that exists when the quantity demanded exceeds the quantity supplied. Indication of price being lower than equilibrium level.

Answer 452

shortage

Question 453

the market condition that is met when the marginal social benefit equals the marginal social cost. aka the allocatively efficient level of output. Socially optimal levels of output incur no deadweight loss.

Answer 453

socially optimal

Question 454

a person or society’s decision to focus production on a particular good or service, leading it to trade with others for remaining goods it needs. To achieve maximum benefit, the person or society should specialize according to their comparative advantage

Answer 454

specialization

Question 455

see externality. For spillover benefits, see positive externality.

spillover costs see negative externality

Answer 455

spillover

Question 456

a macroeconomic situation in which both inflation and unemployment increase. Caused by a negative supply shock.

Answer 456

stagflation

Question 457

the SRAS curve is sometimes referred to as the “sticky wage and price model,” because workers’ wage demands take time to adjust to changes in the overall price level, and therefore, in the short run an economy may produce well below or beyond its full employment level of output.

Answer 457

sticky wage and price model

Question 458

ownership of a corporation is divided into shares of stock. Each share represents ownership of a small percentage of the firm, and often entitles the owner to participate in the governance of the firm and to earn shares of the firm’s profits, called dividends

Answer 458

stock

Question 459

unemployment caused by changes in the structure of demand for goods and in technology; workers who are unemployed because they do not match what is in demand by producers in the economy or whose skills have been left behind by economic advancement

Answer 459

structural unemployment

Question 460

a payment from the government that is made to either a consumer or producer of a good/service. subsidies function like a negative tax: they encourage production and/or consumption of a good by reducing the cost of production.

Answer 460

subsidy

Question 461

substitute goods

Answer 461

goods which are used in place of each other. For example, margarin is a substitute for butter.

Question 462

substitution effect

Answer 462

the tendency of consumers to substitute lower-priced items for higher-priced items. A reason why the law of demand is true; consumers purchase fewer units at higher prices because substitutes (whose prices are unchanged) seem relatively sheaper.

Question 463

supply

Answer 463

the willingness and ability of producers to offer a good or service for sale at the various prices which exist in the market within a certain time frame. The positive or direct relationship between quantity supplied and price that is often displayed on a graphical curve or in a tabular schedule or as a function in terms of P and Qs

Question 464

supply curve

Answer 464

an upward-sloping curve that illustrates producers’ willingness and ability to bring units of a good or service to market during a particular time period

Question 465

supply side economics

Answer 465

theory that changes in business taxes, regulations, and work incentives can be an effective form of fiscal pplicy to shift the SRAS curve as opposed to traditional Keynesian policies focused on shifting demand. Gained popularity in response to stagflation in the 1970s

Question 466

supply shock

Answer 466

anything that leads to a sudden, unexpected change in aggregate supply. Can be negative (decrease AS) or positive (increases AS). May include a change in energy prices, wages, or business taxes, or may result from a natural disaster or a new discovery of important resources.

Question 467

surplus

Answer 467

the condition that exists when the quantity supplied exceeds the quantity demanded. Indication of price being higher than equilibrium level

Question 468

tariff

Answer 468

a tax on imported goods. Imposing a tariff increases the price of imports relative to domestic goods, therefore is a form of trade protectionism

Question 469

terms of trade

Answer 469

the rate at which people trade two goods. The ratio or “real price” for which a unit of one good can be purchased for units of another good. Mutually advantageous terms of trade are found between the opportunity costs of the two people or societies trading

Question 470

total cost

Answer 470

the sum of fixed and variable costs. Economists include implicit costs (normal profits) as costs. Total cost increases at a decreasing and then increasing rate after the firm experiences the point of diminishing marginal returns

Question 471

goods which are used in place of each other. For example, margarin is a substitute for butter.

Answer 471

substitute goods

Question 472

the tendency of consumers to substitute lower-priced items for higher-priced items. A reason why the law of demand is true; consumers purchase fewer units at higher prices because substitutes (whose prices are unchanged) seem relatively sheaper.

Answer 472

substitution effect

Question 473

the willingness and ability of producers to offer a good or service for sale at the various prices which exist in the market within a certain time frame. The positive or direct relationship between quantity supplied and price that is often displayed on a graphical curve or in a tabular schedule or as a function in terms of P and Qs

Answer 473

supply

Question 474

an upward-sloping curve that illustrates producers’ willingness and ability to bring units of a good or service to market during a particular time period

Answer 474

supply curve

Question 475

theory that changes in business taxes, regulations, and work incentives can be an effective form of fiscal pplicy to shift the SRAS curve as opposed to traditional Keynesian policies focused on shifting demand. Gained popularity in response to stagflation in the 1970s

Answer 475

supply side economics

Question 476

anything that leads to a sudden, unexpected change in aggregate supply. Can be negative (decrease AS) or positive (increases AS). May include a change in energy prices, wages, or business taxes, or may result from a natural disaster or a new discovery of important resources.

Answer 476

supply shock

Question 477

the condition that exists when the quantity supplied exceeds the quantity demanded. Indication of price being higher than equilibrium level

Answer 477

surplus

Question 478

a tax on imported goods. Imposing a tariff increases the price of imports relative to domestic goods, therefore is a form of trade protectionism

Answer 478

tariff

Question 479

the rate at which people trade two goods. The ratio or “real price” for which a unit of one good can be purchased for units of another good. Mutually advantageous terms of trade are found between the opportunity costs of the two people or societies trading

Answer 479

terms of trade

Question 480

the sum of fixed and variable costs. Economists include implicit costs (normal profits) as costs. Total cost increases at a decreasing and then increasing rate after the firm experiences the point of diminishing marginal returns

Answer 480

total cost

Question 481

total product

Answer 481

all of a firm’s output created by its inputs; synonym for quantity produced

Question 482

total revenue

Answer 482

the price of a good or service multiplied by the quantity sold. Total receipts a firm takes in from selling its finished goods and services.

Question 483

total revenue test

Answer 483

a test for price elasticity of demand. If price changes vary directly with total revenue, then the demand is inelastic. If price changes vary inversely with total revenue, then the demand is elastic. If price changes do not cause a change in total revenue, then demand is unit elastic

Question 484

trade deficit

Answer 484

when a country’s total spending on imported goods and services exceeds its total revenues from the sale of exports to the rest of the world. Synonymous with a deficit in the current account of the balance of payments and with a negative net export component of GDP.

Question 485

trade surplus

Answer 485

When a country’s sale of exports exceeds its spending on imports. Synonymous with a surplus in the current account of the balance of payments

Question 486

trade-off

Answer 486

an alternative use for scarce factors of production. Trade-offs are a result of scarcity and inherently connected to the making of choices.

A trade-off is an opportunity cost.

Question 487

transfer payment

Answer 487

a payment made when no good or service is exchanged. Allowances are private transfer payments; social security checks are government transfer payments. Transfer payments are not included in GDP because they do not represent production

Question 488

unions

Answer 488

organizations of workers who seek to increase the wage rates, working conditions, and number of jobs available in their industries. Unions can be of various types and may seek to include all workers in a sector or make membership more exclusive in a particular craft.

Question 489

unit elsastic

Answer 489

describes percentage change in quantity that is equal to percentage change in price

Question 490

utility

Answer 490

the want-satisfying power that goods and services provide. The amount of usefulness or satisfaction that a consumer gets from consuming a good or service.

Question 491

all of a firm’s output created by its inputs; synonym for quantity produced

Answer 491

total product

Question 492

the price of a good or service multiplied by the quantity sold. Total receipts a firm takes in from selling its finished goods and services.

Answer 492

total revenue

Question 493

a test for price elasticity of demand. If price changes vary directly with total revenue, then the demand is inelastic. If price changes vary inversely with total revenue, then the demand is elastic. If price changes do not cause a change in total revenue, then demand is unit elastic

Answer 493

total revenue test

Question 494

when a country’s total spending on imported goods and services exceeds its total revenues from the sale of exports to the rest of the world. Synonymous with a deficit in the current account of the balance of payments and with a negative net export component of GDP.

Answer 494

trade deficit

Question 495

When a country’s sale of exports exceeds its spending on imports. Synonymous with a surplus in the current account of the balance of payments

Answer 495

trade surplus

Question 496

an alternative use for scarce factors of production. Trade-offs are a result of scarcity and inherently connected to the making of choices.

A trade-off is an opportunity cost.

Answer 496

trade-off

Question 497

a payment made when no good or service is exchanged. Allowances are private transfer payments; social security checks are government transfer payments. Transfer payments are not included in GDP because they do not represent production

Answer 497

transfer payment

Question 498

organizations of workers who seek to increase the wage rates, working conditions, and number of jobs available in their industries. Unions can be of various types and may seek to include all workers in a sector or make membership more exclusive in a particular craft.

Answer 498

unions

Question 499

describes percentage change in quantity that is equal to percentage change in price

Answer 499

unit elsastic

Question 500

the want-satisfying power that goods and services provide. The amount of usefulness or satisfaction that a consumer gets from consuming a good or service.

Answer 500

utility

Question 501

utility maximization

Answer 501

economists assume that consumers always try to maximize their total utility. with a budget, consumers seek combinations of the goods they buy which yield the greatest overall level of satisfaction

Question 502

utility maximization rule

Answer 502

a formula that illustrates the combination of two goods that maximize a consumer’s utility. Can be extended to any number of goods and implies that customers do best when they try to ensure that the last dollar they spend of each type of good they purchase yields the same level of added satisfaction

Question 503

variable cost

Answer 503

a cost that changes with the firm’s level of production. sysnonym for total variable cost

Question 504

wage

Answer 504

the price of labor per unit of time. The vertical axis in labor markets is labeled as “wage.” wages are considered a variable cost for firms in microeconomics. In macroeconomics they are a component of the income method of calculating GDP and are considered fixed in the short run but variable in the long run

Question 505

wage taker

Answer 505

firms that hire labor in perfectly competitive labor markets are wage takers; they can hire any quantity of workers desired for a market wage rate. This stems from the fact that in these markets there a large number of firms hiring similarly qualified workers. Thus, these firms face horizontal (perfectly elastic) labor supply curves equal to marginal factor cost.

Question 506

wealth

Answer 506

an important determinant of consumption. Wealth is the total value of a household’s assets minus all its liabilities.

Question 507

economists assume that consumers always try to maximize their total utility. with a budget, consumers seek combinations of the goods they buy which yield the greatest overall level of satisfaction

Answer 507

utility maximization

Question 508

a formula that illustrates the combination of two goods that maximize a consumer’s utility. Can be extended to any number of goods and implies that customers do best when they try to ensure that the last dollar they spend of each type of good they purchase yields the same level of added satisfaction

Answer 508

utility maximization rule

Question 509

a cost that changes with the firm’s level of production. sysnonym for total variable cost

Answer 509

variable cost

Question 510

the price of labor per unit of time. The vertical axis in labor markets is labeled as “wage.” wages are considered a variable cost for firms in microeconomics. In macroeconomics they are a component of the income method of calculating GDP and are considered fixed in the short run but variable in the long run

Answer 510

wage

Question 511

firms that hire labor in perfectly competitive labor markets are wage takers; they can hire any quantity of workers desired for a market wage rate. This stems from the fact that in these markets there a large number of firms hiring similarly qualified workers. Thus, these firms face horizontal (perfectly elastic) labor supply curves equal to marginal factor cost.

Answer 511

wage taker

Question 512

an important determinant of consumption. Wealth is the total value of a household’s assets minus all its liabilities.

Answer 512

wealth