Economics Glossary Flashcards
Adaption
the process of adjusting to actual or expected climate changes to moderate harm
Aggregate demand curve
a graphical depiction of the relationship between the level of desired expenditures in an economy and the price level
Aggregate supply curve
a graphical depiction of the relationship between the quantity of goods and services firms wish to supply and the price level
Albedo effect
the reflection of sunlight from light or white surfaces or particles
Average labor productivity
total output divided by the quantity of labor employed in its production
Bank run
a sudden rush of depositors seeking to withdraw funds from the banking system
Barriers to entry
conditions that prevent firms from freely entering or exiting a market
Beta-delta discounting
a split frame or quasi-hyperbolic discount rate in which one rate is applied to nearby decision and another to decision farther out in time
Business cycle
fluctuations in aggregate economic activity
Capital
one of three factors of production; in classical economics, capital refers to money or physical assets. Plows or mature tree crops may be considered forms of capital in this context
Capital goods
long-lived good that are themselves produced and are used to produce other goods and services, but are not used up in the production process
Cartel
a group of firms that collude in a given market to restrain competition, often making quota arrangements among themselves
Climate commons
the shared atmospheric environment of the globe
Coase Theorem
the proposition that if private parties can bargain without cost over the allocation of resources, then they can solve the problem of externalities on their own
Collective action
the organization and coordination of multiple agents (including countries) to achieve a common goal
Comparative goods
the ability to produce a good or service at a lower opportunity cost than other producers
Competitive market
a market with many buyers and sellers trading a homogenous good or service in which each buyer and seller is a price taker
Complements
two goods for which a rise in the price of one leads to a decline in the demand for the other
Consumer Price Index (CPI)
an index constructed by comparing the cost of purchasing a fixed basket of goods at different times
Consumer surplus
the difference between the amount that a buyer would be willing to pay for a good or service and the price actually paid
Consumption
spending by households on goods and services, with the exception of the purchase of new housing
Cost-effective
achieving a specific goal or objective at least cost
Crowding out
the decrease in private investment that occurs as a result of a reduction in government saving or an increase in government borrowing
Currency
coins and bills in the hands of the public
Cyclical unemployment
unemployment caused by deviations of output from its potential level
Deadweight loss
the reduction in total surplus that results from a market distortion such as a tax
Demand curve
a graphical representation of the quantity of a good or service demanded as a function of the price
Diminishing returns to scale
the property whereby each additional increase in inputs results in a smaller increase in the quantity produced
Discount rate
the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank’s lending facility (also called time preference)
Economic house
an allegorical household shared by multiple individuals who are obligated to make an effort to keep it clean
Economic profit
the difference between the revenue realized by a producer and the opportunity cost of production
Elasticity
the percentage change in quantity demanded or supplied as a result of a one percent change in price
Entrepreneur
an individual who taken on the risk of attempting to create new products or services, establish new markets, or develop new methods of production
Equilibrium
a situation in which the forces in a system are in balance so that the situation is stable and unchanging
Excludable good
a good that an individual can prevent another individual from using
Expansion
a period between a trough and a peak in economic activity
Experimental governance
simultaneous top-down and bottom-up management of global climate governance
Externality
when the action of one person affects the well-being of someone else, but where neither party pays nor is paid for these effects
Federal funds rate
the rate that banks charge other banks when they lend reserves
Final goods
goods or services that are purchased by their ultimate user
Financial markets
the institutions through which individuals with saving can supply these funds to persons or firms that wish to borrow money to purchase consumption goods or invest in physical capital
Fiscal policy
the use of taxes and spending to influence aggregate demand and through it the level of overall economic activity
Fixed cost
a cost of production that is independent of the quantity produced
Foreign district investment
when a company or individual acquires assets in a foreign country that they will manage directly
Free driver
a person, firm, or country that assumes control and acts to influence a larger group without authorization by “grabbing the wheel”
Free rider
a person, firm, or country that consumes a public good but pays less or none of the cost of its provision
Frictional unemployment
unemployment that results because it takes time for workers to search for the jobs that are best suited to their tastes and skills
Gains from trade
the benefits that both individuals or nations realize from mutually beneficial exchange
Geoengineering
deliberate large-scale intervention in the Earth’s natural systems in an effort to counteract climate change (such as particulate matter into the atmosphere to reduce global mean temperatue)
Government purchases
spending on goods and services by federal, state, and local governments
Gross Domestic Product (GDP)
the market value of final goods and services produced in an economy during a specified period of time
GDP per capita
estimate of national output divided by population; gives an average level of income per person
Human capital
skills and experience that increase a worker’s productivity
Imperfect competition
the case of a market with a small number of sellers, so that sellers have market power
Inferior good
a good for which the quantity demanded falls as buyers’ income increases
Institutions
the “rules of the game” in society, which shape the costs and benefits of economic decisions
Intermediary
a third party who acts as a link between two others who wish to transact business
Intermediate good
a good or service that is used in the process of producing other goods and services
Investment
spending on capital equipment, inventories, and structures, including household purchases of new housing
Keynesian Model
a model of short-run aggregate economic fluctuation inspired by John Maynard Keynes, which attributes short-run deviations in output from potential to variations in the level of aggregate demand or aggregate supply
Labor force
the sum of those individuals who are employed and those who are seeking paid work but have not found it
Labor force participation rate
the fraction of the working-age population who are in the labor force
Law of demand
the quantity demanded is negatively related to the price (inverse relationship)
Law of supply
the quantity supplied is positively related to the price
Liquidity
the ease with which a nonmonetary asset may be converted into money
Logrolling
the practice of elected officials trading votes
Marginal cost
the additional cost of production associated with a small increase in the quantity produced
Marginal revenue
the additional revenue resulting from a small increase in the quantity produced
Market failure
any situation in which a market does not allocate goods and services efficiently
Monetary base
the quantity of currency plus bank reserves
Monetary policy
the use of the supply of money in the economy by the Federal Reserve to influence the level of aggregate deamnd
Money
an asset that is a medium of exchange, unit of account, and store of value
Money multiplier
the ratio of the money supply to the monetary base
Money supply
the quantity of money available to the economy
Monopolistic competition
a market in which there is free entry or exit, but every producer supplies a differentiated product and faces a downward-sloping demand curve
Monopoly
a market in which there is a single producer
Natural rate of unemployment
the level of unemployment that would exist if the economy were producing at its potential output
Negative externalities
costs imposed on other agents that are not captured by market prices
Nested public goods
one public good or commons dilemma inside another (like Russian dolls)
Net capital outflow
the difference between the value of goods and services sold to foreigners and the value of goods and services purchased from foreigners
Neutrality of money
the proposition that in the long run, changes in the quantity of money affect the price level but do not affect any real quantities
Nominal GDP
the production of goods and services valued at current prices
Nonrivalry
The consumption of a good or service of one takes away from another’s
Normal good
a good or service for which demand is positively related to the buyer’s income
Normative economics
economic analysis used to guide decision about what should be as opposed to what is the case
No regrets
describes a policy that seeks to accomplish environmental objectives that are aimed at the worst-case outcome and that will be beneficial even if less worse outcomes occur
Oikos
Greek word meaning household and its management
Okun’s Law
1% decrease in cyclical employment leads to a 2% decrease in the potential output
Oligopoly
a market in which there are just a few producers
One-way (undirectional) externalities
externalities that go from one agent to another buy not both way
Open market operations
a tool used by the Federal Reserve to adjust the money supply by buying or selling U.S. government bonds in the financial market
Opportunity cost
the cost of any choice is what must be given up by making that choice
Output gap
the difference between actual output and potential output
Pareto efficiency
describes an allocation in which the only way to make an individual or group of individuals better off would require making at least one other person worse off
Portfolio investment
the purchase of shares of stocks or bonds
Positive economics
the use of the tools of economic analysis to describe and explain economic phenomena and to make predictions about what will happen under particular circumstances
Positive externalities
benefits to other agents that are not captured by market prices
Potential output
the quantity of output that would be produced by an economy if all of its resources were being employed at normal rates
Price discrimination
when a business sells the same product to different buyers at different prices
Price elasticity of demand
the amount by which demand for a given product changes in price (percentage change in demand that corresponds to a one percent change in price)
Principal/agent problem
the information and monitoring problems faced by a principal seeking a good and their marginal cost of producing it
Production Possibility Frontier (PPF)
a graphical depiction of the combinations of output that can be produced by an economy
Public goods
a good or service for which it is not possible to establish property rights (nonrival and nonexcludable)
Real GDP
the production of good sand services valued at prices adjusted for inflation
Reciprocal externalities
externalities that go from one agent to another and vice verse
Rent seeking
using political influence to increase one’s economic profits at the expense of others
Reserve requirement
the amount of reserves that the Fedral Reserve requires banks to hold
Reserves
the fraction of deposit liabilities that banks hold to meet depositor withdrawals
Savings
the difference between a person’s disposable income and their expenditures
Social cost of carbon (SCC)
the cost, in dollars, of the damge done by each additional ton of carbon emissions
Structural unemployment
unemployment that results from the mismatch in skills, locations, or other important characteristics between job seekers and the available jobs
Substitutes
two good for which an increase in the price of one leads to an increase in the demand for the other
Supply curve
a graphical representation of the quantity of a good or service supplied as a fraction of the price
Time preference
the relative weight or value given to future or past consumption compared to present consumption
Total surplus
the sum of consumer and producer surplus
Tragedy of the Commons
the depletion of a common resource because each agent has an incentive to overexploit it
Unemployment
the state of actively seeking paid work but unable to find it (for at most four weeks)
Unemployment rate
the number of unemployed workers as a fraction of the total labor force
Variable cost
a cost of production that depends on the quantity produced
Velocity of money
the ratio of nominal GDP to the money supply; in effect, the average number of transactions supported by each dollar of the money supply
Wealth
the total value of assets used as a store of value
