Economics - Glossary
- Absolute Advantage
- when an individual or entity can produce more of a good than another individual or entity
- Capital
- man made resources that are used to produce goods
- Ceteris Paribus
- all things being equal
- Comparative Advantage
- when an individual or entity can produce a good at lower relative production costs
- Consumer Price Index
- CPI - a measure of the price of a fixed basket of goods relative to a base year; used to measure inflation
- Deflation
- a decrease in prices over a period of time
- Demand
- the want of a product backed by an ability to pay for it
- Dominant Strategy
- in game theory, the strategy that results in the best payoff no matter what the other play chooses
- Economic Growth
- an increase in real GDP per capita
- Employment
- the amount of people working in the economy
- Fiscal Policy
- government taxation and spending; how the government affects the money supply
- Fixed Costs
- costs faced by a firm that are independent of output; e.g. rent, machinery, a building, etc.
- Game Theory
- analysis of competitive situations to determine the possible, probable, and optimal outcomes
- Gross Domestic Product
- GDP - the total income earned domestically in an economy including income earned by foreigners within the economy; also the total expenditure on goods produced in an economy; basically the total output within the geographical boundaries of an economy; GDP=consumption + investment + government spending + net exports
- Gross National Product
- GNP - the total income earned by members of a nation, not including foreiners but including members abroad; also the total expenditures on goods produced by members of a nation
- Human Capital
- capital in the form of individuals, including any skills they may have developed
- Inflation
- an increase in prices over a period of time
- Investment
- the production of new capital
- Invisible Hand
- when an individual pursues his own interest and in the process unintentionally makes society better off
- Law of Demand, First
- as price increases demand decreases
- Law of Demand, Second
- as time increases demand decreases, ceteris paribus; largely due to the ability to find viable substitutes given time
- Long Run competitive Equilibrium
- price = MIN average total cost = marginal cost; there is no entry or exit in the industry
- Marginal Cost
- the cost of the last unit produced; MC = Change in TC / Change in Q
- Monetary Policy
- how the Federal Reserve (the Fed) affects the money supply; changes in the reserve ratio, federal funds rate, and the purchase and sale of bonds
- Nash Equilibrium
- in game theory, any outcome where there is no unilateral profitable deviation
- National Debt
- the sum of the debt a government owes
- National Deficit
- government revenue less government spending in a given time period
- Opportunity Cost
- the next best alternative; e.g. the opportunity cost of a decision is what was missed out on by foregoing the next best decision
- Pareto Optimal
- when economic welfare cannot be made better without making at least one individual worse
- Perfect Competition
- an industry made up of a large (infinite) number of identical, price taking firms selling identical products
- Physical Capital
- capital in the form of tools or buildings; e.g. factories, machines, hammers, etc
- Price Taker
- a firm whose output does not affect the price
- Production Possibilities Frontier
- the boundary between possible production mixes of relevant goods and production mixes that are impossible
- Resources
- the available inputs in an economy including labor, capital, natural resources, and technology
- Scarcity
- a limited amount of something; the inability to meet everyone's wants
- Sunk Cost
- historical cost - a cost that is not relevant when comparing decisions because it has already been payed
- Trade Deficit
- exports less imports (when exports < imports)
- Trade Surplus
- exports less imports (when exports > imports)
- Unemployment
- the amount of people in the economy that are looking for work but have not found work
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