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Economics Vocabulary Glossary

Absolute Advantage The ability to produce more of a given product using a given
amount of resources
Aggregate Demand The amount of goods and services in the economy that will be
purchased at all possible price levels
Aggregate Supply The total amount of goods and services in the economy available
at all possible price levels
Association of Southeast
Asian Nations (ASEAN)
Ten-member association within Southeast Asia that has taken
steps to allow free trade
Balance of Payments The value of all monetary transactions between a countys
economy and the rest of the world
Balance of Trade The relationship between the value of a countrys exports and the
value of its imports
Bank An institution for receiving, keeping, and lending money
Bond A formal contract issued by a corporation or other entity that
includes a promise to repay borrowed money with interest at fixed
intervals
Capital Any human-made resource that is used to produce other goods
and services
Circular Flow Model The flow of goods and services and money between individuals
and businesses as well as factor and product markets
Command Economy A type of economy in which a central authority, usually the government,
controls all resources and means of production and makes all economic
decisions
Comparative
Advantage
The ability to produce a product most efficiently given all the
other products that could be produced lower opportunity cost
Consumer Price Index
(CPI)
A price index determined by measuring the price of a standard
group of goods meant to represent the market basket of a typical
consumer
Corporation A legal entity, owned by individual stockholders, each of whom
has limited liability for the firms debts
Credit Union A financial institution that allows its members to deposit and
borrow money at reduced rates
Cyclical Unemployment Unemployment that rises during economic downturns and falls
when the economy improves
Deductible The amount of money an insurance holder must pay before an
insurance policy will begin to cover a claim
Deflation A sustained drop in the price level
Demand The desired to own something and the ability to pay for it
Deregulation The removal of government controls over a market
Economic Growth A steady, long-term increase in the real GDP
Elastic Demand Describes demand that is very sensitive to change in price
Elastic Supply Describes supply that is very sensitive to change in price
Embargo A ban on trade with a particular country
Entrepreneurship A person who decides how to combine resources to create goods
and services a risk taker who starts a business
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Equilibrium Price
(Market Clearing
Price)
The price at which the demand for a product or service is equal to
the supply of that product or service
European Union (EU) Group of European nations joined together to promote free trade
many of these countries use single currency - EURO
Exchange Rate The value of a nations currency in relation to a foreign currency
Factor Market
(Resource Market)
The arena of exchange in which firms purchase the factors of
production from households
Factors of Production
(Productive Resources)
The resources that are used to make goods and services capital,
entrepreneurship, land and labor
Federal Reserve The central bank of the United States responsible for setting
monetary policy
Fiscal Policy The use of government spending and revenue collection to
influence the economy
Frictional
Unemployment
Type of unemployment that occurs when people take time to find
a job
Good A physical object that someone or a business produces
Government Deficit The dollar amount that a country is over budget within a given
fiscal year
Gross Domestic
Product (GDP)
The dollar value of all final goods and services produced within a
countrys borders in a given year
Inelastic Demand Describes demand that is not very sensitive to changes in price
Inelastic Supply Describes supply that is not very sensitive to changes in price
Inflation A general increase in prices across an economy
Input The productive resources that are utilized to create a good or
service (capital goods)
Insurance A financial product that when purchased provides reimbursement
paid to a person in the event of certain types of financial loss
Labor (Human Capital) The effort people devote to tasks for which they are paid
Land All natural resources used to produce goods and services
Law of Demand Consumers will buy more of a product when its prices is lower and less
when its prices is higher as price increases demand goes down
Law of Supply Producers offer more of a good as its price increases and less as its
price falls as price goes up supply goes up
Marginal Benefit The extra benefit received by adding one additional unit of a good
Marginal Cost The extra cost of producing one additional unit of a good
Market Demand The amount of a good all consumers will buy at each different
price level
Market Economy Type of economy in which consumers and producers make all
economic decisions based on voluntary exchange
Market Supply The amount of a good all producers are willing to produce at each
different price level
Mixed Economy A market-based economic system in which the government is
involved to some extent
Monetary Policy The actions that the Federal Reserve System takes to influence the
level of real GDP and the rate of inflation in the economy
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Monopolistic
Competition
A market structure in which many companies sell products that
are similar but not identical
Monopoly A market in which a single seller dominates
Mutual Fund An organization that polls the savings of many individuals and
invests this money in a variety of stocks, bonds, and other
financial assets
National Debt The total amount of money the federal governments owes
Need Something essential for survival
Negative Incentive A fear of penalty encouraging people to act a certain way
North American Free
Trade Agreement
(NAFTA)
Free trade between the countries of United States, Canada and
Mexico
Oligopoly A market structure in which a few large firms dominate a market
Opportunity Cost The most desirable alternative given up as a result of a decision
the cost of the next best option
Output The finished goods and services created by firms (consumer
goods)
Partnership A business organization owned by two or more persons who agree
on a specific division of responsibilities and profits
Positive Incentive The hope of reward encouraging people to act a certain way
Premium Regular payments paid to an insurance company in return for
insurance coverage
Price Ceiling A maximum price that can legally be charged for a good or
service
Price Elasticity A measure of how consumers and producers respond to a change
in price
Price Floor A minimum price for a good or service
Product Market The arena of exchange in which households purchase goods and
services from firms
Production Possibilities
Frontier
A line on a production possibilities curve that shows the
maximum possible output an economy can produce
Productivity The ability of firms to turn input into output as efficiently as
possible
Progressive Tax A tax for which the percentage of income paid in taxes increases
as income increases US income tax
Proportional Tax A tax for which the percentage of income paid in taxes remains
the same at all income levels
Pure Competition
(Perfect Competition)
A market structure in which a large number of firms all produce
the same product and no single seller controls supply or price
Quota Limits on the amounts of goods or services that can be imported
into a country
Rational Decision A decision in which the marginal benefit of a decision outweighs
the marginal cost
Regressive Tax A tax for which the percentage of income paid in taxes decreases
as income increases US sales tax
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Regulation Government intervention in a market at affects the production of a
good
Return The money an investor receives above and beyond the sum of
money initially invested
Risk The possibility of financial loss
Scarcity The principle that limited amounts of goods and services are
available to meet unlimited wants and needs
Seasonal
Unemployment
Type of unemployment that occurs as a result of harvest schedules,
vacations, or when industries make season shifts in their production
schedule
Service The action or actions that one person performs for another
Shortage A situation in which consumers want more a good or service than
producers are willing to make available at a particular price
Sole Proprietorship A business owned and managed by a single individual
Specialization The concentration of productive efforts of individuals and
businesses on a limited number of activities
Stagflation An increase in the price level as well as an increase in
unemployment
Standard A minimum level of quality that must be met for a good or service
to be imported in a country
Standard of Living Level of economic prosperity
Stock A certificate of ownership in a corporation
Structural
Unemployment
Type of unemployment that occurs when workers skills do not
match those needed for the jobs available
Subsidy A government payment that supports a business or market
Supply The amount of a good or service made available buy producers
Surplus When quantity supplied is more than quantity demanded
Tariff A tax on imported goods
Trade Barrier A means of preventing a foreign product or service from freely
entering a nations territory
Trade-Off The alternatives that we give up when we choose one course of
action over another
Trading Blocks Groups of countries that trade together often these countries
utilize free trade
Unemployment The percentage of a nations labor force that is currently not
working, but actively looking for work
Unit Elastic Demand Describes demand whose elasticity is exactly equal to the change
in price
Unit Elastic Supply Describes supply whose elasticity is exactly equal to the change in
price
Voluntary Exchange The principle that people may decide what, when, and how they
want to buy and sell goods or services
Want Something that people desire but that is not necessary for survival