Economics Online Tutor
Glossary and Dictionary of
Economics Terms
CLICK ON THE LINK ABOVE TO THE ALPHABETICAL RANGE THAT
CONTAINS THE TERM YOU ARE LOOKING FOR.

EACH TERM WILL HAVE A DEFINITION INCLUDED WITH IT.  IN MANY CASES, THAT DEFINITION WILL BE ALL THAT YOU NEED TO
ANSWER YOUR SPECIFIC QUESTION ABOUT THAT TERM.

EACH TERM IS ALSO A LINK TO THE PAGE IN THIS SITE WHERE IT IS DISCUSSED IN THE CONTEXT THAT IT IS USED IN ECONOMICS.

ABSOLUTE ADVANTAGE: When one person or country can produce more total output of a commodity than another person or
country.  This is based on total resources available and is not related to comparative advantage or opportunity costs.

ACCOUNTING PROFIT: Profit of a firm that is calculated by subtracting explicit costs from total revenue.  This is the amount of profit
that shows up on a company's income statement.  It differs from economic profit in that economic profit also takes into
consideration implicit costs, or opportunity costs.

ACTIVIST GOVERNMENT POLICY: Government's use of discretionary fiscal and monetary policies in order to try to create a specific
outcome in the economy.

AD: Aggregate demand.  Total of all planned expenditures in the economy.  This is equal to the sum of consumption spending, gross
private domestic investment, government purchases of goods and services, and net exports.  In equilibrium, it is equal to real GDP.

AFC: Average fixed cost.  Total fixed cost divided by the number of units of output.

AGGREGATE DEMAND: Total of all planned expenditures in the economy.  This is equal to the sum of consumption spending, gross
private domestic investment, government purchases of goods and services, and net exports.  In equilibrium, it is equal to real GDP.

AGGREGATE DEMAND & AGGREGATE SUPPLY EQUILIBRIUM: In the aggregate demand & aggregate supply model, the point where the
aggregate demand curve and the aggregate supply curve intersect.  In equilibrium, no forces exist for changes in the price level or
the level of real output (real GDP).

AGGREGATE DEMAND & AGGREGATE SUPPLY MODEL: A diagram showing the aggregate demand curve and the aggregate supply
curve, with the price level on the vertical axis and real GDP on the horizontal axis.

AGGREGATE DEMAND CURVE: A graph of aggregate demand.  This would be a downward sloping curve indicating a negative
relationship between planned expenditures and the price level.

AGGREGATE SUPPLY: The amount of real GDP that firms are willing to supply at every price level.

AGGREGATE SUPPLY CURVE: A graph of aggregate supply.  This would be an upward sloping curve indicating a positive relationship
between the amount of real output supplied and the price level.

ALLOCATIVE EFFICIENCY: Producing what the consumers want at a price equal to marginal cost.

ANTICIPATED INFLATION: The inflation rate that is expected to occur in the future.  This would be included in the nominal interest
rate.  Also called expected inflation.

ANTI-COMPETITIVE BEHAVIOR: Actions by firms that are designed to limit the amount of competition in an industry.

ANTI-DUMPING LAWS: A restriction on imports of goods that are sold on the world market at unfairly low prices.

ANTITRUST LAWS: Laws imposed by governments for the purpose of increasing competition.

APP: Average physical product.  Total physical product divided by the number of units of a variable input.

AS: Aggregate supply.  The amount of real GDP that firms are willing to supply at every price level.

ATC: Average total cost.  Total cost divided by the number of units of output.

AUTOMATIC STABILIZERS: Features of the economy or government policy that offset the effects of the business cycle, without any
specific government action taken at the time.

AVC: Average variable cost.  Total variable cost divided by the total number of units of output.

AVERAGE FIXED COST: Total fixed cost divided by the number of units of output.

AVERAGE PHYSICAL PRODUCT: Total physical product divided by the number of units of a variable input.

AVERAGE TOTAL COST: Total cost divided by the number of units of output.

AVERAGE VARIABLE COST: Total variable cost divided by the total number of units of output.

BALANCE OF PAYMENTS: A record of a country's trade with the rest of the world.  This includes all debit and credit transactions in
both the current account and the financial account, and must always equal zero (total debits equal total credits).

BALANCE OF TRADE: The balance in the current account or the merchandise account.  A credit balance would be a trade surplus,
and a debit balance would be a trade deficit.

BANK: Financial intermediary that accepts deposits and uses deposited funds to make loans.

BANK REGULATION: Laws that govern the operation of banks.

BANK RESERVES: Deposits at a bank that have not been loaned out.

BANKING SYSTEM: Collectively, all banks in an economy, including any central bank.

BAROMETRIC FIRM: Price leadership system in oligopoly in which one firm announces a price change, after which other firms in the
industry match the price change.

BARRIERS TO ENTRY: Anything that makes it difficult for new firms to enter into a market.  This could include high start up (fixed)
costs, government regulations, or anti-competitive behavior of existing firms.

BARTER ECONOMY: An economy in which goods and services are exchanged for other goods and services, without the use of
money.

BASE YEAR: A year designated, sometimes arbitrarily, as the starting point for comparison of price changes over time.  The base
year has a price index equal to 100.

BLACK MARKET: Economic activity that is not reported for tax purposes and is not included in official government statistics.  Also
called the underground economy, hidden economy, shadow economy, informal economy, and parallel economy.

BOOM PERIOD: The portion of the business cycle that represents economic expansion, or growth in real GDP.

BOUNDED RATIONALITY: The assumption in economics that the choices people make are done rationally, based on the information
known at the time, in an attempt to maximize their satisfaction.  This is also known as rational self interest.

BREAK EVEN PRICE: The price at which total revenue will equal total cost.

BUDGET: The amount of spending for specific purposes available to individuals, firms, or governments.

BUDGET CONSTRAINT: The maximum amount that can be spent due to a limited budget.

BUDGET LINE: A graph of a budget constraint.

BUNDLE OF GOODS: A set of specific goods and quantities used to compare price changes over time.

BUSINESS: A private organization that produces goods and / or services.  The term as used here is interchangeable with firm,
business firm, company, enterprise, and producer.

BUSINESS CYCLE: The idea that economic growth is not constant, but has periods of growth and contraction.  The four stages of the
business cycle are expansion, peak, contraction, and trough.  Macroeconomics is largely concerned with the business cycle.

BUSINESS FIRM: A private organization that produces goods and / or services.  The term as used here is interchangeable with firm,
company, enterprise, business, and producer.

BUSINESS SECTOR: The sector of the economy that offers goods and services for sale.  This would include all business firms.

CAP AND TRADE: A policy of using marketable permits as a means of reducing a negative externality.

CAPACITY: The maximum output of a firm with a given level of fixed inputs.

CAPITAL: In economics, the term capital generally refers to physical capital, which is manufactured products such as machinery
and equipment that are used in production.  This is different from financial capital, which refers to forms of financing.

CAPITAL CONSUMPTION ALLOWANCE: The replacement cost of worn-out or damaged machinery and equipment.  This mostly
consists of depreciation, and the terms are often used interchangeably.

CARTEL: An organization of suppliers that agrees formally or informally to restrict competition among themselves in order to
maximize the profits of the entire cartel instead of maximizing the profits of individual firms.

CAUSES OF INFLATION: The causes of inflation are categorized as those that relate to aggregate demand, called demand-pull
inflation, and those that relate to aggregate supply, called cost-push inflation.

CENTRALIZED DECISION MAKING: Economic decisions that are made by a central government.

CETERIS PARIBUS: Latin for "other things being equal".  A basic tool of economic analysis, holding other factors constant in order to
focus on the relationship between the factors being considered at any point in time.
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