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AD Econ
Academic Decathlon Econ terms
| Term | Definition |
|---|---|
| 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 description of the relationship between the quantity of goods and services firms wish to supply and the price level |
| 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 |
| Business cycle | fluctuations in aggregate economic activity |
| Capital goods | long-lived goods that are themselves produced and are used to produce other goods and services, but are not used up in the production process |
| Cartel | an agreement between suppliers to restrict production and raise prices |
| Coase Theorem | the proposition that if private parties bargain without cost over the allocation of resources, then they can solve the problem of externalities on their own |
| Comparative advantage | 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 homogeneous 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 buy 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 |
| 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 tax |
| Demand curve | a graphical representation of the quantity of a good or service demanded as a function of the price |
| Demand schedule | a table showing the relationship between the price of a good or service and the quantity demanded |
| Depression | a severe recession |
| 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 that the Federal Reserve charges banks when they must borrow reserves from it |
| 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 takes 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 |
| Excludability | the ability to prevent buyers from enjoying the benefits of consuming a good or service without paying for it |
| Expansion | the phase of the business cycle in which the economy is growing more quickly than its long-run average |
| 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 savings 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 direct investment | when a company or individual acquires assets in a foreign country that they will manage directly |
| 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 |
| 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 |
| Human capital | skills and experience that are acquired through education, training, and on the job 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 |
| Inflation | a general increase in prices |
| Institutions | formal and informal rules that structure human interactions |
| 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 fluctuations, inspired by analysis of British economist John Maynard Keynes, which attributes short-run deviations in output from potential to variations in 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 | holding other things equal, the quantity demanded is negatively related to the price |
| Law of supply | holding other things equal, 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 failures | conditions in which a competitive market fails to produce a socially efficient outcome |
| Market power | the situation in which a producer knows that changes in the quantity produced will alter the price at which the good or service can be sold |
| 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 demand |
| 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 |
| Net capital flow | the difference between the purchases of foreign assets by domestic residents and the purchases of domestic assets by foreign residents |
| Net exports | 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 |
| Normal good | a good or service for which demand is positively related to the buyer's income |
| Normative economics | economic analysis used to guide decisions about what should be as opposed to what is the case |
| Okun's law | a relationship identified by Arthur Okun between the output gap and the level of cyclical unemployment |
| Oligopoly | a market in which there are just a few producers |
| 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 the choice |
| Output gap | the difference between actual output and potential output |
| Pareto efficiency | describes an allocation in which the only way to make any individual or group of individuals better off would require making at least one other person worse off |
| Per capita | literally per head, used to denote an average value for a population |
| Portfolio investment | the purchase of shares of stock 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 |
| 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 |
| Producer surplus | the difference between the price that producers receive for supplying 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 good | a good or service for which it is not possible to establish individual property rights |
| Rationality | when individual choices are made by comparing the benefits and costs of different actions and then selecting the action that produces the greatest benefit |
| Real GDP | the production of goods and services valued at constant prices |
| Rent seeking | using political influence to increase one's economic profits at the expense of others |
| Reserve requirements | the amount of reserves that the Federal Reserve requires banks to hold |
| Reserves | the fraction of deposit liabilities that banks hold to meed depositor withdrawals |
| Rival goods | goods or services characterized by the fact that one person's enjoyment of the good or service reduces the quantity available for others' enjoyment |
| Savings | the difference between a person's disposable income and his or her expenditures |
| Scarcity | an inescapable fact of human existence that results from the fact that the available resources are always less than our limitless desires |
| Structural unemployment | unemployment that results from the mismatch in skills, locations, or other important characteristics between job seekers and the available jobs |
| Substitutes | two goods 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 function of the price |
| Supply schedule | a table showing the relationship between the price of a good or service supplied and the quantity supplied |
| Technology | knowledge about the techniques by which inputs are transformed into the goods and services that households desire |
| Total revenue | the total revenue received by a supplier |
| Total surplus | the sum of consumer and producer surplus |
| Tragedy of the commons | the depletion of a common resource due to overuse |
| Unemployment | the state of actively seeking paid work but being unable to find it |
| 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 |
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