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Macro/Micro Economic
AP Econ terms
| Term | Definition |
|---|---|
| Economics | study of scarcity |
| Economy | system that coordinates choices about production about consumption, and distributes g&s to those who want them |
| Market Economy | market decisions are determined by the market |
| Command Economy | market decisions are determined by the government or central authority |
| Incentives | rewards or punishments that motivate specific choices |
| Property rights | establish ownership and grant individuals the right to trade g&s with each other |
| Marginal analysis | study of cost and benefits of doing a little bit more of an activity versus a little bit less |
| Resource | anything that can be used to produce something else. Land, Labor, Capital, and Entrepreneurship |
| Scarcity | not enough is available to satisfy the various ways a society wants to use it |
| Opportunity cost | what you must give up to get it |
| Microeconomics | study of how people make decisions and how those decisions interact |
| Macroeconomics | concerned with the overall ups and downs in the economy |
| Economic aggregates | economic measures that summarise data across many different markets |
| Positive economics | branch of econ. analysis that describes the way the econ. actually works |
| Normative economics | branch of econ. analysis on "how" an econ. should work |
| Business cycle | the ups and downs in the overall economy |
| Depression | very deep and prolonged downturn |
| Recession | periods of economic downturns when output and employment are falling |
| Expansion | periods of economic upturns when output and employment are rising |
| Employment | # of people currently employed in the econ. |
| Unemployment | # of people who are actively looking for work, but don't have one |
| Labor force | sum of employment and unemployment |
| Unemployment rate | % of labor force that is unemployed |
| Output | Q of g&s produced |
| Aggregate output | Economy's total production of g&s for a given period |
| Inflation | rise in overall price level; the percentage change in the CPI from one period to the next |
| Deflation | fall in overall price level |
| Price stability | APL is changing slowly |
| Economic growth | increase in maximum amount of g&s produced in an econ. |
| Economic equity | idea of fairness |
| Ceteris Paribus | all other relevant factors remain unchanaged. "All other things equal" |
| Trade off | give up something to have something else |
| Production possibilities curve | illustrates trade off for an econ. producing 2 goods. shows the max Q of one good that can be produced for each possible Q of the other good |
| Efficient | no way to make anyone better of without making some else worse off |
| Technology | technical means for producing g&s |
| Specialization | each person specialises in the task that he/she is good at performing |
| Comparative advantage | producing a g&s if opportunity cost of producing g&s is lower for that individual than for other people |
| Absolute advantage | ability to make more of a g&s with a given amount of time and resource |
| Competitive market | market with many buyers and sellers of the same g&s, none with big market power |
| Demand schedule | shows how much of a g&s consumers will be willing and able to buy at different prices |
| Quantity demanded | actual amount of g&s consumers are willing to buy at a specific price |
| Demand curve | graphical representation of the demand schedule |
| Law of demand | As price rises, people will demand a smaller Q of g&s |
| Change in demand | shift of the demand curve |
| Movement along demand curve | change in price that causes Q of D to change |
| Substitutes | rise in price of one good causes demand for other good to increase |
| Complements | rise in price of one good causes demand for other good to fall |
| Individual demand curve | illustrates relationship between individual Qd and price for an individual consumer |
| Quantity supplied | actual amount of a g&s producers are willing to sell at a specific price |
| Supply schedule | how much of a g&s producers will supply at different prices |
| Supply curve | shows the relationship between Q supplied and price |
| Law of supply | price and quantity supplied of a good are positively related |
| Philips curve | a historical inverse relationship between the rate of unemployment and the rate of inflation in an economy |
| Market power | ability of a firm to affect market price |
| Externality | a cost or benefit, not transmitted through prices, incurred by a party who did not agree to the action causing the cost or benefit |
| Market failure | a concept within economic theory wherein the allocation of goods and services by a free market is not efficient |
| Marginal change | a small change in some quantity |
| Circular flow model | a simple economic model which describes the reciprocal circulation of income between producers and consumers |
| Import | g&s bought from other countries |
| Export | g&s sold to other countries |
| Shortage | a disparity between the amount demanded for a product or service and the amount supplied in a market |
| Surplus | an excess of production over demand |
| Equilibrium price | the market price at which the quantity supplied of a commodity equals the quantity demanded |
| Equilibrium quantity | the quantity demanded and supplied at equilibrium price |
| Market | a place where buyers and sellers can get together to trade or exchange g&s, forming part of the economy |
| Price elasticity of Supply | the sensitivity of supply of a product to changes in its price |
| Cross-price elasticity of Demand | the responsiveness of the demand for a good to a change in the income of the people demanding the good |
| Price elasticity of Demand | a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price |
| Elasticity | the ratio of the percent change in one variable to the percent change in another variable |
| Price ceiling | a government-imposed limit on the price charged for a product |
| Price floor | a government- or group-imposed limit on how low a price can be charged for a product |
| Tax incidence | the analysis of the effect of a particular tax on the distribution of economic welfare |
| Producer surplus | the amount that producers benefit by selling at a market price that is higher than the least that they would be willing to sell for |
| Cost | the total spent for goods or services including money and time and labor |
| Consumer surplus | the amount that consumers benefit by being able to purchase a product for a price that is less than the most that they would be willing to pay |
| Willingness to pay | the maximum amount a person would be willing to pay, sacrifice or exchange for a good |
| Welfare | the economic wellbeing of an individual, group, or economy |
| Deadweight loss | the net loss in economic welfare that is caused by a tariff or other source of distortion, defined as the total losses to those who lose, minus the total gains to those who gain |
| Import Quota | an import quota is a type of protectionist trade restriction that sets a physical limit on the quantity of a good that can be imported into a country in a given period of time |
| Tariff | a system of government-imposed duties levied on imported or exported goods |
| World Price | the price that prevails in the world market |
| Internalizing an externality | require the person/entity or group to repair the problem caused by their economic activity |
| Coase theorem | the economic efficiency of an economic allocation or outcome in the presence of externalities |
| Transaction costs | a cost incurred in making an economic exchange (restated: the cost of participating in a market) |
| Pigovian Tax | a tax levied on a market activity that generates negative externalities. The tax is intended to correct the market outcome |
| Tragedy of the commons | a dilemma arising from many individuals, acting independently, and solely and rationally consulting their own self-interest, will ultimately deplete a shared limited resource even when it is clear that it is not in anyone's long-term interest |
| Cost-benefit analysis | analysis of the cost effectiveness of different alternatives in order to see whether the benefits outweigh the costs |
| Free rider | those who consume more than their fair share of a public resource, or shoulder less than a fair share of the costs of its production |
| Common resource | an environmental resource that is owned by many people in common or by no one |
| Public goods | a good that is non-rivalrous and non-excludable, which can lead to the free rider problem |
| Private goods | good exclusively owned that cannot be simultaneously used by others |
| Rivalry | a good is considered either rival or nonrival. Rival goods are goods whose consumption by one consumer prevents simultaneous consumption by other consumers |
| Excludability | a good or service is said to be excludable when it is possible to prevent people who have not paid for it from having access to it, and non-excludable when it is not possible to do so |
| Progressive tax | tax collected at increasingly higher rates or percentages as income level increases |
| Regressive tax | a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases |
| Proportional tax | a proportional tax is a tax imposed so that the tax rate is fixed. The amount of the tax is in proportion to the amount subject to taxation |
| Horizontal equity | families with similar financial circumstances should pay the same amount, regardless of how their assets, investments and income are defined |
| Vertical equity | concept that people in different income groups should pay different rates of taxes or different percentages of their incomes as taxes |
| Ability to pay principle | the principle that taxes should vary according to an individual's level of wealth or income |
| Benefits principle | the idea that people should pay taxes based on the benefits they receive from government services |
| Lump-sum tax | a tax that is a fixed amount no matter what the change in circumstance of the taxed entity |
| Marginal tax rate | the percentage of tax paid on the next dollar earned |
| Average tax rate | the total tax payment divided by total income. The proportion of total income paid in taxes |
| Budget deficit | a situation that arises when expenses exceed revenues |
| Budget surplus | the total amount of money in the budget that results when government income is greater than government spending within a given year |
| Constant returns to scale | technological conditions under which the percentage change in a firm's output is equal to the percentage change in its use of inputs |
| Diseconomies of scale | condition in which the costs of production increase faster than the volume of production |
| Economy of scale | cost advantages that a business obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased |
| Efficient scale | the quantity of output that minimizes average total cost |
| Marginal cost | change in total cost that arises when the quantity produced changes by one unit. The cost of producing one more unit of a good |
| Average variable cost | a firm's variable costs divided by the quantity (Q) of output produced. Variable costs are those costs which vary with output |
| Average fixed cost | fixed costs of production (FC) divided by the quantity (Q) of output produced |
| Average total cost | equal to total cost divided by the total quantity produced. It is equal to the sum of average variable costs (TV/Q) plus average fixed costs (TF/Q) |
| Variable cost | costs which vary with output |
| Fixed cost | Business expenses that are not dependent on the level of g&s produced they tend to be time-related, such as salaries or rents being paid per month |
| Diminishing marginal product | The property whereby the marginal product of an input declines as the quantity of the input increases |
| Marginal product | the extra output produced by one more unit of an input (for instance, the difference in output when a firm's labour is increased from five to six units) |
| Production function | A function that specifies the output of a firm, an industry, or an entire economy for all combinations of inputs |
| Accounting profit | The difference between price and the costs of bringing to market whatever it is that is accounted as an enterprise |
| Economic profit | The difference between a firm's total revenue and its opportunity costs |
| Implicit costs | Costs which do not involve a direct payment of money to a third party, but which nevertheless involve a sacrifice of some alternative |
| Explicit costs | An easily accounted cost, such as wage, rent and materials (money) |
| Profit | Obtain an advantage or benefit |
| Total cost | The total economic cost of production, which includes fixed and variable cost of the level of production |
| Total revenue | The total money received from the sale of any given quantity of output |
| Sunk cost | Past costs that have already been incurred and cannot be recovered |
| Marginal revenue | The extra revenue that an additional unit of product will bring |
| Average revenue | Total revenue per unit of output |
| Revenue | Income that a company receives from its normal business activities, usually from the sale of goods and services to customers |
| Monopoly | A market in which there are many buyers but only one seller |
| Natural monopoly | The largest supplier in an industry, often the first supplier in a market, has an overwhelming cost advantage over other actual and potential competitors |
| Price discrimination | Exists when sales of identical goods or services are transacted at different prices from the same provider |
| Dominant strategy | Occurs when one strategy is better than another strategy for one player, no matter how that player's opponents may play |
| Prisoner's dilemma | A fundamental problem in game theory that demonstrates why two people might not cooperate even if it is in both their best interests to do so |
| Game Theory | A theory of competition stated in terms of gains and losses among opposing players |
| Nash equilibrium | A stable state of a system that involves several interacting participants in which no participant can gain by a change of strategy as long as all the other participants remain unchanged |
| Cartel | A formal (explicit) agreement among competing firms. It is a formal organization of producers and manufacturers that agree to fix prices, marketing, and production |
| Collusion | An agreement between two or more firms, usually illegal and secretive, to limit competition by deceiving or defrauding others of their legal rights, or to obtain an objective forbidden by law typically by defrauding or gaining an unfair advantage |
| Monopolistic competition | A form of imperfect competition where many competing producers sell products that are differentiated from one another |
| Oligopoly | Market form in which a market or industry is dominated by a small number of sellers |
| Capital | Assets available for use in the production of further assets. |
| Value of marginal product | The marginal product of an input times the price of the output |
| Diminishing marginal product | The property whereby the marginal product of an input declines as the quantity of the input increases |
| Marginal product of labor | The change in output from hiring one additional unit of labor. It is the increase in output added by the last unit of labor |
| Comparable worth | The principle that there should be no difference in remuneration between jobs held mostly by women and jobs held mostly by men, when the women's work is comparable in skill, effort, working conditions, and responsibility to the men's work |
| Discrimination | Unfair treatment of a person or group on the basis of prejudice |
| Efficiency wages | A hypothesis that argues that wages, at least in some markets, are determined by more than simply supply and demand |
| strike | A refusal to work organised by a body of employees as a form of protest, typically in an attempt to gain a concession or concessions from their employer |
| union | An organized association of workers formed to protect and further their rights and interests |
| Human capital | The stock of competences, knowledge and personality attributes embodied in the ability to perform labor so as to produce economic value |
| Compensating differential | term used in labor economics to analyze the relation between the wage rate and the unpleasantness, risk, or other undesirable attributes of a particular job |
| Negative income tax | A progressive income tax system where people earning below a certain amount receive supplemental pay from the government instead of paying taxes to the government |
| Libertarianism | Extreme laissez-faire political philosophy |
| Maximin criterion | The claim that the government should aim to maximize the well-being of the worst-off person in society |
| Liberalism | A political orientation that favours social progress by reform and by changing laws rather than by revolution |
| Utility | a measure that is to be maximized in any situation involving choice |
| Permanent income | The maximum amount that a household can consume per year into the indefinite future without reducing its wealth |
| Poverty line | The minimum level of income deemed necessary to achieve an adequate standard of living in a given country |
| Poverty rate | The percentage of the population whose family income falls below an absolute level called the poverty line |
| Giffen good | Any inferior commodity much cheaper than its superior substitutes, consumed mostly by the poor households as an essential consumer good |
| Substitution effect | The tendency of people to substitute in favour of cheaper commodities and away from more expensive commodities |
| Income effect | The change in consumption resulting from a change in real income |
| Inferior good | A good that decreases in demand when consumer income rises, unlike normal goods, for which the opposite is observed. |
| Normal good | - Any goods for which demand increases when income increases and falls when income decreases but price remains constant, i.e. with a positive income elasticity of demand |
| Perfect complements | A complementary good, in contrast to a substitute good, is a good with a negative cross elasticity of demand |
| Perfect substitutes | A substitute good, in contrast to a complementary good, is a good with a positive cross elasticity of demand |
| Marginal rate of substitution | The rate at which a consumer is ready to give up one good in exchange for another good while maintaining the same level of satisfaction |
| Indifference curve | A graph showing different bundles of goods, each measured as to quantity, between which a consumer is indifferent |
| Budget constraint | the combinations of goods and services that a consumer can purchase given current prices with his or her income |
| Aggregate spending (GDP) | The sum of all spending from four sectors of the economy. GDP = C+I+G+Xn |
| Aggregate income | The sum of all income earned by suppliers of resources in the economy. AI=GDP |
| Nominal GDP | the value of current production at the current prices |
| Real GDP | the value of current production, but using prices from a fixed point in time |
| Base year | the year that serves as a reference point for constructing a price index and comparing real values over time |
| Price index | a measure of the average level of prices in a market basket for a given year, when compared to the prices in a reference (or base) year |
| Market Basket | a collection of goods and services used to represent what is consumed in the economy |
| GDP deflator | the price index that measures the average price level of the goods and services that make up GDP |
| Real interest rate | the cost of borrowing to fund an investment; the percentage increase in purchasing power that a borrower pays a lender |
| Expected inflation | the inflation expected in a future time period. This expected inflation is added to the real interest rate to compensate for lost purchasing power |
| Nominal interest rate | the percentage increase in money that the borrower pays the lender and is equal to the real rate plus the expected inflation |
| Contraction | the period where real GDP is falling |
| Peak | the top of a business cycle where an expansion has ended |
| Trough | the bottom of the business cycle where a contraction has stopped |
| Consumer Price Index (CPI) | the price index that measures the average price level of the items in the base year market basket. This is the main measure of consumer inflation |
| Nominal income | today’s income measured in today’s dollars, not adjusted for inflation |
| real income | today’s income measured in base year dollars |
| consumption function | a linear relationship showing how increases in disposable income cause increases in consumption |
| Autonomous consumption | the amount of consumption that occurs no matter the level of disposable income |
| Saving function | a linear relationship showing how increases in disposable income cause increases in savings |
| Dissaving | another way of saying that saving is less than zero |
| Autonomous saving | the amount of saving that occurs no matter the level of disposable income |
| Marginal propensity to consume (MPC) | the change in consumption caused by a change in disposable income, or the slope of the consumption function. MPC = ▲C/▲DI |
| Marginal propensity to save (MPS) | the change in saving caused by a change in disposable income, or the slope of the saving function. MPS = ▲S/▲DI |
| Determinants of consumption and saving | factors that shift the consumption and saving functions in the opposite direction are Wealth, Expectations, and Household Debt. The factors that change consumption and saving in the same direction are Taxes and Transfers |
| Expected real rate of return | the rate of real profit the firm anticipates receiving on investment expenditures |
| Decision to invest | a firm invests in projects so long as the real expected real rate of return is greater than the i |
| Investment demand | the inverse relationship between the real interest rate and the cumulative dollars invested |
| Autonomous investment | the level of investment determined by investment demand |
| Loanable funds market | the market for dollars that are available to be borrowed for investment projects |
| Demand for LF | the negative relationship between the real interest rate and the dollars invested by firms. |
| Private saving | saving conducted by households and equal to the difference between disposable income and consumption |
| Public saving | saving conducted by government and equal to the difference between tax revenue collected and spending on goods and services |
| Supply of LF | the positive relationship between the dollars saved and the real interest rate |
| Fiscal policy | deliberate changes in government spending and net tax collection to affect economic output, unemployment, and the price level |
| Expansionary fiscal policy | increases in government spending or lower net taxes meant to shift the aggregate expenditure function upward and shift AD to the right |
| Contractionary fiscal policy | decreases in government spending or higher net taxes meant to shift the aggregate expenditure function downward and shift AD to the left |
| sticky prices | if price levels do not change, especially downward, with changes in AD, then prices are thought of as sticky or inflexible |
| Automatic stabilizers | mechanisms built into the tax system that automatically regulate, or stabilize, the macroeconomy as it moves through the business cycle by changing net taxes collected by the government |
| Crowding out | when the government borrows funds to cover a deficit, the interest rate increases and households and firms are pushed out of the market for loanable funds |
| Net export effect | a rising interest rate increases foreign demand for U.S. dollars |
| Productivity | the quantity of output that can be produced per worker in a given amount of time |
| non-renewable resource | natural resources that cannot replenish themselves |
| renewable resource | natural resources that can replenish themselves if they are not over-harvested |
| Investment tax credit | a reduction in taxes for firms that invest in new capital like a factory or piece of equipment |
| Supply side fiscal policy | fiscal policy centered on tax reductions targeted to AS so that GDPr increases with very little inflation. |
| Aggregate demand | the inverse relationship between all spending on domestic output and the average price level of that output |
| Foreign sector substitution effect | when the avg. price of U.S. output increases, consumers naturally begin to look for similar items produced elsewhere |
| Interest rate effect | if the avg. price level rises, consumers and firms might need to borrow more money for spending and capital investment, which increases the interest rate and delays current consumption |
| Wealth effect | as the avg. PL rises, the purchasing power of wealth and savings begins to fall |
| Determinants of AD | Ad is a function of the four components of domestic spending (CIGXx) If any of these components increases or decreases, holding the others constant, AD shifts right or lef |
| Aggregate supply | the positive relationship between the level of domestic output produced and the avg. price level of that output |
| Short-run | a period of time during which the prices of goods and services are changing their respective markets, but the input prices have not yet adjusted to those changes in the product markets |
| Long-run | a period of time long enough for input prices to have fully adjusted to market forces |
| Determinants of AS | AS is a function of many factors that impact the production capacity of the nation |
| Macroeconomic equilibrium | When AD=AS |
| Recessionary gap | The amount by which full-employment GDP exceeds equilibrium GDP |
| Inflationary gap | the amount by which equilibrium GDP exceeds full-employment GDP |
| Demand-pull inflation | this inflation is the result of stronger C from all sectors of AD as it continues to increase in the upward sloping range of AS |
| Deflation | a sustained falling PL, usually due to weakened AD and a constant AS |
| Recession | in the AD and AS model, this is described as falling AD with a constant AS curve |
| closed economy | a model that assumes there is no foreign sector (M and X) |
| aggregation | the process of summing the microeconomic activity of households and firms into a more macroeconomic measure of economic activity |
| GDP | the market value of the final goods and services produced within a nation in a given year |
| Final goods | goods that are ready for their final use by consumers and firms |
| Intermediate goods | goods that require further modification before they are ready for final use |
| Double counting | when you include counting intermediate goods in GDP, which is WRONG |
| Second hand sales | final goods and services that are resold |
| Non-market transactions | household work or do-it-yourself jobs are missed by GDP accounting |
| Underground economy | these include unreported illegal activity, bartering, or informal exchange of cash |
| Domestic price | the equilibrium price of a good in a nation without trade |
| Balance of payments | a summary of the payments received by the U.S. from foreign countries and the payments sent by the U.S. to foreign countries |
| Current account | this account shows current import and export payments of both goods and services and investment income sent to foreign investors of U.S. and investment income received by U.S. citizens who invest abroad |
| Capital account | this account shows the flow of investment on real or financial assets between a nation and foreigners |
| Official reserves account | the Fed’s adjustment of a deficit or surplus in the current and capital account by the addition or subtraction of foreign currencies so that the balance of payments is zero |
| Exchange rate | the price of one currency in terms of a second currency |
| Appreciating (depreciating) currency | when the value of a currency is rising (falling) relative to another currency, it is said to be appreciating (depreciating) |
| Determinants of exchange rates | external factors that increase the price of one currency relative to another |
| Revenue tariff | an excise tax levied on goods not produced in the domestic market |
| protective tariff | an excise tax levied on a good that is produced in the domestic market so that it may be protected from foreign competition |
| Import Quota | a limitation on the amount of a good that can be imported into the domestic market |
| Asset Demand | the amount of money demanded as an asset |
| Money demand | the D for money is the sum of money demanded for transactions and money demanded as an asset |
| Theory of Liquidity preference | Keynes’ theory that the i% adjusts to bring the money market into equilibrium |
| Fractional reserve banking | a system in which only a fraction of the total money deposited in banks is held in reserve as currency |
| Reserve ratio | the fraction of total deposits that must be kept on reserve |
| Required reserves | the portion of a deposit that must be held at the bank for withdrawals |
| Excess reserves | the portion of a deposit that may be borrow by customers |
| Balance sheet | a tabular way to show the assets and liabilities of a bank |
| Asset of a bank | anything owned by the bank or owed to the bank |
| Liability of a bank | anything owned by depositors or lenders |
| Money multiplier | this measures the maximum amount of new checking deposits that can be created by a single dollar of excess reserves |
| Expansionary monetary policy | designed to fix a recession and increase AD, lower the U%, and increase GDPr |
| Contractionary monetary policy | designed to avoid inflation by decreasing AD, which lowers the PL and GDPr |
| Open Market Operations | a tool of monetary policy, it involves the Fed’s buying or selling of securities to or from commercial banks and the general public |
| Fed funds rate | the i% paid on short terms loans made from one bank to another |
| Discount rate | the i% commercial banks pay on short term loans from the Fed |
| Quantity Theory of money | a theory that asserts that the Q of money determines the PL and that the growth rate of money determines the rate of inflation |
| Equation of exchange | the equation says the GDP is equal to the Q of money multiplied by the number of times each dollar is spent in a year |
| Velocity of money | the average number of times that a dollar is spent in a year. V is defined as PQ/M |
| Stock | a certificate that represents a claim to, or share of, the ownership of a firm |
| Equity financing | the firm’s method of raising funds for investment by issuing shares of stock to the public |
| Bonds | a certificate of indebtedness from the issuer to the bond holder |
| Debt financing | a firm’s way of raising investment funds by issuing bonds to the public |
| Fiat money | paper and coin money used to make transactions because the government declares it to be legal tender |
| Functions of money | medium of exchange, store of value and unit of account |
| Money supply | the quantity of money in circulation as measured by the Fed Reserve asM1, M2 and M3 |
| M1 | the most liquid of money definitions and the basis for all other more broadly defined measures of money |
| Liquidity | a measure of how easily an asset can be converted to cash |
| Transaction demand | the amount of money held in order to make transactions |
| Disposable income | the income a consumer has left over to spend or save once they have paid out their net taxes |
| Consumption and savings schedule | tables that show the direct relationships between disposable income and consumption and saving |
| Absolute price | the price of a good measured in units of currency |
| Relative price | The number of units of any other good Y that must be sacrificed to acquire the first good X |
| Law of increasing costs | the more of a good that is produced, the greater the opportunity cost of producing the next unit of that good |
| Productive efficiency | production of maximum output for a given level of technology and resources. All points on the PPF are productively efficient |
| Allocative efficiency | production of the combination of goods and services that provides the most net benefit to society |
| Free rider problem | in the case of a public good, some members of the community know that they can consume the public good while others provide for it |
| Spillover costs | additional to society, not captured by the market supply curve from the production of a good, result in a price that is too low and market quantity that is too high |
| Marginal benefit | the additional benefit received from the consumption of the next unit of a good or service |
| Negative externalities | exists when the production of a good imposes disutility (the spillover costs) upon third parties not directly involved in the consumption or production of this good |
| Positive externalities | exists when the production of a good creates utility (the spillover benefits) for third parties not directly involved in the consumption or production of that good |
| Spillover benefits | additional benefits to society, not captured by the market demand curve from the production of a good, resulting in a price that is too high and a market quantity that is too low |
| Egalitarian | the philosophy that all citizens should receive an equal share of the economic resources |
| Marginal productivity theory | the philosophy that a citizen should receive a share of economic resources proportional to the marginal revenue product of his or her own productivity |
| Tax bracket | a range of income on which a given marginal tax rate is applied |
| Supply-side boom | when the AS curve shifts outward and the AD curve stays constant, PL falls, GDPr increases and the unemployment rate falls |
| Stagflation | a situation in the macroeconomy when inflation and the unemployment rate are both increasing |
| Supply shocks | a supply shock is an economy-wide phenomenon that affects the costs of firms, and the position of the AS curve, either positively or negatively |
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