Economics Glossary

 
 

Macroeconomics Glossary

Term Definition
Aggregate demand The total amount of goods and services demanded in the economy at a given overall price level
Aggregate price level A measure of the overall level of prices in the economy
Aggregate supply The total amount of goods and services that firms are willing and able to sell at a given price level in an economy
Automatic stabilizers Economic policies designed to offset fluctuations in a nation's economic activity without intervention by governments
Balance of payments The record of all economic transactions between the residents of the country and the rest of the world in a particular period of time
Business cycle The natural rise and fall of economic growth that occurs over time
Consumer price index A measure of the changes in the weighted average level of prices of a basket of consumer goods and services
Cost-push inflation When overall prices rise due to increases in production costs
Crowding out A phenomenon that occurs when increases in government spending causes a reduction in consumer spending
Deflation A fall in the general level of prices in an economy
Demand-pull inflation When overall prices rise as a result of the aggregate demand exceeding the aggregate supply in an economy
Disposable income A household’s income that is available to be spent or saved after taxes have been deducted
Fiscal policy Government policies that adjust the levels of government spending and taxation to influence the economy
Gross Domestic Product The total value of all the goods and services produced within an economy
Inflation An increase in the general level of prices in an economy
Investment spending Spending on productive physical capital, such as machinery and construction of structures, and on changes to inventories
Liquid Describes an asset that can be quickly converted into cash without much loss of value
Macroeconomics The branch of economics concerned with whole economies and their general behavior and performance
Marginal propensity to consume The increase in consumer spending when income rises by $1
Monetary policy Policies the central bank use to adjust the interest rates and money supply
Purchasing power parity The theoretical exchange rate at which a given basket of goods and services would cost the same amount in each country
Quantity theory of money A theory which states the positive relationship between the price level and money supply
Recession A period of economic decline when output and unemployment fall
Reserve requirements A central bank regulation that sets a minimum amount of cash reserves that commercial banks must hold
Stagflation The combination of high inflation and falling outputs in an economy
 

Microeconomics Glossary

Term Definition
Allocative efficiency When goods or services have been distributed optimally such that marginal benefit equals marginal cost
Comparative advantage The advantage gained if the opportunity cost of producing the good or service is lower for another producer
Consumer surplus The difference between the price that consumers pay and the price that they are willing to pay
Deadweight loss    The losses associated with quantities of output that are greater than or less than the efficient level, as a result of market intervention
Diminishing returns The decrease in the marginal output of a production process as the amount of a single factor of production is increased
Economic profit A firm’s revenue minus the costs of inputs used and any opportunity costs
Economies of scale A proportionate saving in costs gained by an increased level of production
Equilibrium The point at which the market forces of supply and demand are balanced
Externality A consequence of an industrial or commercial activity that affects third parties without being reflected in market prices
Gini coefficient A statistical measure of distribution measuring income distribution among a population
Human capital The skills or knowledge possessed by an individual or population viewed in terms of their value to an economy
Income effect The change in the quantity of a good consumed that results from the change in a consumer’s purchasing power due to the change in the price of the good
Marginal utility The change in total utility generated by consuming one additional unit of a good or service
Microeconomics The part of economics concerned with single factors and the effects of individual decisions
Monopolistic competition A market structure where there are many competing firms in an industry, each firm sells a differentiated product, and there is free entry into and exit from the industry in the long run
Monopoly An industry controlled by a single firm that is the only producer of a good that has no close substitutes
Natural monopoly A monopoly that exists when increasing returns to scale provide a large cost advantage to having all output produced by a single firm
Oligopoly An industry with only a small number of producers
Opportunity cost The value of the next best alternative foregone when one decision is taken
Perfectly competitive market A market in which all market participants are price-takers
Physical capital A factor of production or input into the process of production
Price discrimination Selling the same product at different prices to different buyers, in order to maximize profits
Price elasticity of demand A measure of the responsiveness of the quantity demanded of a good to the price of that good
Price elasticity of supply A measure of the responsiveness of the quantity of a good supplied to the price of that good
Private good A private good is a product that must be purchased to be consumed and consumption by one individual prevents another individual from consuming it
Producer surplus The difference between how much a person would be willing to pay for given quantity of a good versus how much they can receive by selling the good at the market price
Public good A public good is a product that one individual can consume without reducing its availability to others and from which no one is deprived
Scarce In short supply
Substitution effect The change in the quantity of a good demanded as the consumer substitutes the good that has become relatively cheaper for the good that has become relatively more expensive