Economics Encyclopedia

Economics Encyclopedia

If you would like to prepare for school subjects or simply increase your general knowledge, then enjoy our economics encyclopedia. We tried to focus only on very important terms and definitions. We also kept our terminology very brief so that you absorb the concept more quickly and easily.

Economics Glossary (Page 2)

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COMPLEMENTARY GOODS AND SERVICES: Goods and/or services that are typically used together, such as hamburger and hamburger buns, or tennis rackets and tennis lessons.
COMPLEMENTS: Goods and/or services that are often consumed together; e.g., left and right socks, or tennis rackets and tennis lessons.
COMPOUND INTEREST: Interest that is earned not only on the principal but also on the interest already earned.
COMPOUNDING: Paying interest on the principal and on interest already earned. For example, if someone deposits $2,000 in an account that pays interest at 8 percent, he or she will earn $160 in interest after one year, for a balance of $2,160. If the depositor leaves this sum in the account for another year, however, he or she will earn $172.80 in interest because the 8 percent rate will apply to the new balance of $2,160, not the original $2,000 deposit. The longer the money is left in the account, the more dramatic the compounding effect.
COMPREHENSIVE INSURANCE COVERAGE: Insurance that pays for repairs to an automobile, or replacement of an automobile (minus the deductible in each case), if the automobile is stolen or damaged by something other than a collision (for example, by a hail storm).
CONCENTRATION RATIO: The percentage of the total industry by the largest firms (generally four or eight) in an industry. The concentration ratio provides a measure of domination in an industry by a few firms and serves as a measure of whether an industry is an oligopoly.
CONSEQUENCE: A result or effect of an action or decision; may be positive or negative.
CONSTANT, DIMINISHING, OR INCREASING RETURNS TO SCALE: When all inputs are increased by a certain proportion, output increases in equal, smaller, or greater proportion, respectively; increasing returns to scale are also called economies of scale-consumer price index-a price index in which the basket of goods is defined by what a typical consumer purchases-consumer protection legislation-laws aimed at protecting consumers, for instance by assuring that consumers have more complete information about items they are considering buying-consumer sovereignty-the idea that individuals are the best judges of what is in their own interests and promotes their well-being.
CONSUME: To buy and use a good or service.
CONSUMER ECONOMICS: The study of economics that addresses decisions of consumers in the marketplace and personal money management.
CONSUMER PRICE INDEX (CPI): A price index that measures the cost of a fixed basket of consumer goods and services and compares the cost of this basket in one time period with its cost in some base period. Changes in the CPI are used to measure inflation.
CONSUMER SPENDING: The purchase of consumer goods and services.
CONSUMER SURPLUS: The difference between the price a consumer would be willing to pay for a good or service and the price that consumer actually has to pay.
CONSUMERS: People who use goods and services to satisfy their personal needs and not for resale or in the production of other goods and services.
CONSUMPTION: Spending by households on goods and services. The process of buying and using goods and services.
CONTRACTIONARY FISCAL POLICY: A decrease in government spending and/or an increase in taxes designed to decrease aggregate demand in the economy and control inflation.
CORPORATION: A legal entity owned by shareholders whose liability for the firm's losses is limited to the value of the stock they own.
COST/BENEFIT ANALYSIS: A process of examining the advantages (benefits) and disadvantages (costs) of each available alternative in arriving at a decision.
COST-PUSH INFLATION: Inflation caused by rising costs of production.
COSTS: An amount that must be paid or spent to buy or obtain something. The effort, loss or sacrifice necessary to achieve or obtain something.
COSTS OF PRODUCTION: Amounts paid for resources (land, labor, capital and entrepreneurship) used to produce goods and services.
COUNCIL OF ECONOMIC ADVISERS: A three-member group that gathers information on the economy, reports on economic developments and recommends strategies to the President.
CRAFTSPERSON: A worker who completes all steps in the production of a good or service.
CREDIT: The opportunity to borrow money or to receive goods or services in return for a promise to pay later.
CREDIT AGREEMENT: A written promise to repay something that is borrowed.
CREDIT APPLICATION: A request for a loan, submitted to a lender (for example, a bank or a credit union) by a prospective borrower. The credit application provides background information which the lender uses to assess the prospective borrower's creditworthinesshis or her ability to repay the loan.
CREDIT CARD: A small, specially coded plastic card issued by a bank, business, etc., authorizing the cardholder to purchase goods or services on credit.
CREDIT COSTS: Charges associated with the acceptance of a loan, including the finance charge and transaction fees (for example, loan fees, annual or monthly fees on a credit account).
CREDIT HISTORY: A record of past borrowing and repayments.
CREDIT LIMIT: The maximum amount of money that will be extended to a person by a financial institution or credit-card issuer.
CREDIT RATING: An evaluation of a borrower's ability to repay a loan based on his or her character, capacity and capital.
CREDIT RECORD: A report about a person's credit history, including his or her ability and willingness to repay debts, based on how reliably he or she has repaid debts in the past. Also known as a credit report.
CREDIT REPORT: A report about a person's credit history, including his or her ability and willingness to repay debts, based on how reliably he or she has repaid debts in the past. Also known as a credit record.
CREDIT UNION: A nonprofit financial institution owned by its members; offers various financial services including accounts and loans; regulated by the National Credit Union Association (NCUA).
CREDIT-CARD STATEMENT: A monthly summary from a credit-card company conveying information about a cardholder's purchases, payments, balance due and fees.
CREDITOR: A person or company to whom money is owed.
CREDITWORTHINESS: The extent to which a person is deemed suitable to receive credit, especially as shown by reliability in repaying loans in the past.
CRITERIA: Standards or measures of value that people use to evaluate what is most important.
CROSS-PRICE ELASTICITY OF DEMAND: The percentage change in the quantity demanded for one good divided by the percentage change in the price of a related good, everything else held constant. It measures the degree to which goods are substitutes or complements. When the cross-price elasticity of demand is positive, the goods are substitutes; when the cross-price elasticity of demand is negative, the goods are complements.
CROWDING-OUT: Increased interest rates and decreased private investment caused by government borrowing.
CURRENCY: The money in circulation in any country.
CURRENCY BOARD: A government organization existing in a few countries that establishes a fixed exchange rate for the nation's currency.
CURRENCY DEVALUATION: When a government adjusts the value of the nation's currency so that it buys less of foreign currencies than before.
CURRENT ACCOUNT: Part of a nation's balance of payments accounts; records exports and imports of goods and services, net investment income and transfer payments with other countries.
CURRENT ACCOUNT BALANCE: The inflow of the goods, services, investment income and transfer accounts into the United States from foreign countries netted against the outflow of goods, services, investment income and transfer accounts from the United States to foreign countries.
CYCLICAL UNEMPLOYMENT: Unemployment caused by fluctuations in the overall rate of economic activity or phase of the business cycle.
DEBIT CARD: A small, specially coded plastic card issued by a bank; allows the cardholder to transfer funds electronically and immediately from his or her checking account, as if the cardholder were writing a check to pay for a purchase.
DEBT: Money owed to someone else. Also the state or condition of owing money. Can be individual, corporate or government debt.
DEBT FOR INDIVIDUAL: Money a person owes to someone else, usually a financial institution.
DECEPTIVE PRACTICES: Misleading methods used by businesses to sell goods or services. Examples include misleading prices, bait-and-switch tactics and false advertising.
DECISION: A conclusion reached after considering alternatives and their results.
DECISION MAKING: Reaching a conclusion after considering alternatives and their results.
DECISION-MAKING GRID: A graph-like form into which people may enter notations about the costs and benefits of various alternatives; used for assistance in making decisions.
DEDUCTIBLE: Regarding insurance policies-A set amount an insured person must pay per loss before the insurance company will pay a claim.
DEFINITION OF MONEY: A medium of exchange which can be conveniently circulated and is seen as an effective form of currency.
DEFLATION: A sustained decrease in the average price level of all the goods and services produced in the economy.
DEMAND: The quantity of a good or service that buyers are willing and able to buy at all possible prices during a period of time.
DEMAND DECREASE: A decrease in the quantity demanded at every price; a shift to the left of the demand curve.
DEMAND DEPOSIT: An account from which funds may be withdrawn by writing a check at any time and without having to obtain the approval of the financial institution in advance.
DEMAND INCREASE: An increase in the quantity demanded at every price; a shift to the right of the demand curve.
DEMAND-PULL INFLATION: Inflation caused by increasing demand for output or "too much money chasing too few goods."-Deposit-Money put into a financial account. Also, to place money in a financial account.
DEPRECIATION: A reduction in the value of capital goods over time due to their use in production.
DEPRECIATION OF CURRENCY: A decline in the price of one currency relative to another.
DEPRESSION: A severe, prolonged economic contraction.
DERIVED DEMAND: Demand resulting from what a good or service can produce, not demand for the good or service itself.
DETERMINANTS OF DEMAND: Factors other than the price of a good or service that change (shift) the demand schedule, causing consumers to buy more or less at every price. Factors include income, number of consumers, preferences and prices of related goods.
DETERMINANTS OF SUPPLY: Factors other than the price of a good or service that change (shift) the supply schedule, causing producers to supply more or less at every price. Factors include number of producers, production costs, and technology and productivity.
DIMINISHING MARGINAL UTILITY: A widely observed relationship in which the additional satisfaction (marginal utility) associated with consuming additional units of the same product in a given amount of time eventually declines.
DIRECT DEPOSIT: The electronic transfer of a payment (for a month's salary, for example) directly from the payer's account to the recipient's account.
DIRECT RELATIONSHIP: The relationship that exists when the values of related variables move in the same direction. Also known as a positive relationship.
DISCOUNT RATE: The interest rate the Federal Reserve charges commercial banks for loans.
DISCOURAGED WORKERS: Unemployed people who have given up looking for work and are therefore not counted as part of the labor force.
DISINCENTIVE: A factor, often a monetary policy or disadvantage, that discourages people from doing something.
DISPOSABLE INCOME: The amount of money a person has left to save or spend after income taxes, Social Security taxes and other required deductions have been taken out of his or her pay.
DISTRIBUTION: The allocation or dividing up of the goods and services a society produces.
DISTRIBUTION OF INCOME: The way in which the nation's income is divided among families, individuals or other designated groups.
DIVERSIFY: To invest in a variety of stocks, bonds, money market accounts, etc., in order to spread risk.
DIVIDEND: A share of a company's net profits paid to stockholders.
DIVISION OF LABOR: An arrangement in which workers perform only one step or a few steps in a larger production process (as when working on an assembly line).
DOLLARIZATION: Abandonment of the domestic currency in favor of the U.S. dollar-dominant strategy-strategy that works best no matter what the other player does in a game-dual economies-separations in many less developed countries (ldcs) between impoverished rural sectors and urban sectors that have higher wages and more advanced technology-dual use-technologies that have both a civilian and a military use.
DURABLE GOODS: Goods intended to last for a period of more than three years.
DURABLES: Consumer goods expected to last longer than three years.
EARN: Receive payment (income) for productive efforts.
EARNED INCOME: Money received for work performed; may include salary, wages, tips, professional fees, commissions, etc.
EASY-MONEY POLICY: Monetary policy designed to stimulate the economy by increasing the level of bank reserves through lowering the discount rate, lowering reserve requirements or buying securities through open market operations.
ECONOMIC DEVELOPMENT: The process of improving the quality of human lives through raising living standards. Economic development is broader than economic growth, which is concerned with year-to-year increases in production. Economic development deals with the economic, social and political institutions that govern the way the economy and society function.
ECONOMIC EFFICIENCY: A situation in which no one in a society can be made better off without making someone else worse off.
ECONOMIC EQUITY: The application of our concepts of what is "fair" or "unfair" and what is "right" or "wrong" to an economic policy. Ultimately deals with the distribution of income and wealth.
ECONOMIC FREEDOM: The freedoms of the marketplacethe freedom of consumers to decide how they wish to allocate their spending among various goods and services; the freedom of workers to choose to change jobs, join unions and go on strike; the freedom of individuals to establish businesses and to decide what to produce and when to change their pattern of production; and the freedom of savers to decide when and where to invest their savings.
ECONOMIC FUNCTIONS OF GOVERNMENT: In a market economy, government agencies establish and maintain a legal system to regulate both commercial and social behavior, promote competition, respond to market failures by providing public goods and adjusting for externalities, redistribute income and establish macroeconomic stabilization policies. To perform these functions, governments must shift resources from private uses by taxing and/or borrowing.
ECONOMIC GROWTH: An increase in real output as measured by real GDP or per capita real GDP.
ECONOMIC INCENTIVES: Factors that motivate and influence the behavior of individuals and organizations, including firms and government agencies. Prices, profits and losses are important economic incentives in a market economy.
ECONOMIC INSTITUTIONS: Organizations such as households and families; formal organizations such as corporations, government agencies, banks, labor unions and cooperatives; a system of law; customary ways of doing things such as the use of money, collective bargaining and the observance of certain holidays; and controlling values and beliefs.
ECONOMIC LOSS: Total revenue is less than total costs when total costs include all opportunity costs.
ECONOMIC PROFIT: A firm's total revenue minus all explicit and implicit costs of production, including opportunity costs.
ECONOMIC RENT: Payment for the use of something that is in fixed or perfectly inelastic supply; earnings in excess of the earnings required to keep a resource in its current use; the portion of a resource's earnings that is not necessary to keep the resource in its present use.
ECONOMIC SECURITY: Protection against economic risks, such as unemployment, accidents on the job, business failures or natural disasters, over which people have little or no control.
ECONOMIC SYSTEM: The collection of institutions, laws, activities, controlling values, and human motivations that collectively provide a framework for economic decision making.
ECONOMIC SYSTEMS: The institutional framework of formal and informal rules that a society uses to determine what to produce, how to produce and how to distribute goods and services.
ECONOMIC WANTS: Desires that can be satisfied by consuming a good or service. Economists do not differentiate between wants and needs.

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