incentive
expected benefit of a decision minus its opportunity cost
property right
a person's legal right to decide whether and how to use a scarce resource
positive statement
a statement of fact (which must be either true or false)
normative statement
a "should" statement that expresses a value judgement
economic model
description of logical thinking about an economic issue
statistical analysis
use of mathematical probability theory to draw inferences in situations
of uncertainty
rational behavior
the actions of people doing the best they can, based on their own values
and information,
under whatever circumstances they face
positive correlation
a relationship between variables that tend to rise or fall together
negative correlation
a relationship between variables that tend to move in opposite directions
comparative advantage
an activity at which a person has a lower opportunity cost than other
people have
zero-sum game
an environment in which one person's gain is another person's loss
positive-sum game
an environment in which everyone can gain at the same time
economically efficient
a situation that cannot be changed so that at least one person
gains while no one else loses -- in other words, a situation in which any
change (away from that situation) makes at least one person worse off
economically inefficient
a situation that can be changed so that at least one person
gains while no one else loses (so that making that change could
alter the situation so that it becomes efficient)
production possibilities frontier [PPF]
graph of the combinations of various goods that an economy can produce
with its current resources and technology
quantity demanded (at some price)
the amount of a good that people would buy (during some time period)
if they could buy as much as
they want at that price
quantity supplied (at some price)
the amount of a good that sellers would sell (during some time period)
if they could sell as much as
they want at that price
change in demand
shift in demand curve
increase in demand
demand curve shifts up and to the right
decrease in demand
demand curve shifts down and to the left
change in supply
shift in supply curve
increase in supply
supply curve shifts down and to the right
decrease in supply
supply curve shifts up and to the left
normal good
a good whose demand increases if income rises
inferior good
a good whose demand decreases if income rises
substitutes
two goods are substitutes if an increase in the price of one raises
demand for the other
complements
two goods are complements if an increase in the price of one reduces
demand for the other
intertemporal substitution
substitution over time -- change in current demand or supply due to
a change in the expected future price
income effect of a price change
change in quantity demanded resulting from a change in what buyers
can afford
substitution effect of a price change
change in quantity demanded resulting from a change in the opportunity
cost of a good
equilibrium
a situation that tends to stay they same unless some underlying condition
changes
market equilibrium
a situation in which the quantity demanded equals the quantity supplied
at the current price
equilibrium price
the price at which quantity supplied equals quantity demanded -- in
other words, the price at which the supply and demand curves intersect
equilibrium quantity
the amount of a good bought and sold in a market equilibrium
excess demand
shortage (that is, a situation in which quantity demanded exceeds quantity
supplied)
excess supply
surplus (that is, a situation in which quantity supplied exceeds the
quantity demanded)
nominal price
money price (measured in dollars per good, or yen per good, etc.)
relative price
the relative price of one good in terms of another is the opportunity
cost of the first good measured in units of the second good -- it equals
the nominal price of the first good divided by the nominal price of the
second good
elasticity of demand (or supply)
the percentage change in the quantity demanded (or supplied) when the
price changes, divided by the percentage change in price
elastic
demand or supply with an elasticity greater than 1 in absolute value
inelastic
demand or supply with an elasticity less than 1 in absolute value
perfectly inelastic
elasticity equal to zero (meaning that the demand or supply curve is
a vertical line)
perfectly elastic
elasticity equal to infinity (meaning that the demand or supply curve
is a horizontal line)
long run
the time needed for people to adjust fully to a change in conditions
private demand
demand by everyone except the government
market demand
demand by everyone (by all buyers)
government budget deficit
the amount of money that the government must borrow because it spends
more money than it collects in taxes
time price of a good
the time necessary to buy, prepare, and use a good
consumption of a good
the amount of a good that people use for their current benefit
export
sale to a buyer in another country
import
purchase from a seller in another country
arbitrage
buying a good at a place where its price is low and selling it where
its price is higher
arbitrage opportunity
knowledge about a price differential that exceeds the costs of arbitrage
speculation
buying a good at a time when its price is low and storing it to sell
in the future when its price might be
higher
futures market
a market in which people buy and sell goods for future delivery
futures price
the price of a good for delivery at a future date
spot price
the price of a good for current delivery
share of stock
legal right of ownership in a business firm
stock price
price of a share of stock
random walk
a price that is equally likely to rise or fall by the same amount,
so that, on average, people expect it not to change
maximum legal price
highest price at which the government allows people to buy or sell
a good
minimum legal price
lowest price at which the government allows people to buy or sell a
good
tie-in sale
sale in which a seller sells only to buyers who also agree to buy some
other product
tax rate
the per-unit tax on a good, expressed as a percentage of the price
import quota
limit on the quantity of imports