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Glossary

Barter is the direct trading of goods and services without the use of money.

Business cycles are short-term fluctuations in business activity, that is, a period of economic growth in real GDP followed by a period of decline in real GDP—a recession or depression—followed by a period of economic growth, and so on. See "Gross Domestic Product (GDP)."

Capital resources often called capital goods, refers to goods used to produce other goods and services. Capital resources may be buildings, equipment, machinery, tools, ports, and dams, provided that those items are used to produce other goods and services.

A command or planned economy is an economic system in which decisions about production and distribution are made by a central planning unit, such as the government.

Commodity money is a medium of exchange in which the money is an actual product that is generally acceptable because it has intrinsic value.

Comparative advantage is a person or nation that has a comparative advantage in the production of a good or service if that person or nation can produce the good or service at a lower opportunity cost than that of other person or nation.

Consumers are people who buy goods and services to satisfy their wants.

Consumption may be defined as the use of goods and services by consumers, businesses, or governments.

Cost-benefit analysis refers to an appraisal of whether the benefits of a carrying out project or decision outweigh the costs of carrying out the project or decision.

Demand refers to the different quantities of a resource, good, or service that will be purchased at various prices during a given period of time. According to the law of demand, the lower the price of a good or service, the more of it will be purchased, whereas the higher the price, the less of it that will be purchased.

Division of labor occurs when the production of a good is broken down into numerous separate tasks with different workers performing each task. Division of labor refers to workers performing a narrow range of tasks (or just one task) in a production process.

Earn means to receive payment (income) for productive efforts

Economic wants are desires that can be satisfied by consuming a good or service.

Economic goals may be defined as important societal goals that pertain to economics, such as economic choice, security, growth, equality, and efficiency.

Economic Growth refers to an increase in the actual amount of goods and services produced per person in an economy in a given period of time, i.e., an increase in the real per capita GDP.

An economic system is the way a society organizes the production and distribution of goods and services.

Economics is a social science that studies how people, acting as individuals or in groups, decide to use scarce resources to satisfy their wants.

Entrepreneurs are people who organize other productive resources to make goods and services.

Entrepreneurial ability is a special type of human resource.

Exchange is trading goods and services with people for other goods and services or for money. People voluntarily exchange goods and services because they expect to be better off after the exchange.

An export is a good produced in one country that is shipped and sold in another country.

An export subsidy is a government payment that assists an exporter to maintain a relatively low price for its product so it will be more competitive in world markets.

Factors of production are the inputs into the production process: land (natural resources), labor (human resources), and capital. "Human resources" and "capital resources" are defined elsewhere in the glossary.

Fiat money is money declared by a government as valid for exchange purposes.

Fiscal policy refers to those government decisions taken with regard to taxing and spending money that are made in order to achieve economic goals.

Goods are objects that can satisfy people's wants.

Gross Domestic Product (GDP) is the most inclusive measure of an economy’s output. It is defined as the market value of the total output of final goods and services produced in one year. "Nominal GDP" refers the output of goods and services in terms of current prices, whereas "real GDP refers to the output of goods and services in terms of constant prices, that in terms of prices where corrections are made for changes in the value of the dollar. "Per capita GDP" is the GDP in an economy divided by the number of people in that economy.

Human capital is the level of people's knowledge and skills.

Human resources refers to the quantity and quality of human effort directed to the production of goods and services. One type of human resource is an

entrepreneur. An entrepreneur is a person who assumes the risk of organizing productive resources to produce goods and services.

An import is a good purchased in one country that has been produced in another country.

Economic incentives are the additional rewards or penalties people receive from engaging in more or less of a particular activity. Rewards are positive incentives that make people better off. Penalties are negative incentives that make people worse off.

In a market economy, people earn income by selling or renting resources they own. The income payment received for natural resources is rent; the income payment received for human resources is wage/salary; the income payment received for capital resources is interest; and the income payment receive for entrepreneurial ability is profit.

Inflation is an increase in the average price level.

Intermediate goods are things produced by people and used up in the production of other goods and services.

Innovation is the introduction of an invention into a use that has economic value.

An invention is a new product.

Investment is the purchase of new capital resources. (A more sophisticated definition is the diversion of resources from the production of goods and services for current consumption to the production of goods that increase the economy's productive capacity.)

Interdependence is dependence upon others for goods and services. Interdependence occurs as the result of specialization.

Laissez faire is the practice of letting people do as they please without interference or direction. Laissez faire in an economy refers to letting owners of business or industry to fix the rules of competition, the conditions of labor, etc. as they please without government regulation or control. Laissez faire as a leadership style pertains to a type of leadership where the leader lets those under his authority to do as they please without his interference.

A market exists whenever buyers and sellers exchange goods and services. A market (price) system answers the basic economic questions in the marketplace. Markets coordinate economic activities among consumers, producers, and resource owners.

A market economy is an economic in which the major decisions about production and distribution of goods and services are made in a decentralized manner by individual households and business firms following their own self interest. 

If something is a good medium of exchange it has the following characteristics: generally acceptable, divisible, durable, portable, and relatively scarce.

Monetary policy pertains to those actions taken in an economy to control the total money supply in order to promote economic growth or price stability. Monetary policy in the United States is exercised by the Federal Reserve Bank. It strives to exercise control of money supply by changing reserve requirements in member banks, by changing discount rates (the rate of interest at which it loans money to member banks, and by buying and selling government securities.

Money is anything widely accepted as final payment for goods and services. Money is a medium of exchange, a good that can be used to buy all other goods and services. Money makes trading easier by replacing barter with transactions involving currency, coins, or checks.

Money serves three functions: 1) medium of exchange - used to trade goods, services, and resources; 2) standard of value - the value of goods, services, and resources can be stated in terms of a unit of account such as dollars and cents; 3) store of value- a way to retain savings for the future. When people hold on to money, it maintains its face value.

Natural Resources are those "gifts of nature"—e.g., land, trees, water, fish, petroleum, mineral deposits, fertile soils, and favorable climatic conditions for growing crops—that are used to produce goods and services.

Opportunity cost is the most important alternative that is given up as a result of a specific economic decision. The opportunity cost of purchasing an automobile for an eighteen-year-old boy may be that he cannot afford to attend college.

A price is what people pay when they buy a good or service, and what they receive when they sell a good or service.

Private goods may be defined as those goods that producers can withhold from consumers who refuse to pay for them, where the consumption of the product or service by one person reduces its usefulness to others. One example is a hamburger. See also "public goods."

Producers are people who use resources and intermediate goods to make goods and services.

Production refers to the activity of combining resources to make goods and services.

Productive resources are the natural, human, and capital resources available to make goods and services.

Productivity is a ratio of output to input. For example, output per worker is a measure of the productivity of labor. The productivity of a firm can be increased through specialization or division of labor; investment in human capital; and investment in capital resources.

A progressive tax is one under which people who earn higher incomes pay a larger portion (percentage) of their income on taxes than people with lower incomes.

Profit is the revenue remaining after the business has paid its costs of production. Profit is the income payment to entrepreneurs.

Profit motive pertains to a person’s motivation to make a profit, to earn money as an entrepreneur.

Public goods are goods or services that cannot be withheld from customers who refuse to pay for them (nonexclusion), where the consumption of products or services by one person does not reduce its usefulness to others. Examples include national defense, street lighting, flood control, public safety, and fire protection in a crowded neighborhood. See also "private goods."

A quota is a specified limit on the quantity of a foreign product that may be imported. When the foreign supply of a good is restricted, domestic prices will be higher than would have occurred with outside competition.

Resources are used to produce goods and services.

Saving may be defined as a decision to withhold a portion of current income from consumption. Saving from the individual’s point of view represents income not spent, which may be placed in savings deposits in banks, making it possible for those banks to make loans to those who wish to buy capital goods or other resources.

Scarcity is the condition of not being able to have all of the goods and services that one wants. It exists because human wants for goods and services exceed the quantity of goods and services that can be produced using all available resources.

Services are actions that can satisfy people's wants.

Specialists are people who produce a narrower range of goods and services than they consume.

Specialization occurs when individuals or groups produce a smaller range of goods and services than they consume.

Spending is using income (earnings) to buy goods and services.

Supply refers to the different quantities of a resource, good, or service that will be offered for sale at various possible prices during a specified time period. According to the law of supply, the higher the price of an item, the more of it that is likely to be offered for sale.

A tariff is a tax on imported goods. The primary effect of a tariff is a higher price that restricts consumption.

Taxes are those required payments made to governments by individuals and businesses.

Technology is the body of knowledge used to produce goods and services.

Trade barriers are policies that restrict or stop the flow of trade among countries.

A traditional economic system is one in which decisions are based on past behavior.

Trade-offs refers to the acceptance or choice of less of one thing to get more of something else (e.g., less of one good to get more of another, less regulation to protect the environment to get lower business costs and reduced prices of final goods).