Glossary

Money received for work performed; may include salary, wages, tips, professional fees, commissions, etc.

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.

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.

A situation in which no one in a society can be made better off without making someone else worse off.

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.

The freedoms of the marketplace--the 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.

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.

An increase in real output as measured by real GDP or per capita real GDP.

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.

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.

Total revenue is less than total costs when total costs include all opportunity costs.

A firm's total revenue minus all explicit and implicit costs of production, including opportunity costs.

Protection against economic risks, such as unemployment, accidents on the job, business failures or natural disasters, over which people have little or no control.

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.

Desires that can be satisfied by consuming a good or service. Economists do not differentiate between wants and needs.

A reasoning process that involves considering costs as well as benefits in making decisions.

The study of how people, firms and societies choose to allocate scarce resources with alternative uses.

Price elasticity of demand is the percentage change in quantity demanded as a result of the percentage change in demand price. Generally, a relative response of a change in quantity demanded to a relative change in price.

A general increase in the price level.

The percentage of the total population aged 16 or over that is employed.

One who draws upon his or her skills and initiative to launch a new business venture with the aim of making a profit. Often a risk-taker, inclined to see opportunity when others do not.

Entrepreneurs are willing to risk their own resources in order to sell them for financial gain or profits. Entrepreneurs are successful when they provide consumers with goods and services that consumers highly value. Financially successful entrepreneurs have some common characteristics. First, they are willing to assume risk, and high risk can lead to high rewards. Second, entrepreneurs have unique skills that help them develop new products or new cost-cutting production methods or new ways to serve consumers. Third, many entrepreneurs also have the discipline to work long and difficult hours to achieve their goals. These same entrepreneurial characteristics can help anyone to be successful even one who doesn't start a business. If you want to earn more income, develop valuable skills and use them in ways that are highly valued by others.

A characteristic of people who assume the risk of organizing productive resources to produce goods and services; a resource.

A price at which the quantity demanded by buyers equals the quantity supplied by sellers; also called the market-clearing price.

The quantity demanded and quantity supplied at the equilibrium or market-clearing price.

Stock, both common and preferred—as in "I prefer to invest in equities rather than bonds." Also the value of mortgaged property after accounting for charges against it or money owed — as in "Sarah has built up $40,000 worth of equity in the home she bought five years ago."

An association of European nations created by the Maastricht Treaty signed in 1992. The EU has eliminated quotas and tariffs among its members and created other common economic policies.

A bank's cash reserves beyond the required reserves, which can be loaned.

Trading a good or service for another good or service, or for money.

The price of one nation’s currency in terms of another nation’s currency.

An increase in government spending and/or a decrease in taxes designed to increase aggregate demand in the economy, thus increasing real output and decreasing unemployment.

Payments for goods and services.

The monetary payment a firm must make to obtain a resource.

Goods and services produced in one nation and sold in other nations.

Economic side-effects or third-party effects, in which some of the benefits or costs associated with the production or consumption of a product affect someone other than the direct producer or consumer of the product. Can be positive or negative.