EEO Flashcard

Absolute advantage is the ability of an individual, company, region, or country to produce a greater quantity of a good or service with the same quantity of inputs per unit of time, or to produce the same quantity of a good or service per unit of time using a lesser quantity of inputs, than another entity that produces the same good or service.

Accounting profit is also known as the net income for a company or the bottom line. It's the profit after various costs and expenses are subtracted from total revenue or total sales, as stipulated by generally accepted accounting principles (GAAP).

Adverse selection refers generally to a situation in which sellers have information that buyers do not have, or vice versa, about some aspect of product quality. In other words, it is a case where asymmetric information is exploited.

Arrow's impossibility theorem is a social–choice paradox illustrating the flaws of ranked voting systems. It states that a clear order of preferences cannot be determined while adhering to mandatory principles of fair voting procedures.

In economics, an agent is an actor (more specifically, a decision maker) in a model of some aspect of the economy.

An aggregate demand curve shows the total spending on domestic goods and services at each price level.

The aggregate supply curve shows the total quantity of output—real GDP—that firms will produce and sell at each price level.

Automatic stabilizers are a type of fiscal policy designed to offset fluctuations in a nation's economic activity through their normal operation without additional, timely authorization by the government or policymakers.

In economics, average fixed cost (AFC) is the fixed cost per unit of output. Fixed costs are such costs which do not vary with change in output. AFC is calculated by dividing total fixed cost by the output level.

In economics, average total cost (ATC) equals total fixed and variable costs divided by total units produced. Average total cost curve is typically U–shaped i.e. it decreases, bottoms out and then rises.

In economics, average variable cost (AVC) is the variable cost per unit. Variable costs are such cost which vary directly with change in output. AVC equals total variable cost divided by output.

Behavioral economics draws on psychology and economics to explore why people sometimes make irrational decisions, and why and how their behavior does not follow the predictions of economic models.

The benefit principle is the idea that government spending should be met by the people who receive them. In other words, everyone who receives government spending, should contribute towards it.

The business cycle is the natural rise and fall of economic growth that occurs over time.

In economics, a budget constraint represents all the combinations of goods and services that a consumer may purchase given current prices within his or her given income.

A budget deficit occurs when expenses exceed revenue and indicate the financial health of a country.

A budget surplus occurs when tax revenue is greater than government spending.

In economics, capital consists of human–created assets that can enhance one's power to perform economically useful work. ... Capital goods, real capital, or capital assets are already–produced, durable goods or any non–financial asset that is used in production of goods or services.

In economics, capital flight is a phenomenon characterized by large outflows of assets and/or capital from a country due to some events, resulting in negative economic consequences

A cartel is a grouping of producers that work together to protect their interests. Cartels are created when a few large producers decide to co–operate with respect to aspects of their market. Once formed, cartels can fix prices for members, so that competition on price is avoided.

The catch–up effect is a theory speculating that poorer economies tend to grow more rapidly than wealthier economies, and so all economies will eventually converge in terms of per capita income. In other words, the poorer economies will literally catch–up" to the more robust economies."

A Central Bank is an integral part of the financial and economic system. They are usually owned by the government and given certain functions to fulfil. These include printing money, operating monetary policy, the lender of last resort and ensuring the stability of financial system.

In economics, the circular flow diagram represents the organization of an economy in a simple economic model. This diagram contains, households, firms, markets for factors of production, and markets for goods and services.

The classical dichotomy refers to the idea that real variables, like output and employment, are independent of monetary variables. In macroeconomics, the classical dichotomy is the idea, attributed to classical and pre–Keynesian economics, that real and nominal variables can be analyzed separately.

A closed economy is a type of economy where the import and export of goods and services don’t happen, which implies that the economy is self–sufficient and has no trading activity from outside economics.

The Coase Theorem is a legal and economic theory developed by economist Ronald Coase regarding property rights, which states that where there are complete competitive markets with no transaction costs and an efficient set of inputs and outputs, an optimal decision will be selected.

Collective Bargaining is a mode of fixing the terms of employment by means of bargaining between organized body of employees and an employer or association of employees acting usually through authorized agents. The essence of Collective Bargaining is bargaining between interested parties and not from outside parties”.

Collusion is a non–competitive, secret, and sometimes illegal agreement between rivals which attempts to disrupt the market's equilibrium

Commodity money has been used throughout history as a medium of economic exchange. It is money whose value comes from a commodity of which it is made. Commodity money consists of objects having value or use in themselves (intrinsic value) as well as their value in buying goods.

A common resource (or the commons") is any scarce resource, such as water or pasture, that provides users with tangible benefits but which nobody in particular owns or has exclusive claim to."

Comparative advantage is an economy's ability to produce a particular good or service at a lower opportunity cost than its trading partners.

Economists use the term compensating differential to refer to a difference in wages that arises from nonmonetary characteristics of different jobs. Compensating differentials ere prevalent in the economy. Here are some examples: • Coal miners are paid more than other workers with similar levels of education.

A competitive market is one in which a large numbers of producers compete with each other to satisfy the wants and needs of a large number of consumers.

Compounding is the process in which an asset's earnings, from either capital gains or interest, are reinvested to generate additional earnings over time. This growth, calculated using exponential functions, occurs because the investment will generate earnings from both its initial principal and the accumulated earnings from preceding periods.

The Condorcet paradox (also known as the voting paradox or the paradox of voting) in social choice theory is a situation noted by the Marquis de Condorcet in the late 18th century, in which collective preferences can be cyclic, even if the preferences of individual voters are not cyclic.

When an increase in inputs (capital and labour) cause the same proportional increase in output. Constant returns to scale occur when increasing the number of inputs leads to an equivalent increase in the output.

The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them.

Consumer surplus is an economic measurement of consumer benefits. A consumer surplus happens when the price that consumers pay for a product or service is less than the price they're willing to pay. It's a measure of the additional benefit that consumers receive because they're paying less for something than what they were willing to pay.

Consumption, in economics, the use of goods and services by households. Consumption is distinct from consumption expenditure, which is the purchase of goods and services for use by households.

Core CPI is the CPI – energy and food prices.

A corrective tax is a market–based policy option used by the government to address negative externalities.

A cost–benefit analysis (CBA) is the process used to measure the benefits of a decision or taking action minus the costs associated with taking that action.

The crowding out effect is an economic theory arguing that rising public sector spending drives down or even eliminates private sector spending.

Currency, in industrialized nations, portion of the national money supply, consisting of bank notes and government–issued paper money and coins, that does not require endorsement in serving as a medium of exchange; among less developed societies, currency encompasses a wide diversity of items (e.g., livestock, stone carvings, tobacco) used as exchange media as well as signs of value or wealth.

Cyclical unemployment occurs when an economy's output deviates from potential GDP– i.e. the long–term trend level of output in an economy. When an economy's output is higher than the level of potential GDP, resources are utilized at levels higher than normal and cyclical unemployment is negative.

Deadweight loss is defined as the loss to society that is caused by price controls and taxes. A deadweight loss, also known as an excess burden, is a measure of lost economic efficiency when the socially optimal quantity of a good or service is not produced.

Demand curve, in economics, a graphic representation of the relationship between product price and the quantity of the product demanded. It is drawn with price on the vertical axis of the graph and quantity demanded on the horizontal axis.

A demand deposit is money deposited into a bank account with funds that can be withdrawn on–demand at any time. The depositor will typically use demand deposit funds to pay for everyday expenses. For funds in the account, the bank or financial institution may pay either a low or zero interest rate on the deposit.

In economics, a demand schedule is a table that shows the quantity demanded of a good or service at different price levels. A demand schedule can be graphed as a continuous demand curve on a chart where the Y–axis represents price and the X–axis represents quantity.

Depreciation, in accounting, the allocation of the cost of an asset over its economic life. Depreciation covers deterioration from use, age, and exposure to the elements.

A depression is a severe and prolonged downturn in economic activity. In economics, a depression is commonly defined as an extreme recession that lasts three or more years or which leads to a decline in real gross domestic product (GDP) of at least 10%. in a given year.

Diseconomies of scale occur when a business expands so much that the costs per unit increase. It takes place when economies of scale no longer function.

The Law of Diminishing Marginal Product is the economic concept shows increasing one production variable while keeping everything else the same will initially increase overall production but will generate less returns the more that variable is increased

In economics, diminishing returns is the decrease in the marginal (incremental) output of a production process as the amount of a single factor of production is incrementally increased, while the amounts of all other factors of production stay constant.

In economics and finance, the term discount rate" could mean one of two things, depending on context. On the one hand, it is the interest rate at which an agent discounts future events in preferences in a multi–period model, which can be contrasted with the phrase discount factor.On the other, it means the rate at which United States banks can borrow from the Federal Reserve."

Discouraged workers are a group of individuals in an economy who have been actively looking for work but have given up due to feeling discouraged from consistent unemployment and failed efforts of looking for work opportunities.

Defining Statistical Discrimination in Economics Terms The phenomenon of statistical discrimination is said to occur when an economic decision–maker uses observable characteristics of individuals, such as the physical traits that are used to categorize gender or race, as a proxy for otherwise unobservable characteristics that are outcome relevant.

In finance, diversification is the process of allocating capital in a way that reduces the exposure to any one particular asset or risk. A common path towards diversification is to reduce risk or volatility by investing in a variety of assets.

A dominated strategy is a strategy which doesn’t result in the optimal outcome in any case. A strategy is dominated if there always exist a course of action which results in higher payoff no matter what the opponent does.

the branch of knowledge concerned with the production, consumption, and transfer of wealth.

An economic profit or loss is the difference between the revenue received from the sale of an output and the costs of all inputs used, as well as any opportunity costs. In calculating economic profit, opportunity costs and explicit costs are deducted from revenues earned.

Economies of scale occur when a company’s production increases, leading to lower fixed costs. Internal economies of scale can be because of technical improvements, managerial efficiency, financial ability, monopsony power, or access to large networks.

Economic efficiency implies an economic state in which every resource is optimally allocated to serve each individual or entity in the best way while minimizing waste and inefficiency.

Efficiency wage is a theory in attempt to explain the persistance of Unemployment, or excess supply of labor, in the economy. In general, efficiency wages are a response to asymmetric information about employees, combating both moral hazard and adverse selection.

Efficient scale or minimum efficient scale (MES) is the point at which a company’s economy is completely used up to achieve steady productivity or outcome.

Elasticity, in economics, a measure of the responsiveness of one economic variable to another.

Economic equilibrium is a condition or state in which economic forces are balanced. In effect, economic variables remain unchanged from their equilibrium values in the absence of external influences. Economic equilibrium is also referred to as market equilibrium.

The equilibrium price is the price that equals the quantity offered and the quantity demanded of an economic good on the market. The equilibrium price is a meeting point between supply and demand.

Equilibrium quantity refers to the point of balance in the marketplace where the supply of a given good perfectly matches the consumer demand for the good. Equilibrium quantity and equilibrium price are basic concepts within the overall macroeconomic theories of supply and demand, free markets, and capitalism.

Equity in economics is defined as process to be fair in economy which can range from concept of taxation to welfare in the economy and it also means how the income and opportunity among people is evenly distributed.

The ability to keep people who don't pay for a good from consuming the good. For some goods, it's very easy (that is, the cost is low) for owners or producers to keep others from enjoying the benefit of a good.

Explicit costs are normal business costs that appear in the general ledger and directly affect a company's profitability. Explicit costs have clearly defined dollar amounts, which flow through to the income statement. Examples of explicit costs include wages, lease payments, utilities, raw materials, and other direct costs.

Exports' refer to the value of goods and services produced by a country's firms in a given period of time and which are sold abroad.Traditionally, exports referred to the sale of tangible goods, including fuels, other commodities, parts and components and finished goods.

Externalities occur when producing or consuming a good cause an impact on third parties not directly related to the transaction. Externalities can either be positive or negative. They can also occur from production or consumption.

Factors of production are the resources used by a company to produce goods and services. The universally recognized factors of production include land, labor, and capital. Some scholars include enterprise – entrepreneurship – as a fourth factor while many argue that it should fall under labor.

The Federal Reserve is the central bank of the United States; it is arguably the most influential economic institution in the world. One of the chief responsibilities set out in the Federal Reserve's—also called the Fed's—charter is the management of the total outstanding supply of U.S. dollars and dollar substitutes.

Federal funds rate is the target interest rate set by the Federal Open Market Committee (FOMC) at which commercial banks borrow and lend their excess reserves to each other overnight.

Fiat money is a government–issued currency that is not backed by a commodity such as gold. Fiat money gives central banks greater control over the economy because they can control how much money is printed. Most modern paper currencies, such as the U.S. dollar, are fiat currencies.

A firm–specific risk is the unsystematic risk associated with a specific investment in a firm that is completely diversifiable as per the theory of finance. Under this risk, the investor can lower their risk by increasing the number of investments they have in their portfolio.

The management of large amounts of money, especially by governments or large companies.

Financial intermediaries work in the savings/investment cycle of an economy by serving as conduits to finance between the borrowers and the lenders.

Financial markets play a vital role in facilitating the smooth operation of capitalist economies by allocating resources and creating liquidity for businesses and entrepreneurs. The markets make it easy for buyers and sellers to trade their financial holdings.

A financial system is a set of institutions, such as banks, insurance companies, and stock exchanges, that permit the exchange of funds. Financial systems exist on firm, regional, and global levels.

Fiscal policy aims to stabilise economic growth, avoiding a boom and bust economic cycle. Fiscal policy is often used in conjunction with monetary policy. In fact, governments often prefer monetary policy for stabilising the economy

Fisher effect is an important exchange rate model developed by Irving Fisher in 1930. The Fisher effect provides the relationship between the nominal interest rates, inflation and real interest rates. According to Fisher effect, the nominal interest rate is the sum of real interest rate and expected inflation.

A fixed cost is a cost that does not change with an increase or decrease in the amount of goods or services produced or sold. Fixed costs are expenses that have to be paid by a company, independent of any specific business activities.

Fractional reserve banking is a system in which only a fraction of bank deposits are backed by actual cash on hand and available for withdrawal.

free rider ( plural free riders ) Someone who obtains goods or services legally without paying. The store failed because all of the manager's friends were free riders who drove paying customers away. ( economics) One who obtains benefit from a public good without paying for it directly.

Frictional unemployment is the result of employment transitions within an economy. Frictional unemployment naturally occurs, even in a growing, stable economy. Workers voluntarily leaving their jobs and new workers entering the workforce both add to frictional unemployment.

Fundamental analysis is a method of determining a stock's real or fair market" value. Fundamental analysts search for stocks that are currently trading at prices that are higher or lower than their real value. If the fair market value is higher than the market price, the stock is deemed to be undervalued and a buy recommendation is given."

Future value (FV) is the value of a current asset at a future date based on an assumed rate of growth. The future value (FV) is important to investors and financial planners as they use it to estimate how much an investment made today will be worth in the future.

Gross domestic product (GDP) is an estimate of the total value of finished goods and services produced in a country's borders during a specified period, usually a year. GDP is popularly used to estimate the size of a country's economy.

The GDP price deflator, also known as the GDP deflator or the implicit price deflator, measures the changes in prices for all of the goods and services produced in an economy.

A Giffen good, a concept commonly used in economics, refers to a good that people consume more of as the price rises. Therefore, a Giffen good shows an upward–sloping demand curve and violates the fundamental law of demand Demand CurveThe Demand Curve is a line that shows how many units of a good or service will be purchased at different prices.

Horizontal equity is an economic theory that states that individuals with similar income and assets should pay the same amount in taxes. Horizontal equity should apply to individuals considered equal regardless of the tax system in place. The more neutral a tax system is the more horizontally equitable it is considered to be.

Human capital is an intangible asset or quality not listed on a company's balance sheet. It can be classified as the economic value of a worker's experience and skills. This includes assets like education, training, intelligence, skills, health, and other things employers value such as loyalty and punctuality.

Implicit Cost, also known as the economic cost, is the cost which the company had foregone while employing the alternative course of action. They do not involve any outflow of cash from the business. It is the value of sacrifice made by the entity at the time of exercising some other action.

Imports are foreign goods and services bought by citizens, businesses, and the government of another country.

Income elasticity of demand is an economic measure of how responsive the quantity demand for a good or service is to a change in income.

Indifference curves are heuristic devices used in contemporary microeconomics to demonstrate consumer preference and the limitations of a budget. Economists have adopted the principles of indifference curves in the study of welfare economics.

An inferior good occurs when an increase in income causes a fall in demand. An inferior good has a negative income elasticity of demand. (YED) Inferior goods are characterised by low quality – and are goods with better alternatives

Inflation in Economics is defined as the persistent increase in the price level of goods & services and decline of purchasing power in an economy over a period of time. If the rise in prices exceeds the rise in output, the situation is called inflationary situation. Inflation can take place due to various reasons.

Informational efficiency means that information must be properly incorporated into prices. Under assumptions of rationality, when all traders have the same information, prices should move more or less automatically, with very little trading

Cash or in–kind transfers sent home or brought back by international migrants may contribute to economic development in origin countries at the national and regional levels. At the household level, remittances may boost consumption and investment.

The internalization of externalities, in economic terms, refers to the consequence of altering incentives to allow people to consider behavioural changes. In order to eradicate market let–downs triggered by externalities, it is essential to introduce external costs into the prices, to encourage buyers and sellers in the market to change their approach.

The activity of looking/seeking for an employment.

The labor force, also called work force, is the population of able–bodied, willing people who are currently employed or looking for work. In other words, it’s a representation of the labor pool of a certain country or segment of the economy.

The labor force participation rate is a measure of an economy’s active workforce.

The law of demand is one of the most fundamental concepts in economics. It works with the law of supply to explain how market economies allocate resources and determine the prices of goods and services that we observe in everyday transactions. The law of demand states that quantity purchased varies inversely with price.

The law of supply and demand, one of the most basic economic laws, ties into almost all economic principles in some way. In practice, people's willingness to supply and demand a good determines the market equilibrium price, or the price where the quantity of the good that people are willing to supply just equals the quantity that people demand.

The use of credit or loans to enhance speculation in the financial markets

The leverage ratio is the proportion of debts that a bank has compared to its equity/capital. There are different leverage ratios such as Debt to Equity = Total debt / Shareholders Equity Debt to Capital = Total debt / Capital (debt+equity)

Economic Liberalism is an economic theory, in which freedom of action for the individual and the firm is promoted through several principles: self–interest, free trade, laissez–faire, private property, and competition.

Liquidity refers to the ease with which an asset, or security, can be converted into ready cash without affecting its market price.

The Liquidity Preference Theory says that the demand for money is not to borrow money but the desire to remain liquid. In other words, the interest rate is the ‘price’ for money. John Maynard Keynes created the Liquidity Preference Theory in to explain the role of the interest rate by the supply and demand for money.

A tax whose amount is not affected by the taxpayer's actions. If the lump–sum tax is the same for all taxpayers, it is called a poll tax. Lump–sum taxes can be varied across consumers, and may even be negative for some consumers.

Macroeconomics is a branch of economics that studies how an overall economy—the market or other systems that operate on a large scale—behaves. Macroeconomics studies economy–wide phenomena such as inflation, price levels, rate of economic growth, national income, gross domestic product (GDP), and changes in unemployment.

Economists use the term marginal change to describe small incremental adjustments to an existing plan of action. In simple words, Marginal changes are very small incremental changes which don’t affect the larger (macroeconomics) totals except in aggregate.

Marginal product, also called marginal physical product, is the change in total output as one additional unit of input is added to production. In other words, it measures the how many additional units will be produced by adding one unit of input like materials, labor, and overhead.

In economics, the marginal product of labor (MPL) is the change in output that results from employing an added unit of labor.

Marginal revenue (MR) is the increase in revenue that results from the sale of one additional unit of output. While marginal revenue can remain constant over a certain level of output, it follows from the law of diminishing returns and will eventually slow down as the output level increases.

Market, a means by which the exchange of goods and services takes place as a result of buyers and sellers being in contact with one another, either directly or through mediating agents or institutions.

A market economy is an economic system in which economic decisions and the pricing of goods and services are guided by the interactions of a country's individual citizens and businesses.

Market failure occurs when there is a state of disequilibrium in the market due to market distortion. It takes place when the quantity of goods or services supplied is not equal to the quantity of goods or services demanded

By definition, a market is any organizational setting where buyers of a good/service can meet suppliers for economic transactions. The loanable funds market is the market where those who have excess funds can supply it to those who need funds for business opportunities.

Market power is a measure of the ability of a company to successfully influence the pricing of its products or services in the overall marketplace.

Market risk is the possibility that an individual or other entity will experience losses due to factors that affect the overall performance of investments in the financial markets. Market risk, also called systematic risk," cannot be eliminated through diversification, though it can be hedged against in other ways."

It is a criterion used by a decision–maker to chose an alternative that involves the most significant payoff from a basket of options that have the lowest possible pay off. So it is to select the best of the worst or a choice to minimize potential losses.

The median voter theorem as developed by Anthony Downs in his 1957 book, “An Economic Theory of Democracy,” is an attempt to explain why politicians on both ends of the spectrum tend to gravitate towards the philosophical center. Downs, as well as economist Duncan Black, who proposed the theory in 1948, argue that politicians take political positions are far as possible near the center in order to appeal to as many potential voters as possible. Under certain constraints/assumptions, Black says, the median voter “wins,” and the outcome ends up as a Nash equilibrium.

Medium of exchange is an intermediary instrument or system used to facilitate the sale, purchase, or trade of goods between parties.

Menu costs refer to an economic term used to describe the cost incurred by firms in order to change their prices. How expensive it is to change prices depends on the type of firm. For example, it may be necessary to reprint menus, update price lists, contact a distribution and sales network or manually re–tag merchandise on the shelf.

Microeconomics studies the decisions of individuals and firms to allocate resources of production, exchange, and consumption. Microeconomics deals with prices and production in single markets and the interaction between different markets but leaves the study of economy–wide aggregates to macroeconomics.

Money is a good that acts as a medium of exchange in transactions. Classically it is said that money acts as a unit of account, a store of value, and a medium of exchange.

The money multiplier is equal to the change in the total money supply divided by the change in the monetary base (the reserves). Here that is represented as a formula: Money multiplier = Change in total money supply ÷ Change in the monetary base

In economics, the money supply refers to all of the cash and currency in circulation within a country. A country’s money supply has a significant effect on a country’s macroeconomic profile, particularly in relation to interest rates, inflation, and the business cycle. In America, the Federal Reserve determines the level of monetary supply.

The neutrality of money, also called neutral money, is an economic theory stating that changes in the money supply only affect nominal variables and not real variables. In other words, the amount of money printed by the Federal Reserve (Fed) and central banks can impact prices and wages but not the output or structure of the economy.

Monetary policy, measures employed by governments to influence economic activity, specifically by manipulating the supplies of money and credit and by altering rates of interest.

Technical Definition of Monopoly In the technical language of economics, a monopoly is an enterprise that is the only seller of a specific good or service in its market. If only one company in a country makes widgets, for example, that company can be said to have a monopoly on widgets.

Monopolistic competition is a market structure which combines elements of monopoly and competitive markets. Essentially a monopolistic competitive market is one with freedom of entry and exit, but firms can differentiate their products. Therefore, they have an inelastic demand curve and so they can set prices.

Moral hazard is the risk that a party has not entered into a contract in good faith or has provided misleading information about its assets, liabilities, or credit capacity. In addition, moral hazard also may mean a party has an incentive to take unusual risks in a desperate attempt to earn a profit before the contract settles.

The multiplier effect refers to the proportional amount of increase, or decrease, in final income that results from an injection, or withdrawal, of spending.

A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets.

A Nash equilibrium is a situation in which, given the actions taken by the other players involved in the competition, no player is better off by changing his or her own action. In economics, the applications of a Nash equilibrium include the setting of prices between competing companies.

National savings are the sum of private sector savings and public sector savings. It represents the total loanable funds provided by the domestic economy. This term is also synonymous with gross national savings or domestic savings.It is the total income in the economy that remains after paying for consumption and government purchases

The natural level of output, depicted as the Long Run Aggregate Supply (LRAS) curve is the level of output that an economy will produce in the long run. The natural level of output is sometimes also referred to potential output because it's the potential" level of output that an economy can produce if all factors are used efficiently."

A natural monopoly occurs when the most efficient number of firms in the industry is one. A natural monopoly will typically have very high fixed costs meaning that it is impractical to have more than one firm producing the good.

In describing the encompassing Natural Rate Hypothesis (NRH) also known as the Non–Accelerating Inflation Rate of Unemployment (NAIRU), Friedman (1968, 1977) and Phelps (1967, 1968) propose that natural unemployment is a combination of frictional as well as structural unemployment that is unavoidable in the long run and this natural rate is independent of monetary policy and consequentially inflation i.e. money neutrality.

The natural rate of unemployment is the rate of unemployment when the labour market is in equilibrium. It is unemployment caused by structural (supply–side) factors. (e.g. mismatched skills)

The naturally occurring assets that provide use benefits through the provision of raw materials and energy used in economic activity (or that may provide such benefits one day) and that are subject primarily to quantitative depletion through human use. They are subdivided into four categories: mineral and energy resources, soil resources, water resources and biological resources.

Negative income tax, also known as earned income tax credit in the United States and Working Tax Credit in the United Kingdom, is a tax system in which low–income workers are eligible for supplemental pay from the government rather than paying taxes. It is a way of redistributing wealth through the taxation system by taking money from high–income individuals and paying it to those on low incomes.Negative income tax, also known as NIT, has less stigma attached to it than other forms of welfare assistance.

Normative economics statements are rigid and prescriptive in nature. They often sound political or authoritarian, which is why this economic branch is also called what should be" or "what ought to be" economics. An example of a normative economic statement is: "The government should provide basic healthcare to all citizens.""

The nominal exchange rate is defined as: The number of units of the domestic currency that are needed to purchase a unit of a given foreign currency.. For example, if the value of the Euro in terms of the dollar is 1.37, this means that the nominal exchange rate between the Euro and the dollar is 1.37.We need to give 1.37 dollars to buy one Euro.

Nominal GDP is an assessment of economic production in an economy that includes current prices in its calculation. In other words, it doesn't strip out inflation or the pace of rising prices, which can inflate the growth figure. All goods and services counted in nominal GDP are valued at the prices that are actually sold for in that year.

In finance and economics, the Nominal Interest rate refers to the interest rate without the adjustment of inflation. It is basically the rate “as stated”, “as advertised” and so on which does not take inflation, compounding effect of interest, tax, or any fees in the account.

Oligopoly is a market structure with a small number of firms, none of which can keep the others from having significant influence. The concentration ratio measures the market share of the largest firms. A monopoly is one firm, a duopoly is two firms and an oligopoly is two or more firms.

An economy in which participants are permitted to buy and sell goods and services with other countries.

Open market operations (OMO) refers to a central bank buying or selling short–term Treasuryies and other securities in the open market in order to influence the money supply, thus influencing short term interest rates. 1 Buying securities adds money to the system, making loans easier to obtain and interest rates decline.

Opportunity costs represent the potential benefits an individual, investor, or business misses out on when choosing one alternative over another. The idea of opportunity costs is a major concept in economics. Because by definition they are unseen, opportunity costs can be easily overlooked if one is not careful.

Perfect complements are goods which only provide utility or happiness when they are consumed together. They are an extreme case of complementary goods, which are goods which complement other goods (fries and ketchup are an example of complements).

A perfect substitute is a situation where two goods are viewed as identical. Perfect substitutes are commodities such that it is impossible to build a brand whereby customers prefer your product. Producers of a perfect substitute must except a market price and typically have no influence on the price.

The permanent income hypothesis was formulated by the Nobel Prize–winning economist Milton Friedman in 1957. The hypothesis implies that changes in consumption behavior are not predictable because they are based on individual expectations. This has broad implications concerning economic policy.

The Phillips curve is an economic concept developed by A. W. Phillips stating that inflation and unemployment have a stable and inverse relationship. The theory claims that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment.

Physical capital, in economics, a factor of production. It is one of three primary building blocks (along with land and labour) that, in combination, can be used to produce goods and services. The term capital has no fixed conceptual definition, and various schools of economic thought have defined it differently.

Price ceiling is a situation when the price charged is more than or less than the equilibrium price determined by market forces of demand and supply. It has been found that higher price ceilings are ineffective. Price ceiling has been found to be of great importance in the house rent market.

Price discrimination is defined as the practice of charging different customers different prices for similar, if not identical, goods or services, where the different prices cannot be fully justified in terms of differences in the costs of supplying the products.

Price elasticity of demand is a measurement of the change in consumption of a product in relation to a change in its price.Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price

Price elasticity of supply measures the responsiveness of quantity supplied to a change in price. The price elasticity of supply (PES) is measured by % change in Q.S divided by % change in price. If the price of a cappuccino increases by 10%, and the supply increases by 20%. We say the PES is 2.0.

Price floor is a situation when the price charged is more than or less than the equilibrium price determined by market forces of demand and supply. By observation, it has been found that lower price floors are ineffective. Price floor has been found to be of great importance in the labour–wage market.

In business, principals are those who own a majority stake in a company and/or play a significant role in running it.

A prisoner's dilemma is a situation where individual decision makers always have an incentive to choose in a way that creates a less than optimal outcome for the individuals as a group. Prisoner's dilemmas occur in many aspects of the economy.

Private good, a product or service produced by a privately owned business and purchased to increase the utility, or satisfaction, of the buyer. The majority of the goods and services consumed in a market economy are private goods, and their prices are determined to some degree by the market forces of supply and demand.

The private savings equation tells us how much all the people who reside within an economy are saving. Private savings is defined as the total income (Y) (might be referred to as GDP or National income or just Income) minus the tax that they pay (T) and how much of their expenditure is used on consumption (C) : Private savings = Y – T – C

The producer price index (PPI) is a family of indexes that gauges the average fluctuation in selling prices received by domestic producers over time.

Producer surplus is the total amount that a producer benefits from producing and selling a quantity of a good at the market price. The total revenue that a producer receives from selling their goods minus the total cost of production equals the producer surplus.

Productivity, in economics, the ratio of what is produced to what is required to produce it. Usually this ratio is in the form of an average, expressing the total output of some category of goods divided by the total input of, say, labour or raw materials.

Production function, in economics, equation that expresses the relationship between the quantities of productive factors (such as labour and capital) used and the amount of product obtained.

The production possibility frontier is an economic model and visual representation of the ideal production balance between two commodities given finite resources. It shows businesses and national economies the optimal production levels of two distinct capital goods competing for the same resources in production, and the opportunity cost associated with either decision.

A proportional tax is the same for low, middle, and high–income taxpayers. Proportional taxes are sometimes referred to as flat taxes. In contrast, a progressive tax or marginal tax system adjusts tax rates progressively by income. Low–income earners are taxed at a lower rate than high–income earners.

Positive statements tend to focus on statements about what is instead of opinions or what ought to be (a normative statement). In economics we tend to view our study as exploring questions about the truth and the way that people behave. We make guesses about behavior that people engage in.

The poverty rate is the ratio of the number of people (in a given age group) whose income falls below the poverty line; taken as half the median household income of the total population. It is also available by broad age group: child poverty (0–17 years old), working–age poverty and elderly poverty (66 year–olds or more).

Poverty line is the level of income to meet the minimum living conditions. Poverty line is the amount of money needed for a person to meet his basic needs. It is defined as the money value of the goods and services needed to provide basic welfare to an individual.

In economics, a public good refers to a commodity or service that is made available to all members of a society. Typically, these services are administered by governments and paid for collectively through taxation. Examples of public goods include law enforcement, national defense, and the rule of law.

The public savings equation tells us how much the government is saving. It is defined as the difference between how much money the government collects in tax revenue (T) minus its spending (G): Public Savings = T – G Government savings can be either positive, negative or equal to zero.

Purchasing Power Parity is an economic model that postulates that the difference between the price level of a basket of goods in one country and the price level of an identical basket of goods in another country is due to the equilibrium FX rate between the two countries.

The quantity theory of money states that the price level that prevails in an economy is the direct consequence of the money supply. If the velocity of money is constant, any increase in money supply causes a proportionate increase in price level.

Random walk theory suggests that changes in stock prices have the same distribution and are independent of each other. Therefore, it assumes the past movement or trend of a stock price or market cannot be used to predict its future movement.

The rational expectations theory is a concept and theory used in macroeconomics. Economists use the rational expectations theory to explain anticipated economic factors, such as inflation rates and interest rates. The idea behind the rational expectations theory is that past outcomes influence future outcomes.

Economists normally assume that people are rational. Rational people systematically and purposefully do the best they can to achieve their objectives, given the opportunities they have. As you study economics, you will encounter firms that decide how many workers to hire and how much of their product to manufacture and sell to maximize profits.

In economics, if we adjust the nominal exchange rate to the relative difference between the two inflation rates, that is the real exchange rate.

The real GDP is the total value of all of the final goods and services that an economy produces during a given year, accounting for inflation. It is calculated using the prices of a selected base year. To calculate Real GDP, you must determine how much GDP has been changed by inflation since the base year, and divide out the inflation each year. Real GDP, therefore, accounts for the fact that if prices change but output doesn’t, nominal GDP would change.In economics, real value is not influenced by changes in price, it is only impacted by changes in quantity. Real values measure the purchasing power net of any price changes over time. The real GDP determines the purchasing power net of price changes for a given year. Real GDP accounts for inflation and deflation. It transforms the money–value measure, nominal GDP, into an index for quantity of total output.

Real variables are those variables which are measured in terms of physical units and thus, they are not impacted when there are any changes in money supply.

A recession is a macroeconomic term that refers to a significant decline in general economic activity in a designated region. It had been typically recognized as two consecutive quarters of economic decline, as reflected by GDP in conjunction with monthly indicators such as a rise in unemployment.

A regressive tax is a type of tax that is assessed regardless of income, in which low– and high–income earners pay the same dollar amount. This kind of tax is a bigger burden on low–income earners than high–income earners, for whom the same dollar amount equates to a much larger percentage of total income earned.

A risk averse investor is an investor who prefers lower returns with known risks rather than higher returns with unknown risks. In other words, among various investments giving the same return with different level of risks, this investor always prefers the alternative with least interest. A risk averse investor avoids risks. S/he stays away from high–risk investments and prefers investments which provide a sure shot return. Such investors like to invest in government bonds, debentures and index funds.

Rivalry in consumption refers to the degree to which one person consuming a particular unit of a good or service precludes others from consuming that same unit of a good or service. For example, an orange has a high rivalry in consumption because if one person is consuming an orange, another person cannot completely consume that same orange.

The sacrifice ratio is an economic ratio that measures the effect of rising and falling inflation on a country's total production and output. Costs are associated with the slowing of economic output in response to a drop in inflation. When prices fall, companies are less incentivized to produce goods and may cut back on production.

Scarcity is the foundation of the essential problem of economics: the allocation of limited means to fulfill unlimited wants and needs. Even free natural resources can become scarce if costs arise in obtaining or consuming them, or if consumer demand for previously unwanted resources increases due to changing preferences or newly discovered uses.

A shoe–leather cost describes the cost to individuals who have to take frequent visits to the bank to take out more money for goods and services in periods of high inflation. The name ‘shoe–leather cost’ comes from the fact that walking to the bank more regularly will wear down your shoes.

A shortage, in economic terms, is a condition where the quantity demanded is greater than the quantity supplied at the market price.

Social insurance is one of the devices to prevent an individual from falling to the depths of poverty and misery and to help him in times of emergencies. Insurance involves the setting aside of sums of money in order to provide compensation against loss, resulting from particular emergencies.

Stagflation is defined as an economic phenomenon where there is high inflation along with rising unemployment and relatively slow economic growth or recession. In this condition, there is a slowdown in the gross domestic product (GDP) and an increase in the prices of necessary commodities.

The phenomenon of statistical discrimination is said to occur when an economic decision–maker uses observable characteristics of individuals, such as the physical traits that are used to categorize gender or race, as a proxy for otherwise unobservable characteristics that are outcome relevant.

Economic Strike is the cessation of work by the labors with an aim of imposing their economic demands like wages and bonus. In such strike, the workers raise their voices to increase their pay, improve working conditions, facilitate them with allowances, perquisites, and add–on benefits.

A stock is a form of security that indicates the holder has proportionate ownership in the issuing corporation. Corporations issue (sell) stock to raise funds to operate their businesses.

A store of value is an asset that maintains its value, rather than depreciating. Gold and other precious metals are good stores of value because their shelf lives are essentially perpetual. A nation's currency must be a reasonable store of value for its economy to function smoothly.

Structural unemployment is long–lasting unemployment that comes about due to shifts in an economy. This type of unemployment happens because though jobs are available, there’s a mismatch between what companies need and what available workers offer. Structural unemployment can last for decades and usually requires a radical change to reverse.

A substitute is a product or service that can be easily replaced with another by consumers. In economics, products are often substitutes if the demand for one product increases when the price of the other goes up. Substitutes provide choices and alternatives for consumers while creating competition and lower prices in the marketplace.

The substitution effect refers to the change in demand for a good as a result of a change in the relative price of the good compared to that of other substitute goods. For example, when the price of a good rises, it becomes more expensive relative to other goods in the market.

Sunk cost, in economics and finance, a cost that has already been incurred and that cannot be recovered. In economic decision making, sunk costs are treated as bygone and are not taken into consideration when deciding whether to continue an investment project.

Supply curve, in economics, graphic representation of the relationship between product price and quantity of product that a seller is willing and able to supply. Product price is measured on the vertical axis of the graph and quantity of product supplied on the horizontal axis.

Supply schedule: A table which contains values for the price of a good and the quantity that would be supplied at that price. If the data from the table is charted, it is known as a supply curve.

A supply shock is an unexpected event that changes the supply of a product or commodity, resulting in a sudden change in price. A positive supply shock increases output causing prices to decrease, while a negative supply shock decreases output causing prices to increase.

Surplus (In Economics) A surplus is the amount of an asset or resource that is unused. For example, an inventory surplus occurs when there is unsold inventory. A budget surplus occurs when there is more income than expenses.

A tariff is a tax imposed by one country on goods and services imported from another country. Tariffs may result in increased prices for domestic consumers, which in turn may make imported goods less appealing relative to domestically produced goods.

Tax incentives—also called “tax benefits”—are reductions in tax that the government makes in order to encourage spending on certain items or activities. Tax incentives are often cited as a great way to encourage economic development.

Tax incidence (or incidence of tax) is an economic term for understanding the division of a tax burden between stakeholders, such as buyers and sellers or producers and consumers. Tax incidence can also be related to the price elasticity of supply and demand. When supply is more elastic than demand, the tax burden falls on the buyers.

Total cost, in economics, the sum of all costs incurred by a firm in producing a certain level of output.

Total Revenue Definition Total revenue is the amount of money that a company earns by selling its goods and/or services during a period of time (e.g. a day or a week). In general, microeconomic theory assumes that firms attempt to maximize the difference between total revenues and economic costs.

The tragedy of the commons is a situation where there is overconsumption of a particular product/service because rational individual decisions lead to an outcome that is damaging to the overall social welfare.

The trade balance is the net sum of a country’s exports and imports of goods without taking into account all financial transfers, investments and other financial components. A country's trade balance is positive (meaning that it registers a surplus) if the value of exports exceeds the value of imports.

A trade deficit occurs when a country's imports exceed its exports during a given time period. It is also referred to as a negative balance of trade (BOT). The balance can be calculated on different categories of transactions: goods (a.k.a., “merchandise”), services, goods and services.

Trade policy defines standards, goals, rules and regulations that pertain to trade relations between countries. These policies are specific to each country and are formulated by its public officials. Their aim is to boost the nation’s international trade

A trade surplus is an economic measure of a positive balance of trade, where a country's exports exceed its imports. Trade Balance = Total Value of Exports – Total Value of Imports A trade surplus occurs when the result of the above calculation is positive. A trade surplus represents a net inflow of domestic currency from foreign markets.

In economics and business, transaction costs are the costs we incur when we make economic exchanges during the purchase of goods and services. Transaction costs may cover many areas.

Unemployment insurance (UI), also called unemployment benefits, is a type of state–provided insurance that pays money to individuals on a weekly basis when they lose their job and meet certain eligibility requirements. Those who either quit their jobs or were fired for a just cause are not eligible for UI.

A labor union, officially known as a “labor organization,” is an entity formed by workers in a particular trade, industry, or company for the purpose of improving pay, benefits, and working conditions.

In economics, unit of account is one of the functions of money. The value of something is measured in a specific currency. This allows different things to be compared against each other; for example, goods, services, assets, liabilities, labor, income, expenses. It lends meaning to profits, losses, liability, or assets.

Utilitarianism is a theory of morality, which advocates actions that foster happiness or pleasure and opposes actions that cause unhappiness or harm. When directed toward making social, economic, or political decisions, a utilitarian philosophy would aim for the betterment of society as a whole.

In economics, utility can be defined as a measure of consumer satisfaction received on the consumption of a good or service. The level of satisfaction derived by a consumer after consuming a good or service is called utility. The concept of utility is used in neo classical Economics to explain the operation of the law of demand.

Variable costs are those expenses of production which vary or change directly with the level of output. If out is expanded they increase and decrease when the output is reduced. At zero production there are no variable costs. Expenses on raw materials, power, casual labour etc are the examples of variable costs.

The velocity of money is the rate at which money is exchanged from one transaction to another and how much a unit of currency is used in a given period of time.

Economic welfare is economic wellbeing expressed in terms of the sum of consumer and producer surplus – also known as community surplus. Consumer surplus exists whenever the price a consumer would be willing to pay in terms of their expected private benefit is greater than they actually pay.

Welfare economics is the study of how the allocation of resources and goods affects social welfare. This relates directly to the study of economic efficiency and income distribution, as well as how these two factors affect the overall well–being of people in the economy.

A price for a good or service in all countries other than one's own. The world price influences international trade. Barring any trade barriers, a country exports goods and services with local prices lower than the world price. On the other hand, it imports goods and services with higher local prices than the world price.