Economics Online Tutor
Glossary and Dictionary of
Economics Terms

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DISCOURAGED WORKERS: People without jobs who have given up looking for work, and are no longer active in their job searches.  
These people are not counted as being part of the total labor force, and are not counted as unemployed.  They are not part of the
unemployment statistics.

DISCOUNT RATE: The rate that the Fed charges banks for loans directly from the Fed.

DISCRETIONARY FISCAL POLICY: Government fiscal policies designed to achieve specific economic outcomes.

DISECONOMIES OF SCALE: Production levels above the minimum point on the long run average cost curve.

DISEQUILIBRIUM: A situation in which equilibrium does not exist.  Disequilibrium means that incentives for change exist.
DISPOSABLE INCOME: The amount of personal income available for spending or saving after personal income taxes.

DOMINANT FIRM: A firm in an oligopoly market that has a much larger market share than any of its competitors.

EARNINGS: Income received by the factors of production.

ECONOMIC APPROACH: The methodology, including the thinking process, or logic, used by economists.  Also called economic
thinking.

ECONOMIC EFFICIENCY: A situation in which both productive efficiency and allocative efficiency exist.

ECONOMIC GOOD: Something that wouldn't exist in sufficient quantities if it were free.

ECONOMIC GROWTH: An increase in real GDP.

ECONOMIC INDICATORS: Variables that tend to move along with the business cycle.  They include leading indicators, coincident
indicators, and lagging indicators.

ECONOMIC PROBLEM: Scarcity.  The fact that resources are finite, but human wants are infinite.

ECONOMIC PROFIT: Profit above the level required to keep a firm operating at its current output level.  It is profit that is left over
after deducting implicit (opportunity) costs.  The existence of positive economic profits means that a business is more profitable
than alternatives, and in a competitive environment will attract new competition.

ECONOMIC SCHOOLS OF THOUGHT: Advocacy of different economic policies based on competing economic theories.

ECONOMIC SYSTEM: The method used by a country to control the production, distribution, and consumption of goods and services.

ECONOMIC THINKING: The methodology, including the thinking process, or logic, used by economists.  Also called the economic
approach.

ECONOMICS: The study of how people choose to use their scarce resources in an attempt to satisfy their unlimited wants.  
Economics deals with the questions of what to produce, how to produce it, and who to distribute it to.

ECONOMIES OF SCALE: A situation where increasing the size of a firm in the long run will decrease unit costs.  This occurs on the
downward sloping portion of the long run average cost curve.

ECONOMIST: A person who specializes in economics.

ECONOMY: All activities involving production, distribution, and consumption within a specified area, such as a geographic area
(local, national, global, etc.).

EFFICIENCY: Having the maximum benefit at the lowest cost.

ELASTICITY: A measure of the responsiveness of one variable to a change in another variable.  This measurement is found by
dividing the percentage change in one variable by the percentage change in the other variable.  The absolute value of the result will
necessarily center around the number one: if the result is greater than one, it means that the result is elastic; if the result is less
than one, it means that the result is inelastic; and if the result is equal to one, it means that the result is unit elastic.  An elasticity
value is simply a number with no units attached to it.

ELASTICITY OF DEMAND: A measure of the responsiveness of quantity demanded to a change in price.  Also known as the price
elasticity of demand.

ELASTICITY OF SUPPLY: A measure of the responsiveness of quantity supplied to a change in price.

EMBARGO: Government trade restriction that forbids the import of a specific good or the import of goods from a specific nation.  
Also known as a trade embargo.

ENTERPRISE: A private organization that produces goods and / or services.  The term as used here is interchangeable with firm,
business firm, company, business, and producer.

ENTREPRENEURSHIP: A resource of production that involves the contribution of organizational skills and / or the supply of financial
capital in the hopes of earning a profit.

EQUILIBRIUM: A situation in which no incentives for changes exist.

EQUIMARGINAL PRINCIPLE: When a consumer has maximized utility, which is the point where the marginal utility per cost for every
consumption choice is equal.  Also known as consumer equilibrium.

EXCESS CAPACITY: The ability of a firm to increase production in the short run, without having to change any fixed inputs.

EXCESS RESERVES: The amount of reserves held by a bank that is available for loans.

EXCHANGE RATE: The ratio of the value of one currency to another, used to conduct transactions involving different currencies.

EXCISE TAX: A tax on the consumption per unit on specific goods.  Often called a sin tax.

EXPANSION: The phase of the business cycle in which real GDP is increasing.

EXPECTATIONS OF CONSUMERS: The expectations that consumers have that the price of a good or service will change in the
future.

EXPECTATIONS OF PRODUCERS: The expectations that producers have that the price of a good or service will change in the future.

EXPECTED INFLATION: The inflation rate that is expected to occur in the future.  This rate would be included in the nominal interest
rate.  Also called anticipated inflation.

EXPENDITURES APPROACH: The method of calculating GDP by adding up all the expenditures in the economy.  The formula is GDP
= C + I + G + (X - M).

EXPLICIT COST: A cost that involves actual payment being made.  This would be every cost except implicit cost, which in
economics generally refers to opportunity cost.

EXPORTS: Goods produced domestically but sold to consumers in foreign countries.

EXTERNAL BENEFIT: A benefit received by someone who doesn't pay for it.  A positive externality.

EXTERNAL COST: A cost that is not paid for by those imposing the cost or those receiving the benefit.  A negative externality.

EXTERNALITY: A cost or benefit that does not go to those involved in the activity that produces the cost or benefit.  A form of market
failure.

FACTOR MARKET: Supply and demand for factors of production.

FACTORS OF DEMAND: The price of the good in question, plus other things that determine the level of demand, called determinants
of demand: consumer income, consumer tastes, the prices of complements, the prices of substitutes, consumer expectations,
and the number of potential buyers.  The price of the good in question is plotted on the supply & demand diagram, so any change in
price would involve a movement along the demand curve.  The determinants of demand are not plotted on the supply & demand
diagram, so any changes in any of them would involve the demand curve being shifted.

FACTORS OF PRODUCTION: Resources used in the production of goods and services: land, labor, and capital.  Some economists
classify entrepreneurship as a fourth factor of production while other economists classify entrepreneurship as a special class of
labor.

FACTORS OF SUPPLY: The price of the good in question, plus other things that determine the level of supply, called determinants of
supply: the prices of resources, technology and productivity, expectations of producers, the number of suppliers, and the prices of
alternative goods and services that the firm can produce (opportunity costs).  The price of the good in question is plotted on the
supply & demand diagram, so any change in price would involve a movement along the supply curve.  The determinants of supply
are not plotted on the supply & demand diagram, so any changes in any of them would involve the supply curve being shifted.

FALLACY OF COMPOSITION: The fallacy of logic that involves saying that what applies to one will also apply to many.

FED: The Federal Reserve System.  The central bank of the United States.

FEDERAL FUNDS RATE: The interest rate charged for overnight borrowing between banks in the United States.

FEDERAL RESERVE SYSTEM: The central bank of the United States.

FIAT MONEY: Currency that is not backed by any commodities, but rather is only backed by the faith and credit of the issuing
government.  Also called fiduciary money.
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