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# Big Economics Vocab

### Vocabulary List for Micro and Macro Economics

Base year The year from which constant prices or quantities are taken in calculations of such indices as real GDP and CPI.
Gross Domestic Product Formula =[(quantity of A X price of A) + (quantity of B X price of B) + ... + (quantity of N X price of N)] for every good and service produced within the country
Bureau of Labor Statistics The government organization responsible for regularly gathering data about the economic status of the population.
GDP Growth Rate Formula = [(GDP for year N) / (GDP for year N-1)] - 1
Consumer price index (CPI) A cost of living index that measures the total cost of goods and services purchased by a typical consumer within a country.
GDP Deflator Formula GDP deflator = [(nominal GDP) / (real GDP)] - 1
Fixed basket A set group of goods and services whose quantities do not change over time. This is used, for instance, in the calculation of the CPI.
GDP Per Capita Formula GDP per capita = (GDP) / (population)
Gross domestic product (GDP) The sum of the market values of all final goods and services produced within a particular country during a period of time.
Gross domestic product deflator (GDP deflator) The ratio of nominal GDP to real GDP for a given year minus 1. The GDP deflator shows how much of the change in the GDP from a base year is reliant on changes in the price level.
Gross domestic product per capita (GDP per capita) GDP divided by the number of people in the population. This measure describes what portion of the GDP an average individual gets.
Gross national product (GNP) An alternative measure of economic activity to GDP. GNP is the sum of the market values of all goods and services produced by the citizens of a country regardless of their physical location.
Nominal gross domestic product (nominal GDP) The sum value of goods and services produced in a country and valued at current prices.
Real gross domestic product (real GDP) The sum value of goods and services produced in a country and valued at constant prices, calibrated from some base year. Real GDP frees year
Base Year The year from which the original quantities and/or prices are taken in the calculation of an index.
Benefits Non cash payments made to employees. For instance, health care plans or pensions.
Bureau of Labor Statistics The government organization responsible for regularly gathering data about the economic status of the population.
Comparison Year The year for which the quantities and/or prices of goods or services are replaced by those of the base year in the calculation of an index.
Cost of Living An index based on the amount of money necessary to purchase the market basket of goods and services purchased by the average consumer, relative to the same basket in an earlier year.
CPI (Consumer Price Index) The consumer price index is a cost of living index that is based on a fixed market basket of goods and services purchased by the average consumer.
Cyclical Unemployment Deviations from the natural rate of unemployment based on normal fluctuations in the business cycle.
Efficiency Wages Wages paid by a firm to an employee that are above the market
Efficient Market A market where the quantity supplied is equal to the quantity demanded and the price of goods is set at the equilibrium price.
Employed An individual who is currently working at a job.
Equilibrate Describes the movement of the factors of a market so that the quantity supplied is equal to the quantity demanded and the price of goods is set at the equilibrium price.
Equilibrium Wage The wage in the labor market where labor supply is equal to labor demand and the market clears.
Expected Inflation When economists and consumers plan upon the presence of inflation, and this expectation is reflected in the economic decisions made by these groups.
Fixed Basket A set group of goods and services whose quantities do not change over time. A fixed basket is used in the calculation of the CPI.
Flexible Basket A group of goods and services that changes both in composition and quantity as consumers' preferences change. A flexible basket is used in the calculation of the GDP deflator, for instance.
Frictional Unemployment A type of unemployment in which an individual is between jobs.
Full Capacity When the economy is producing at an output level that corresponds to the natural rate of unemployment, or about 6%.
Full Employment When the unemployment level is at, or very close to, 6% (the natural rate of unemployment).
Full Output The level of output that occurs when the labor force is at full employment.
Gross Domestic Product (GDP) The gross domestic product is the total value of all goods and services produced in an economy.
GDP Deflator The ratio of the nominal GDP to the real GDP. It shows the overall price level by comparing the cost of a basket of goods from one year to the next.
Inflation An increase in the overall price level.
Job Search The active process of looking for a job.
Labor Market The market where firms supply jobs and individuals supply labor and in which wage is the equilibrating factor.
Labor Unions Groups of workers who rally together to improve the pay and conditions on the job.
Laspeyres Index An index where the basket of goods is fixed.
Macroeconomic Economy This refers to the economy as a whole, as opposed to a view of the economy as based on the actions of individual actors.
Market Clearing Level
Menu Costs of Inflation Costs associated with inflation that arise when firms have to change printed price schedules.
Minimum Wage Laws Government imposed minimum hourly wages that must be observed. The minimum wage is aimed at providing a minimum standard of living, but also have the ancillary effect of increasing unemployment.
National Output The total value of goods and services produced by an economy in a specified time period. Also known as GDP.
Natural Rate of Unemployment The rate of unemployment that the economy tends to hover around. Most economists believe that this value is around 6%.
Nominal GDP The total value of all goods and services produced in an economy, valued at current dollar, and not adjusted for inflation.
Nominal Prices Prices of goods and services valued at dollars current when the goods and services were provided. Nominal prices are not adjusted for inflation.
Okun's Law This details the inverse relationship between unemployment and real GDP. Click here to see the Okun's Law Formula.
Out of the Labor Force Describes people who are not employed and are not currently looking for employment. This includes children and retirees.
Paasche Index An index based upon a flexible basket of goods and services.
Phillips Curve Describes the general inverse relationship between unemployment and inflation. Click here to see the Phillips Curve Formula.
Potential Output Level The output of an economy when all of the productive factors, including labor, are used at their normal rate. In terms of unemployment, this corresponds to a 6% unemployment rate.
Price Level The general cost of items within an economy relative to one another.
Price of Labor The wage paid to workers.
Production Capability The production level of an economy when all of the productive factors, including labor, are used at their normal rate. In terms of unemployment, this corresponds to a 6% unemployment rate.
Purchasing Power The amount of goods and services that a unit of currency can buy.
Real GDP The total value of all goods and services produced in an economy valued at constant dollars, or adjusted for inflation.
Real Value The value of something at constant dollars, or adjusted for inflation.
Shoeleather Cost of Inflation Costs of expected inflation caused by people having to make more trips to the bank to make withdrawals because they do not want to keep cash on hand.
Stagflation When inflation and unemployment both increase. This phenomenon seems to negate the general applicability of the Phillips Curve.
Standard of Living The level of economic well
Structural Unemployment Unemployment due to a mismatch between workers' skills and firms' needs.
Substitute An item that is purchased in lieu of a more expensive or less desirable item.
Total Labor Force The sum of employed workers and unemployed job searchers.
Phillips Curve Formula Inflation = ((expected inflation) - B) ((cyclical unemployment rate) + (error)) where B equals a number greater than zero that represents the sensitivity of inflation to unemployment.
Unemployed Describes individuals who are not currently working but are currently searching for a job.
Unemployment Rate Formula (unemployed)/(employed + unemployed)
Unexpected Inflation Inflation that economists and consumers do not expect.
Okun's Law Formula Percentage change in real GDP = 3% - 2(change in the unemployment rate)
Value of a Dollar The purchasing power of a dollar.
Percentage change in the price level Formula [CPI(earlier year) - CPI(later year)] / CPI(earlier year) or [GDP(earlier year) - GDP(later year)] / GDP(earlier year)
Wage The amount of money paid to a worker.
Bartering The trading of one good for another. This requires the double Coincidence of wants, a condition met when two individuals each have different goods that they other wants.
Commodity Money Money that has an intrinsic value, that is, value beyond any value given to it because it is money. An example of this would be a gold coin that has value because it is a precious metal.
Compound Interest Interest that is paid on a sum of money where the interest paid is added to the principal for the future calculation of interest. Click here to see the Formula.
Consumption The purchase and use of goods and services by consumers.
Currency The form of money used in a country.
Defaulting on the Loan When a borrower fails to repay a loan leaving the lender without the money loaned.
Demand for Money The amount of currency that consumers use for the purchase of goods and services. This varies depending mainly upon the price level.
Equilibrium The state in a market when supply equals demand.
Fiat Money Money that has no intrinsic value, that is, its only value comes from the fact that a governing body backs and regulates the currency.
Fischer Effect The point for point relationship between changes in the money supply and changes in the inflation rate.
Inflation The increase of the price level over time.
Interest Money paid by a borrower to a lender for the use of a sum of money.
Interest Rates The percent of the amount borrowed paid each year to the lender by the borrower in return for the use of the money.
Liquidity The ease with which something of value can be exchanged for the currency of an economy.
Medium of Exchange An item used commonly to trade for goods and services.
Money Supply The quantity of money in an economy. In the US this is controlled through policy by the Fed.
Nominal GDP The total value of all goods and services produced in a country valued at current prices.
Nominal Interest The percent of the amount borrowed paid each year to the lender by the borrower in return for the use of the money not taking inflation into account.
Nominal Value The value of something in current dollars without taking into account the effects of inflation.
Output The amount of goods and services produced within an economy.
Price Level The overall level of prices of goods and services in an economy. This is used in the calculation of inflation rates.
Purchasing Power The real value of a dollar. This describes the quantity of goods and services that can be purchased for a dollar, taking into account the effects of inflation.
Quantity Theory of Money The theory that says that the value of money is based on the amount of money in circulation, that is, the money supply.
Real Interest The percent of the amount borrowed paid each year to the lender by the borrower in return for the use of the money adjusted for inflation.
Real Value The value of something in taking into account the effects of inflation.
Store of Value A good that holds a value in such a way that its price is fairly insensitive inflation.
Velocity of Money M * V = P * Y where M is the money supply, V is the velocity, P is the price level, and Y is the quantity of output. P * Y, the price level multiplied by the quantity of output, gives the nominal GDP. This equation can be rearranged as V = (nominal GDP) /
Unit of Account Something that is used universally in the description of money matters such as prices. The unit of account most commonly used in the US is the dollar.
Compound Interest First, calculate the value of the loan, by adding one to the interest rate, raising it to the number of years for the loan, and multiplying it by the loan amount. Then, to calculate the amount of interest, simply subtract the original loan amount from the
Value of Money The purchasing power of the dollar. The amount of goods and services that can be purchased for a fixed amount of money.
Real Interest Rate The real interest rate is equal to the nominal interest rate minus the inflation rate.
Velocity The speed with which a dollar bill changes hands. The higher the velocity of money, the quicker that a given piece of currency will be traded for goods and services.
100% Reserve Banking System A system in which banks must keep all deposits on hand and ready for withdrawal.
Assets Cash, stocks, bonds, and physical goods that are stores of wealth and value.
Balance Sheet An accounting tool where assets and liabilities are compared side by side.
Borrowers Individuals who take out loans from banks.
Currency Money, either fiat or commodity, that is commonly used in an economy.
Demand Deposits Deposits made by in banks that can be withdrawn at any time
Deposits Money given to banks for safekeeping and to earn interest.
Federal Deposit Insurance Corporation A corporation that insures individual bank accounts up to \$100,000 to ensure that the public is confident in the banking system.
Federal Funds Interest Rate The discount interest rate at which the branch banks of the Fed loan money to other banks.
Federal reserve The federal group that controls the money supply though monetary policy and fiscal policy.
Federal Reserve Banks Branches of the Fed that serve as banks for non
Fiat Money Money that has no intrinsic value but that is instead only valuable because it is backed and regulated by a governing body.
Financial Intermediary An entity, like a bank, that works between savers and borrowers by accepting deposits and making loans.
Fiscal Policy Operations by the Fed that affect the money supply including manipulation of the federal funds interest rate and the reserve requirement.
Fractional Reserve Banking System A banking system wherein less than 100% of the deposits are required to be held as reserves.
Government Bonds Bonds issued by the government and bought and sold by the Fed as a form of monetary policy to manipulate the money supply.
Inflation An increase in the price level over time.
Interest Money paid by a borrower to a lender in return for the use of money in the form of a loan.
Interest Rate The rate of interest in the form of percent of the balance due per year.
Lender One who gives money to be repaid at a later date, with interest.
Liabilities Money owed.
Loans Money given by lenders to borrowers.
Monetary Policy Policy used to affect the money supply employed by the Fed. In particular, this describes the open market operations of buying and selling government bonds.
Money The stock of assets used in transactions within an economy.
Money Multiplier The number that describes the change in the money supply given an initial deposit and a reserve requirement.
Money Supply The total amount of currency in circulation as controlled by Fed policy.
Open Market Operations The purchase and sale of government bonds by the Fed in order to affect the money supply.
Paper Balances Deposits that exist on paper but are not backed by physical currency.
Principle The initial amount of money given as a loan.
Reserve Money not given out in loans that is available for repaying depositors.
Reserve Requirement The percent of total deposits required to be held back for repaying depositors. This is controlled by the Fed as a form of monetary policy.
Change in Money Supply Formula [initial deposit * (1 / reserve requirement)] - initial deposit
Savers Individuals who deposit money in banks.
Money Multiplier Formula =1 / (reserve requirement)
Treasury The government agency that prints, mints, and stores money.
Capital Physical and intellectual property that is utilized by labor in the production of goods and services.
Capital Expenditure Money spent on increasing the amount of capital in a firm or an economy.
Capital Stock The total amount of capital in an economy or in a firm.
Convergence The theory that all industrialized countries tend to approach one another over time in terms of GDP per capita.
GDP per Capita Nominal GDP divided by the total population. This indicates the amount of a countryâ€™s total output that each member of the population theoretical has access to.
Golden Rule Level of Capital The level of capital where consumption and savings are optimized.
Growth Level The long term rate of growth.
Growth Rate The short term rate of growth.
Human Capital Intellectual property, like education and scientific discoveries, that affects the level of output in a firm or country.
Industrialized Describes countries that have an infrastructure and government amenable to industrial development.
Infrastructure Physical machinery and transportation that is in place to aid in industrialization.
International Market The market for goods and services that spans countries.
Labor Workers who utilize capital to produce output.
Labor Productivity Growth An increase in the amount of output a given unit of labor can produce.
Nominal GDP The total currency value of all goods and services produced in a national economy.
Open Market A market for the sale and purchase of goods and services in which all countries may compete.
Output Goods and services produced by firms.
Physical Capital Machinery used by labor in the production of goods and services.
Production The creation of output.
Production Capabilities The capital that allows a given amount of potential output.
Productivity The ability to produce output.
Prosperity The creation of a high standard of living.
Savings Rate The percentage of total income that is saved for future consumption.
Standard of living The level of economic wellbeing enjoyed by members of a population.
Technological Progress The advancement of technology over time due to scientific discoveries.
Trade The purchase and sale of goods and services between entities.
Capital Physical and intellectual property that is utilized by labor in the production of goods and services.
Capital Expenditure Money spent on increasing the amount of capital in a firm or an economy.
Capital Stock The total amount of capital in an economy or in a firm.
Convergence The theory that all industrialized countries tend to approach one another over time in terms of GDP per capita.
GDP per Capita Nominal GDP divided by the total population. This indicates the amount of a countryâ€™s total output that each member of the population theoretical has access to.
Golden Rule Level of Capital The level of capital where consumption and savings are optimized.
Growth Level The long term rate of growth.
Growth Rate The short term rate of growth.
Human Capital Intellectual property, like education and scientific discoveries, that affects the level of output in a firm or country.
Industrialized Describes countries that have an infrastructure and government amenable to industrial development.
Infrastructure Physical machinery and transportation that is in place to aid in industrialization.
International Market The market for goods and services that spans countries.
Labor Workers who utilize capital to produce output.
Labor Productivity Growth An increase in the amount of output a given unit of labor can produce.
Nominal GDP The total currency value of all goods and services produced in a national economy.
Open Market A market for the sale and purchase of goods and services in which all countries may compete.
Output Goods and services produced by firms.
Physical Capital Machinery used by labor in the production of goods and services.
Production The creation of output.
Production Capabilities The capital that allows a given amount of potential output.
Productivity The ability to produce output.
Prosperity The creation of a high standard of living.
Savings Rate The percentage of total income that is saved for future consumption.
Standard of living The level of economic wellbeing enjoyed by members of a population.
Technological Progress The advancement of technology over time due to scientific discoveries.
Trade The purchase and sale of goods and services between entities.
Absolute Advantage When a producer can create a given amount of output with the smallest amount of inputs.
Budget Deficit When the government spends more money than it receives.
Capital Money, machinery, and education put toward a business to increase its productivity.
Comparative Advantage When a producer has a lower opportunity cost of production for an item than another producer's.
Consumption Goods and services purchased by consumers.
Cost of living The relative amount of money needed to maintain a given lifestyle.
Exchange Rates Numbers that tell how much foreign product can be purchased with similar domestic product.
Exports Goods sent to another country for sale.
Goods Products that consumers, manufacturers, and governments exchange.
Imports Goods produced in a foreign country and consumed in a domestic country.
Income Money that enters a country or household.
Investment Money spent to improve a company's growth and productivity.
Net Exports The difference between exports and imports.
Net Foreign Investment The total amount of investment in a country that results from trade deficits. Net foreign investment always equals net exports.
Nominal Exchange Rates The amount of foreign currency that exchangeable for domestic currency.
Nominal Output The amount of output valued in currency dollars.
Opportunity Cost What is given up in pursuing one option over another.
Output Goods and services produced.
Protectionist Policies Governmental policies that serve to help developing domestic industries.
Quota When a government limits the amount of a given good that can be imported. Imposing quotas is a protectionist policy.
Real Exchange Rates Numbers that describe the relative real value of foreign and domestic goods.
Subsidy Grants paid by the government to producers to help them develop. Subsidizing is a protectionist policy.
Tariff Fees charged by the government on imported goods to help raise the price and decrease the quantity sold. Use of tariffs is a protectionist policy.
Nominal Exchange Rate Formula = (price of foreign currency) / (price of domestic currency)
Trade When goods from one producer are exchanged for goods from another producer. In this case, goods can be very broadly interpreted.
Real Exchange Rate Formula = ((nominal exchange rate)(domestic price)) /(foreign price)
Net Exports Formula Net Exports = exports + imports
Trade Deficit A trade deficit occurs when a country imports more than it exports.
Output formula y=C + I + G + NX
Trade Surplus A trade surplus occurs when a country exports more than it imports.
Contractionary Fiscal Policy Policy enacted by the government that reduces output. Examples include raising taxes and decreasing government spending.
Contractionary Monetary Policy Policy enacted by the Fed that reduces the money supply and thus reduces output. Examples include selling government bonds, raising the reserve requirement, and raising the federal funds interest rate.
Currency Physical money used in an economy.
Demand Deposits Money in a bank that can be withdrawn at any time, that is, on demand.
Deposits Assets placed in a bank for storage and profit.
Disposable Income Income that can be spent after taxes.
Expansionary Fiscal Policy Policy enacted by the government that increases output. Examples include lowering taxes and increasing government spending.
Expansionary Monetary Policy Policy enacted by the Fed that increases the money supply and thus increases output. Examples include purchasing government bonds, lowering the reserve requirement, and lowering the federal funds interest rate.
Fed Short for the Federal Reserve, the government agency that controls monetary policy.
Federal Funds Interest Rate The rate that banks pay to borrow money from branches of the Fed.
Fiscal Policy Policy that uses taxation and government spending to steer the economy.
Fractional Reserve Banking System A system of banking, like in the US, where only a portion of deposits are help in reserves. The rest is returned to the public as loans, thereby increasing the money supply and stimulating economic growth.
Government Bonds Bonds issued by the government and sold by the Fed during open market operations as a means of monetary policy.
Government Spending Money that the government spends on goods and services like employees, social security, and defense.
Government Spending Multipliers Numbers that increase the change in output affected by a change in government spending due to consumer's marginal propensity to consume.
Interest Rate The rate paid to lenders by borrowers in return for the use of a sum of money.
Marginal Propensity to Consume A number that describes the amount of an additional dollar of income that a consumer will spend rather than save.
Monetary Policy Policy enacted by the Fed to affect output. The three basic types include performing open market operations, changing the reserve requirement, and manipulating the federal funds interest rate.
Money A means of exchange, store of value, and unit of account within an economy.
Money Multiplier The number that describes the total change in the money supply resulting from a single deposit in a bank under a fractional reserve banking system.
Money Supply The total amount of money in an economy including both demand deposits and currency.
Multipliers Numbers that dictate the overall effect of a policy change on the output of an economy.
National Income Output. (See the definition of output.)
Open Market Operations The purchase and sale of government bonds by the Fed as a form of monetary policy.
Output The total amount of goods and services produced within an economy in a given period of time.
Price Level The overall level of prices within an economy.
Real Output The total amount of goods and services produced within an economy in a given period of time valued in constant currency.
Reserve Requirement The percentage of deposits that banks are required to keep in reserves and not give out as loans. This can be manipulated by the Fed under monetary policy.
Tax Multipliers Numbers that describe the overall change in output created by a change in taxes due to fiscal policy change.
Total change in output as a result of a change in government spending FORMULA = change in government purchases) / (1 - MPC)
Taxes Money collected by the government to maintain its services.
Total change in output as a result of a change in tax policy Formula = [(change in taxes) * -MPC] / (1 - MPC)
Theory of Money Demand This basically states that as the demand for money increases, so does the interest rate.
Active Policy Monetary policy and fiscal policy whereby the appropriate course of action is left to the discretion of policymakers rather than to the dictates of preset rules.
Assets Cash, stocks, bonds, and physical goods that are stores of wealth and value.
Balance Sheet An accounting tool where assets and liabilities are compared side by side.
Borrowers Individuals who take out loans from banks.
Budget Deficit When the amount of money spent by the government is greater than the amount of money collected by the government.
Budget surplus When the amount of money spent by the government is less than the amount of money collected by the government.
Capital Physical, human, and intellectual property used to increase productivity.
Consumption Money spent on goods and services by consumers.
Contractionary Fiscal Policy Policy utilized by the government to slow the economy through increasing taxes and reducing government spending.
Contractionary Monetary Policy Policy utilized by the Fed to slow the economy through selling government bonds, increasing the reserve requirement, and increasing the federal funds interest rate.
Crowding In When government spending induces private investment.
Crowding Out When government spending reduces private investment.
Currency Money, either fiat or commodity, that is commonly used in an economy.
Demand Deposits Deposits made by in banks that can be withdrawn at any time
Deposits Money given to banks for safekeeping and to earn interest.
Detection Lag A difference in time between when an economic problem occurs and when it is noticed by economists.
Discretionary Policy Monetary policy and fiscal policy whereby the appropriate course of action is left to the discretion of policymakers rather than to the dictates of preset rules.
Expansionary Fiscal Policy Policy utilized by the government to stimulate the economy through reducing taxes and increasing government spending.
Expansionary Monetary Policy Policy utilized by the Fed to stimulate the economy through purchasing government bonds, reducing the reserve requirement, and reducing the federal funds interest rate.
Factors of Production The inputs of capital and labor required to produce output whose improvement leads to productivity increases.
Federal Deposit Insurance Corporation A corporation that insures individual bank accounts up to \$100,000 to ensure that the public is confident in the banking system.
Federal Funds Interest Rate The discount interest rate at which the branch banks of the Fed loan money to other banks.
Federal Reserve The federal group that controls the money supply though monetary policy and fiscal policy.
Federal Reserve Banks Branches of the Fed that serve as banks for non
Financial Intermediary An entity, like a bank, that works between savers and borrowers by accepting deposits and making loans.
Fiscal Policy Policy utilized by the government to affect the economy through taxes and government spending.
Fractional Reserve Banking System A banking system wherein less than 100% of the deposits are required to be held as reserves.
Government Bonds Bonds issued by the government and bought and sold by the Fed as a form of monetary policy to manipulate the money supply.
Government Spending Money spent by the government on goods and services.
Inflation An increase in the price level over time.
Interest Money paid by a borrower to a lender in return for the use of money in the form of a loan.
Interest Rate The rate of interest in the form of percent of the balance due per year.
Investment Money spent on capital goods that increase productivity in the long run.
Lender One who gives money to be repaid at a later date, with interest.
Liabilities Money owed.
Loans Money given by lenders to borrowers.
Monetary Policy Policy utilized by the Fed to affect the economy through open market operations, changing the reserve requirement, and changing the federal funds interest rate.
Money The stock of assets used in transactions within an economy.
Money Multiplier The number that describes the change in the money supply given an initial deposit and a reserve requirement. (See the Formula.)
Money Supply The total amount of currency in circulation as controlled by Fed policy.
National Debt Money owed by the government from budget deficits.
National Savings The difference between government spending and the amount of money collected in taxes.
Net Exports The difference between exports and imports.
Open Market Operations The purchase and sale of government bonds by the Fed in order to affect the money supply.
Paper Balances Deposits that exist on paper but are not backed by physical currency.
Passive Policy Monetary policy and fiscal policy whereby the appropriate course of action is left to the dictates of preset rules rather than to the discretion of policymakers.
Policy by Rule Monetary policy and fiscal policy whereby the appropriate course of action is left to the dictates of preset rules rather than to the discretion of policymakers.
Policy Lag The difference between when a policy is enacted and when it has the intended effects upon the economy.
Price Level The overall level of prices within an economy.
Principle The initial amount of money given as a loan.
Real GDP The total value of goods and services produced in an economy value in constant dollars.
Real Variables Economic variables that are valued in constant dollars.
Reserve Money not given out in loans that is available for repaying depositors.
Reserve Requirement The percent of total deposits required to be held back for repaying depositors. This is controlled by the Fed as a form of monetary policy.
Savers Individuals who deposit money in banks.
Supply Side Economic policies that affect suppliers rather than consumers.
Treasury The government agency that prints, mints, and stores money.
Aggregate Demand The total demand for goods and services in an economy.
Aggregate Supply The total supply of goods and services in an economy.
Crowding In When government spending induces private investment.
Crowding Out When government spending reduces private investment.
Demand Curve A schedule that relates price to quantity demanded.
Disposable Income Income that may be spent after taxes are subtracted.
Exogenous A change resulting from conditions outside of an economic model.
GDP Gross domestic product is the total value of all goods and services produced within an economy.
Income Money taken in by a system, an individual, a firm, or an economy.
Inflation The year
Marginal Propensity to Consume A number that describes the amount of an additional dollar of income that a consumer will spend rather than save.
Money Supply The total amount of currency and demand deposits that exists in an economy.
National Income The total amount of money earned in an economy in a year. C.f. GDP.
Net Exports The difference between exports and imports.
Nominal Interest Rate The cost of borrowing money, unadjusted for inflation.
Nominal Value The value of something in current currency, unadjusted for inflation.
Output The amount of goods and services produced in an economy. This can be in quantity or in currency.
Price Level The overall level of prices within an economy.
Real Exchange Rate The rate that goods and services of one country can be traded for goods and services of another country.
LM curve equation M/P = L(r,Y)
Real Interest Rate The cost of borrowing money, adjusted for inflation.
Real Value The value of something in constant currency, adjusted for inflation.
Adverse Supply Shocks Economic changes that suddenly and drastically increase the cost of inputs and thus shift the aggregate supply curve to the left.
Aggregate Demand The total demand for goods and services in an economy.
Aggregate Supply The total supply of goods and services in an economy.
Capital Physical machines and human experience that lead to productivity.
Capital Stock The total amount of capital, both physical and human, that exists in an economy.
Contractionary Policy Monetary and fiscal policy that shifts the aggregate demand curve to the left.
Expansionary Policy Monetary and fiscal policy that shifts the aggregate demand curve to the right.
Expected Price Level The level of prices that firms believe will exist at the time that contracts are made.
Factors of Production Refers to capital and labor, as these are the inputs that lead to productivity.
Investment Money spent on the improvement of the capital stock.
Labor Physical effort supplied by workers producing output.
Labor Force The total number of people working at the production of output.
Labor Market The market for workers where the demand for labor and the supply for labor are equilibrated by the wage.
Menu Costs The financial costs to firms of having to reprint menus, catalogues, and other price
Natural Rate of Output The rate of output when the factors of production, capital and labor, are used at their normal rates.
Nominal Wage The amount of money paid to a worker in terms of actual currency, not purchasing power.
Output Goods and services produced by workers and firms.
Positive Supply Shocks Economic changes that suddenly and drastically decrease the cost of inputs and thus shift the aggregate supply curve to the right.
Price Level The overall cost of goods and services in an economy.
Real Wage The amount of money paid to a worker in terms of purchasing power, not actual currency.
Stagflation A condition where the price level increases and output decreases. This usually results from an adverse supply shock.
Supply Shock An economic change that suddenly and drastically affects the cost of inputs and thus shifts the aggregate supply curve. C.f. adverse supply shocks and positive supply shocks.
Buyer Someone who purchases goods and services from a seller for money.
Competition In a market economy, competition occurs between large numbers of buyers and sellers who vie for the opportunity to buy or sell goods and services. The competition among buyers means that prices will never fall very low, and the competition among sellers
Demand Demand refers to the amount of goods and services that buyers are willing to purchase. Typically, demand decreases with increases in price; this trend can be graphically represented with a demand curve. Demand can be affected by changes in income, chang
Demand Curve A demand curve is the graphical representation of the relationship between quantities of goods and services that buyers are willing to purchase and the price of those goods and services.
Elastic Describes a supply or demand curve which is relatively responsive to changes in price. That is, a curve wherein the quantity supplied or demanded changes easily when the price changes. A curve with an elasticity greater than or equal to 1 is elastic.
Elasticity Refers to the degree of responsiveness a curve has with respect to price. If quantity changes easily when price changes, then the curve is elastic; if quantity doesn't change easily with changes in price, the curve is inelastic. The numerical equation t
Elasticity = (% Change in Quantity)/(% Change in Price)
If elasticity is greater than 1, the curve is elastic. If it is less than 1, it is inelastic. If it equals one, it is unit elastic.
Elasticity of demand Refers to the degree of responsiveness a demand curve has with respect to price. If quantity drops a great deal when price goes up, then the curve is elastic; if quantity doesn't drop easily with increases in price, the curve is inelastic.
Elasticity of supply Refers to the degree of responsiveness a supply curve has with respect to price. If quantity increases a great deal when price goes up, then the curve is elastic; if quantity doesn't increase easily with increases in price, the curve is inelastic.
Equilibrium Price The price of a good or service at which quantity supplied is equal to quantity demanded. Also called the market
Equilibrium Quantity Amount of goods or services sold at the equilibrium price. Because supply is equal to demand at this point, there is no surplus or shortage.
Goods and Services Products or work that are bought and sold. In a market economy, competition among buyers and sellers sets the market equilibrium, determining the price and the quantity sold.
Inelastic Describes a supply or demand curve which is relatively unresponsive to changes in price. That is, the quantity supplied or demanded does not change easily when the price changes. A curve with an elasticity less than 1 is inelastic.
Long Run The distant future, for which buyers and sellers make "permanent" decisions, such as exiting the market or permanently decreasing consumption.
Market A large group of buyers and sellers who are buying and selling the same good or service.
Market Economy An economy in which the prices and distribution of goods and services are determined by the interaction of large numbers of buyers and sellers who have no significant individual impact on prices or quantities.
Market Equilibrium Point at which quantity supplied and quantity demanded are equal, and prices are market
Market clearing Price
Seller Someone who sells goods and services to a buyer for money.
Shortage Situation in which the quantity demanded exceeds the quantity supplied for a good or service; in such a situation, the price of a good is below equilibrium price.
Short Run The immediate future, for which buyers and sellers make "temporary" decisions, such as shutting down production or increasing consumption, for the time being.
Supply Supply refers to the amount of goods and services that sellers are willing to sell. Typically, supply increases with increases in price, this trend can be graphically represented with a supply curve.
Supply Curve A supply curve is the graphical representation of the relationship between quantities of goods and services that sellers are willing to sell and the price of those goods and services.
Surplus Situation in which the quantity supplied exceeds the quantity demanded for a good or service; in this situation, the price of a good is above equilibrium price.
Unit elastic Describes a supply or demand curve which is perfectly responsive to changes in price. That is, the quantity supplied or demanded changes according to the same percentage as the change in price. A curve with an elasticity of 1 is unit elastic.
Equilibrium Price The price of a good or service at which quantity supplied is equal to quantity demanded. Also called the market
Gini Coefficient Numerical measurement between 0 and 1 of income equality; calculated by dividing the area between the Lorenz curve and the equal distribution curve by the area beneath the equal distribution curve.
Goods and Services Products or work that are bought and sold. In a market economy, competition among buyers and sellers sets the market equilibrium, determining the price and the quantity sold.
Income Distribution Refers to how evenly the total amount of income in an economy is divided between members of the workforce.
Income Mobility Refers to the ease with which members of the workforce can move between levels of economic prosperity.
In kind Transfer
Lorenz Curve Curve that plots out the cumulative percentage of income earned by segments of the workforce, as compared to a straight
Market Clearing Price
Market Economy An economy in which the prices and distribution of goods and services are determined by the interaction of large numbers of buyers and sellers who have no significant individual impact on prices or quantities.
Market Equilibrium Point at which quantity supplied and quantity demanded are equal, and prices are market
Seller Someone who sells goods and services to a buyer for money.
Shortage Situation in which the quantity demanded exceeds the quantity supplied for a good or service; price is below equilibrium price.
Surplus Situation in which the quantity supplied exceeds the quantity demanded for a good or service; price is above equilibrium price.
Pure monopoly A firm that satisfies the following conditions:
It is the only supplier in the market.
There is no close substitute to the output good.
There is no threat of competition.
Natural monopoly A firm with such extreme economies of scale that once it begins creating a certain level of output, it can produce more at a lower cost than any smaller competitor. Generally characterized by a declining average cost curve.
Economies of scale Savings acquired through increases in quantity produced. Oftentimes, large firms in industries with high fixed costs can take advantage of savings that smaller firms cannot.
Price taker An agent who takes prices as given. For instance, a firm who faces a perfectly flat demand curve has no choice but to sell at one price. This firm is a price taker.
Perfect competition A market operates under perfect competition if it satisfies the following conditions:
Numerous firms
Freedom of entry and exit
Homogeneous output
Perfect information
Deadweight loss The dollar amount of social surplus that goes unrealized as compared to the socially optimal solution.
Price setter The opposite of a price taker; a price setter has the power to set prices. For instance, a firm who faces a downward sloping demand curve can choose price.
Socially optimal Describes points at which social surplus is maximized, social surplus being the combined utilities of the firms and the public.
Oligopoly A market dominated by a small number of firms. At least several of these firms are large enough to influence the market price.
Duopoly A market dominated by two firms. Both firms are large enough to influence the market price.
Cournot duopoly A model of duopolies under which two firms simultaneously choose the quantity to produce.
Stackelberg duopoly A model of duopolies under which two firms choose the quantity to produce with one firm choosing before the other in an observable manner.
Bertrand duopoly A model of duopolies under which two firms simultaneously choose the price for a good.
Cartel A small number of independent firms who act together to set monopoly prices and make monopoly profits.
Public information Information known to everyone.
Reaction curve A reaction curve is a function that takes as input the moves of the other players and returns the optimal move given the other players' moves.
Nash equilibrium An equilibrium in which all players are playing their best responses to everyone else's best response.
Aggregate Demand The combined demand of all buyers in a market.
Aggregate Supply The combined supply of all sellers in a market.
Buyer Someone who purchases goods and services from a seller for money.
Complementary Good A good is called a complementary good if the demand for the good increases with demand for another good. One extreme example: right shoes are complementary goods for left shoes.
Demand Demand refers to the amount of goods and services that buyers are willing to purchase. Typically, demand decreases with increases in price, this trend can be graphically represented with a demand curve. Demand can be affected by changes in income, chang
Demand Curve A demand curve is the graphical representation of the relationship between quantities of goods and services that buyers are willing to purchase and the price of those goods and services.
Equilibrium Price The price of a good or service at which quantity supplied is equal to quantity demanded. Also called the market
Equilibrium Quantity Amount of goods or services sold at the equilibrium price. Because supply is equal to demand at this point, there is no surplus or shortage.
Firm Unit of sellers in microeconomics. Because it is seen as one selling unit in microeconomics, a firm will make coordinated efforts to maximize its profit through sales of its goods and services. The combined actions and preferences of all firms in a mark
Goods and Services Products or work that can be bought and sold. In a market economy, competition among buyers and sellers sets the market equilibrium, determining the price and the quantity sold.
Horizontal addition The process of adding together all quantities demanded at each price level to find aggregate supply or aggregate demand.
Household Unit of buyers in microeconomics. Because it is seen as one buying unit in microeconomics, a household will make coordinated efforts to maximize its utility through its choices of goods and services. The combined actions and preferences of all household
Labor market A large group of firms and workers in the same industry: the firms want to hire workers, the workers want jobs. The interaction between the two groups determines the market wage and quantity of labor used.
Law of Diminishing Returns Concept that the marginal revenue derived from additional units of labor decreases as quantities of labor increases.
Marginal Product The additional amount of goods generated by using one more unit of work.
Marginal Revenue Product The additional income generated by using one more unit of input.
Marginal Revenue Product of Labor The additional income generated by using one more unit of work.
Market A large group of buyers and sellers who are buying and selling the same good or service.
Market clearing Price
Optimization To maximize utility by making the most effective use of available resources, whether they be money, goods, or other factors.
Price Ceiling Maximum price set by the government on a specific good. Usually is set below market price, causing a shortage.
Price Floor Minimum price set by the government on a specific good. Usually is set above market price, causing a surplus.
Revenue The income a firm makes from selling its products. Revenue as equal to price per unit times quantity sold, (P)x(Q).
Seller Someone who sells goods and services to a buyer for money.
Supply Supply refers to the amount of goods and services that sellers are willing to sell. Typically, supply increases with increases in price, this trend can be graphically represented with a supply curve.
Supply Curve A supply curve is the graphical representation of the relationship between quantities of goods and services that sellers are willing to sell and the price of those goods and services.
Surplus Situation in which the quantity supplied exceeds the quantity demanded for goods and services or labor; in this situation, the price (or wage) is above the equilibrium price (or wage).
Wage Price per unit of time when the good being sold is some form of labor or work (instead of a physical product).
Budget Constraint Outermost boundary of possible purchase combinations that a person can make given how much money they have and the price of the goods in consideration.
Buyer Someone who purchases goods and services from a seller for money.
Demand Demand refers to the amount of goods and services that buyers are willing to purchase. Typically, demand decreases with increases in price; this trend can be graphically represented with a demand curve. Demand can be affected by changes in income, chang
Demand Curve A demand curve is the graphical representation of the relationship between quantities of goods and services that buyers are willing to purchase and the price of those goods and services.
Equilibrium Price The price of a good or service at which quantity supplied is equal to quantity demanded. Also called the market
Equilibrium Quantity Amount of goods or services sold at the equilibrium price. Because supply is equal to demand at this point, there is no surplus or shortage.
Firm Unit of sellers in microeconomics. Because it is seen as one selling unit in microeconomics, a firm will make coordinated efforts to maximize its profit through sales of its goods and services. The combined actions and preferences of all firms in a mark
Goods and Services Products or services that are bought and sold. In a market economy, competition among buyers and sellers sets the market equilibrium, determining the price and the quantity sold.
Horizontal addition The process of adding together all quantities demanded at each price level to find aggregate supply or aggregate demand.
Income Effect Income effect describes the effects of changes in prices on consumption. According to the income effect, an increase in price causes a buyer to feel poorer, lowering the quantity demanded, and vice versa. Although the buyer's actual income hasn't change
Indifference Curve Graphical representation of different combinations of goods and services that give a consumer equal utility or happiness.
Labor market A large group of firms and workers in the same industry: the firms want to hire workers, the workers want jobs. The interaction between the two groups determines the market wage and quantity of labor used.
Market A large group of buyers and sellers who are buying and selling the same good or service.
Market clearing Price
Normal Good A normal good is a good for which an increase in income causes an increase in demand, and vice versa.
Optimization To maximize utility by making the most effective use of available resources, whether they be money, goods, or other factors.
Seller Someone who sells goods and services to a buyer for money.
Substitution Effect Describes the effects of changes in relative prices on consumption. According to the substitution effect, an increase in price of one good causes a buyer to buy more of the other, substituting good, since the first good has become relatively expensive w
Supply Supply refers to the amount of goods and services that sellers are willing to sell. Typically, supply increases with increases in price, this trend can be graphically represented with a supply curve.
Supply Curve A supply curve is the graphical representation of the relationship between quantities of goods and services that sellers are willing to sell and the price of those goods and services.
Utility An approximate measure for levels of "happiness."
Complementary Good A good is called a complementary good if the demand for the good increases with demand for another good. One extreme example: right shoes are complementary goods for left shoes.
Demand Demand refers to the amount of goods and services that buyers are willing to purchase. Typically, demand decreases with increases in price, this trend can be graphically represented with a demand curve. Demand can be affected by changes in income, chang
Demand Curve A demand curve is the graphical representation of the relationship between quantities of goods and services that buyers are willing to purchase and the price of those goods and services.
Diminishing Returns Concept that the marginal utility derived from acquiring successive identical goods decreases with increasing quantities of goods.
Economics Economics is the study of the production and distribution of scarce resources, and goods and services.
Equilibrium Price The price of a good or service at which quantity supplied is equal to quantity demanded. Also called the market
Equilibrium Quantity Amount of goods or services sold at the equilibrium price. Because supply is equal to demand at this point, there is no surplus or shortage.
Expected Value (EV) How much a buyer thinks that a good or investment will be worth after a time lapse, based on the probabilities of different possible outcomes. Usually refers to stocks and other uncertain investments.
Giffen Good Theoretical case in which an increase in the price of a good causes an increase in quantity demanded.
Firm Unit of sellers in microeconomics. Because it is seen as one selling unit in microeconomics, a firm will make coordinated efforts to maximize its profit through sales of its goods and services. The combined actions and preferences of all firms in a mark
Goods and Services Products or work that are bought and sold. In a market economy, competition among buyers and sellers sets the market equilibrium, determining the price and the quantity sold.
Horizontal addition The process of adding together all quantities demanded at each price level to find aggregate demand
Household Unit of buyers in microeconomics. Because it is seen as one buying unit in microeconomics, a household will make coordinated efforts to maximize its utility through its choices of goods and services. The combined actions and preferences of all household
Income Effect Income effect describes the effects of changes in prices on consumption. According to the income effect, an increase in price causes a buyer to feel poorer, lowering the quantity demanded, and vice versa. Although the buyer's actual income hasn't change
Indifference Curve Graphical representation of different combinations of goods and services that give a consumer equal utility or happiness.
Inferior Good A good for which quantity demanded decreases with increases in income.
Marginal Utility Additional utility derived from each additional unit of goods acquired.
Market A large group of buyers and sellers who are buying and selling the same good or service.
Market Economy An economy in which the prices and distribution of goods and services are determined by the interaction of large numbers of buyers and sellers who have no significant individual impact on prices or quantities.
Market clearing Price
Microeconomics Subfield of economics which studies how households and firms behave and interact in the market.
Normal Good A normal good is a good for which an increase in income causes an increase in demand, and vice versa.
Optimization To maximize utility by making the most effective use of available resources, whether they be money, goods, or other factors.
Resource A supply of capital that can be used in an economy. Because resources are scarce, however, there is not enough to go around.
Risk Refers to the amount of variation in possible payoffs. A very risky investment will have wide variation in possible payoffs, but might have a higher expected value; a less risky investment will have a more predictable payoff, but a lower expected value.
Risk averse
Risk loving
Risk neutral
Scarcity Goods, services, or resources are scarce if there is not enough for everyone to have as much as they would like.
Seller Someone who sells goods and services to a buyer for money.
Substitute Good Refers to a good which is to some extent interchangeable with another good, meaning that when the price of one good increases, demand for the other good increases.
Substitution Effect Describes the effects of changes in relative prices on consumption. According to the substitution effect, an increase in price of one good causes a buyer to buy more of the other good, since the first good has become relatively expensive, and vice versa
Equilibrium Price The price of a good or service at which quantity supplied is equal to quantity demanded. Also called the market
Equilibrium Quantity Amount of goods or services sold at the equilibrium price. Because supply is equal to demand at this point, there is no surplus or shortage.
Firm Unit of sellers in microeconomics. Because it is seen as one selling unit in microeconomics, a firm will make coordinated efforts to maximize its profit through sales of its goods and services. The combined actions and preferences of all firms in a mark
Goods and Services Products or work that are bought and sold. In a market economy, competition among buyers and sellers sets the market equilibrium, determining the price and the quantity sold.
Horizontal addition The process of adding together all quantities demanded at each price level to find aggregate demand
Household Unit of buyers in microeconomics. Because it is seen as one buying unit in microeconomics, a household will make coordinated efforts to maximize its utility through its choices of goods and services. The combined actions and preferences of all household
Market A large group of buyers and sellers who are buying and selling the same good or service.
Market Economy An economy in which the prices and distribution of goods and services are determined by the interaction of large numbers of buyers and sellers, none of whom have a significant individual impact on prices or quantities.
Market Equilibrium Point at which quantity supplied and quantity demanded are equal, and prices are market
Market Clearing Price
Profit Actual amount that a firm makes from selling a good. Is equal to Total Revenue (TR)
Seller Someone who sells goods and services to a buyer for money.
Supply Supply refers to the amount of goods and services that sellers are willing to sell. Typically, supply increases with increases in price, this trend can be graphically represented with a supply curve.
Supply Curve A supply curve is the graphical representation of the relationship between quantities of goods and services that sellers are willing to sell and the price of those goods and services.
Total Cost All of the money a firm has to pay in order to be able to sell its products. Includes total variable costs and total fixed costs.
Total Revenue All of the income a firm makes from selling its products. Is equal to price per unit times quantity sold, (P)x(Q).
Average Cost Average cost incurred per unit of goods produced. Is equal to Total Cost divided by quantity, TC/q.
Average Fixed Cost Average amount of fixed costs incurred per unit of goods produced. Is equal to Total Fixed Costs divided by quantity sold, TFC/q.
Average Revenue Average amount of income generated per unit of goods sold. Is equal to Total Revenue divided by quantity sold, TR/q.
Average Variable Cost Average amount of variable costs incurred per unit of goods produced. Is equal to Total Variable Costs divided by quantity sold, TVC/q.
Buyer Someone who purchases goods and services from a seller for money.
Competition In a market economy, competition occurs between large numbers of buyers and sellers who vie for the opportunity to buy or sell goods and services. The competition among buyers means that prices will never fall very low, and the competition among sellers
Demand Demand refers to the amount of goods and services that buyers are willing to purchase. Typically, demand decreases with increases in price, this trend can be graphically represented with a demand curve. Demand can be affected by changes in income, chang
Demand Curve A demand curve is the graphical representation of the relationship between quantities of goods and services which buyers are willing to purchase and the price of those goods and services.
Equilibrium Price The price of a good or service at which quantity supplied is equal to quantity demanded. Also called the market
Equilibrium Quantity Amount of goods or services sold at the equilibrium price. Because supply is equal to demand at this point, there is no surplus or shortage.
Fixed Costs Costs which vary with quantity produced that a firm has to pay in order to produce and sell its goods.
Firm Unit of sellers in microeconomics. Because it is seen as one selling unit in microeconomics, a firm will make coordinated efforts to maximize its profit through sales of its goods and services. The combined actions and preferences of all firms in a mark
Goods and Services Products or work that are bought and sold. In a market economy, competition among buyers and sellers sets the market equilibrium, determining the price and the quantity sold.
Horizontal addition The process of adding together all quantities demanded at each price level to find aggregate demand
Household Unit of buyers in microeconomics. Because it is seen as one buying unit in microeconomics, a household will make coordinated efforts to maximize its utility through its choices of goods and services. The combined actions and preferences of all household
Long Run The distant future, for which buyers and sellers make "permanent" decisions, such as exiting the market or permanently decreasing consumption.
Marginal Cost Additional cost incurred from each additional unit of goods produced.
Marginal Revenue Additional income derived from each additional unit of goods sold.
Marginal Utility Additional utility derived from each additional unit of goods acquired.
Market A large group of buyers and sellers who are buying and selling the same good or service.
Market Economy An economy in which the prices and distribution of goods and services are determined by the interaction of large numbers of buyers and sellers, none of whom have significant individual impact on prices or quantities.
Market Equilibrium Point at which quantity supplied and quantity demanded are equal, and prices are market
Market Clearing Price
Monopoly A firm that is the only seller of a good, with no competition.
Natural Monopoly A monopoly that exists because, for that specific good, the average cost curve is downward
Optimization To maximize utility by making the most effective use of available resources, whether they be money, goods, or other factors.
Price Ceiling Maximum price set by the government on a specific good. Usually is set below market price, causing a shortage.
Price Floor Minimum price set by the government on a specific good. Usually is set above market price, causing a surplus.
Price taker
Profit Actual amount that a firm makes from selling a good. It is equal to Total Revenue (TR)
Seller Someone who sells goods and services to a buyer for money.
Shortage Situation in which the quantity demanded exceeds the quantity supplied for a good or service; price is below equilibrium price.
Short Run The immediate future, for which buyers and sellers make "temporary" decisions, such as shutting down production or increasing consumption, for the time being.
Supply Supply refers to the amount of goods and services that sellers are willing to sell. Typically, supply increases with increases in price, this trend can be graphically represented with a supply curve.
Supply Curve A supply curve is the graphical representation of the relationship between quantities of goods and services that sellers are willing to sell and the price of those goods and services.
Surplus Situation in which the quantity supplied exceeds the quantity demanded for a good or service; price is above equilibrium price.
Total Cost All of the money a firm has to pay in order to be able to sell its products. Includes total variable costs and total fixed costs.
Total Fixed Costs All costs which do not vary with quantity produced that a firm has to pay in order to produce and sell its goods. Example: rent.
Total Revenue All of the income a firm makes from selling its products. Is equal to price per unit times quantity sold, (P)x(Q).
Total Variable Costs All costs which vary with quantity produced that a firm has to pay in order to produce and sell its goods. Example: materials used in production.
Created by: marissam06