Principles of Economics by Timothy Taylor (3rd edition)

Principles of Economics by Timothy Taylor (3rd edition) is the third edition of the college textbook, titled Principles of Economics, written by Timothy Taylor and published by Textbook Media.

Glossary

A

• Absolute advantage. When one nation can produce a product at lower cost relative to another nation.
• Accounting profit. Total revenue minus the firm’s cost, without taking opportunity cost into account.
• Acquisition. When one firm purchases another; for practical purposes, often combined with mergers.
• Adaptive expectations. The theory that people look at past experience and gradually adapt their beliefs and behavior as circumstances change.
• Adjustable rate mortgage (ARM): A loan used to purchase a home in which the interest rate varies with the rate of inflation.
• Adverse selection. The problem that arises when one party knows more about the quality of the good than the other, and as a result, the party with less knowledge must worry about ending up at a disadvantage.
• Affirmative action. Active efforts to improve the job opportunities or outcomes of minority groups or women.
• Aggregate demand (AD). The relationship between the total quantity of goods and services demanded and the price level for output.
• Aggregate production function. The process of an economy as a whole turning economic input like labor, machinery, and raw material into output like goods and services used by consumer.
• Aggregate supply (AS). The relationship between the total quantity that firm choose to produce and sell and the price level for output, holding the price of input fixed.
• Allocative efficiency. When the mix of goods being produced represents the allocation that society most desires.
• Anti-dumping laws. Laws that block imports sold below the cost of production and impose tariffs that would increase the price of these imports to reflect their cost of production.
• Antitrust laws. Laws that give government the power to block certain mergers, and even in some cases, to break up large firms into smaller ones.
• Applied research. Research focused on a particular product that promises an economic payoff in the short or medium term.
• Appreciating. When a currency is worth more in terms of other currencies; also called “strengthening.”
• Asset-liability time mismatch. A bank’s liabilities can be withdrawn in the short term while its assets are repaid in the long term.
• Assets. Items of value owned by a firm or an individual.
• Automatic stabilizer. Tax and spending rule that have the effect of increasing aggregate demand when the economy slows down and restraining aggregate demand when the economy speeds up, without any additional change in legislation.

B

• Backward-bending supply curve for labor. The situation when high-wage people can earn so much that they respond to a still-higher wage by working fewer hours.
• Balance of trade. The gap, if any, between a nation’s exports and imports.
• Balance sheet. An accounting tool that lists assets and liabilities.
• Balanced budget. When government spending and taxes are equal.
• Bank run. When depositors race to the bank to withdraw their deposits for fear that otherwise they would be lost.
• Barrier to entry. The legal, technological, or market force that may discourage or prevent potential competitor from entering a market.
• Barter. Trading one good or service for another directly, without using money.
• Basic quantity equation of money. Money supply × Velocity = Nominal GDP.
• Basic research. Research on fundamental scientific breakthrough that may offer commercial applications only in the distant future.
• Basket of goods and services. A hypothetical group of different items, with specified quantities of each one, used as a basis for calculating how the price level changes over time.
• Biodiversity. The full spectrum of animal and plant genetic material.
• Black markets. An illegal market that breaks government rules on prices or sales.
• Bond. A financial contract through which a borrower like a corporation, a city or state, or the federal government agrees to repay the amount that was borrowed and also a rate of interest over a period of time in the future.
• Bond yield. The rate of return that a bond is expected to pay at the time of purchase.
• Bondholders. Those who own bond and receive the interest payment.
• Budget constraint. A diagram that shows the possible choices.
• Budget deficit. When the federal government spends more than it collects in taxes in a given year.
• Budget surplus. When the government receives more in taxes than it spends in a year.
• Bundling. A situation where a customer is allowed to buy one product only if the customer also buys another product; also called “tie-in sales.”

• Economy. The social arrangements that determine what is produced, how it is produced, and for whom it is produced.
• Economics. The study of the production, distribution, and consumption of goods and services.
• Market. An institution that brings together buyers and sellers of goods or services.
• Market oriented economy. An economy in which most economic decisions are made by buyers and sellers, who may be individuals or firms.
• Command economy. An economy in which the government either makes or strongly influences most economic decisions.

• Division of labor. Dividing the work required to produce a good or service into tasks performed by different workers.
• Specialization. When a worker or a firm focus on particular tasks in the overall production process for which they are well-suited.
• Economies of scale. When the average cost of producing each individual unit declines as total output increases.
• Globalization. The trend in which buying and selling in markets have increasingly crossed national borders.
• Exports. Goods and services that are produced domestically and sold in another country.
• Imports. Goods and services produced abroad and sold domestically.
• Microeconomics. The branch of economics that focuses on actions of particular actors within the economy, like households, workers, and business firms.
• Macroeconomics. The branch of economics that focuses on the economy as a whole, including issues like growth, unemployment, inflation, and the balance of trade.
• Circular flow diagram. A diagram that illustrates the economy as consisting of households and firms interacting in a goods and services market, a labor market, and a financial capital market.
• Goods and services market. A market in which firms are sellers of what they produce and households are buyers.
• Labor Market. The market in which households sell their labor as workers to businesses or other employers.
• Financial Capital Market. The market in which those who save money provide financial capital and receive a rate of return from those who wish to raise money and pay a rate of return.