The deficit not counting interest on the debt.
Glossary
Key terms in plain words
444 terms from across the collection, each linked to the readings that use it.
A
- Absolute advantage
Being able to produce more of a good with the same resources.
In: Why Do We Trade?
- Absolute mobility
Earning more than your parents did, after adjusting for inflation.
- Absolute poverty line
A fixed income standard, adjusted only for inflation.
- Accounting profit
Revenue minus the bills a business actually pays.
- Accreditation
Approval of a college by a recognized reviewer; required for federal aid.
- Aggregate demand (AD)
Total spending on a country’s goods and services by households, businesses, government, and buyers abroad.
- Algorithmic pricing
Software that recommends prices, sometimes from rivals’ data.
- Ample reserves
A level of reserves large enough that small changes in supply don’t move the federal funds rate.
- Annual rate
The pace growth would reach if one quarter’s growth continued for a year.
- Asymmetric information
When one side of a deal knows much more than the other.
- Automatic stabilizer
Spending or taxes that rise or fall with the economy without new laws, such as UI.
- Automatic stabilizers
Taxes and benefits that change on their own as the economy rises and falls, with no new law.
In: Should Government Fight Recessions?, How Does the Government Tax, Spend, and Borrow?
- Automation
Using machines or software to do tasks people used to do.
- Average fixed cost
Fixed cost divided by the quantity of output.
- Average tax rate
Total tax paid divided by total income.
- Average total cost
Total cost divided by the quantity of output; cost per unit.
- Average variable cost
Variable cost divided by the quantity of output.
B
- Balance of payments
The full set of accounts that records all transactions with the rest of the world.
- Balance sheet
A list of what a firm owns (assets) and owes (liabilities), with capital as the difference.
- Balanced budget rule
A law or constitutional provision requiring spending not to exceed revenue.
- Bank capital
The owners’ stake in a bank, which absorbs losses before depositors.
- Bank run
When many depositors withdraw at once because they fear the bank will fail.
- Barrier to entry
Anything that makes it hard for new rivals to enter a market.
- Barter
Trading goods or services directly, without money.
- Base acres
A farm’s historical acres, on which payments are figured, whatever it plants now.
- Baumol’s cost disease
Costs rising in services that are hard to make more productive.
- Behavioral economics
The study of how real people’s choices depart from the standard economic model.
- Bennett hypothesis
The idea that more federal aid lets colleges raise tuition.
- Beveridge curve
The relationship between job openings and unemployment.
- Bilateral deficit
A trade deficit with one particular country.
- Binding
Set below the price the market would reach, so that it changes what happens.
In: Does Rent Control Make Housing Affordable?, Does the Minimum Wage Help Low-Wage Workers?
- Bite
How high a minimum wage is compared with typical local pay, often measured against the median wage.
- Bond
A loan to a firm or government that pays interest on a schedule.
- Bounty
Hamilton’s term for a direct payment to producers, a kind of subsidy.
- Bourgeois Deal
McCloskey’s bargain: let people innovate, don’t resent their rewards, and everyone gets richer.
In: Why Do Profits and Losses Matter?, The Moral Case for Markets, How Did the World Get Rich?
- Breakeven job growth
New jobs needed each month to keep the unemployment rate steady.
In: What Does the Unemployment Rate Tell Us?, What Does Labor Force Participation Tell Us?
- By right
Allowed without a special vote or approval if it meets the rules.
C
- Capabilities
Sen’s term for what people are really free to do and be.
- Capital inflow
Money from abroad invested in U.S. assets.
- Capitalization
When expected future payments get built into today’s price of an asset, such as land.
In: Who Benefits from Farm Price Supports?, Why Is Housing So Expensive?
- Cartel
A group of sellers that coordinates output to raise prices, such as OPEC+.
- Catch-up growth
Fast growth from adopting machines and methods already used elsewhere.
- Central bank
A government bank that issues the currency, holds banks’ reserves, and sets short-term interest rates.
- Central bank independence
Legal protections that let a central bank set policy without direction from elected officials.
- Central planning
A system where the state owns most firms and a central authority decides what to produce.
- Certificate of need
State approval required to open or expand a health facility.
- Change in demand
A shift of the whole demand curve caused by something other than the good’s price.
- Change in quantity demanded
A move along the demand curve caused by the good’s own price.
- China shock
The rapid rise of imports from China in the 1990s and 2000s and its effect on U.S. local job markets.
- Collective bargaining
Negotiation between a union and an employer on behalf of all the workers.
- Command economy
An economy where rulers or planners decide what, how, and for whom.
- Commodity money
Money with value of its own, such as gold or shells.
- Common-pool resource
A shared resource, like a fishery, that is hard to fence off and gets used up.
In: Who Should Decide?, Who Owns It, and Why Does It Matter?
- Comparative advantage
Being able to produce a good at a lower opportunity cost than others.
- Compensating differential
Extra pay that makes up for a job’s danger, discomfort, or bad hours.
- Complement
A technology that makes a worker more productive instead of replacing the worker.
- Complements
Goods used together, such as coffee and sugar.
In: When Does a Higher Price Pay Off?, Where Do Prices Come From?
- Complements in production
Inputs that make each other more productive, such as machines and trained workers.
- Composition effect
A change in an average caused by a change in who is in the group.
- Compound interest
Interest earned on both the original amount and past interest.
- Compounding
Earnings that generate more earnings, so growth builds on itself.
- Concentrated benefits
Gains that go to a small group with strong reasons to lobby.
- Conditional convergence
Catching up with countries that have similar institutions, schooling, and saving.
- Constant returns to scale
Average cost that stays the same as the whole operation grows.
- Consumer Price Index (CPI)
BLS measure of the cost of a fixed basket of consumer purchases.
- Consumer surplus
The gap between the most a buyer would pay and the price the buyer pays.
- Convergence
Poorer countries growing faster than richer ones, closing the gap.
- Core inflation
Inflation excluding food and energy prices.
- Cost-burdened
Spending 30% or more of income on housing.
- Cost-shifting
Moving a cost from one payer, like a state, to another, like students.
- Creative destruction
New products and methods replacing old ones, creating some jobs and ending others.
In: Will Technology Take Our Jobs?, Who Really Runs the Economy?, Why Do Profits and Losses Matter?, How Did the World Get Rich?
- Credit rationing
When lenders turn borrowers away instead of raising the rate.
- Cross-price elasticity
How much demand for one good changes when the price of another changes.
- Crowding out
A fall in private spending or investment caused by government borrowing or spending.
In: How Does the Government Tax, Spend, and Borrow?, Is the National Debt a Problem?
- Current account
Trade in goods and services plus income such as interest and dividends.
- Cyclical unemployment
Unemployment caused by a recession.
D
- Das Adam Smith Problem
The claim that Smith’s two books contradict each other, now widely rejected.
- Dead capital
De Soto’s term for assets that can’t be sold or borrowed against because the law doesn’t record them.
- Deadweight loss
Value lost when trades that would have helped both sides don’t happen.
- Debt held by the public
Total past federal borrowing owed to investors outside the federal government.
In: How Does the Government Tax, Spend, and Borrow?, Is the National Debt a Problem?
- Debt-to-GDP ratio
The debt compared with the size of the economy, as a percent.
- Deficit
The amount by which spending exceeds revenue in one year.
In: How Does the Government Tax, Spend, and Borrow?, Is the National Debt a Problem?
- Deflation
A general fall in prices; a negative inflation rate.
In: What Does the Inflation Rate Tell Us?, Why Are Groceries So Expensive?
- Delegation
When Congress hands part of its power to the President by law, within limits.
- Demand
How much buyers are willing and able to buy at each price.
- Demand shock
An event that shifts AD, moving output and prices in the same direction.
- Democratic equality
Anderson’s view that justice means people relate as equals, free of oppression.
- Depletion
When a trust fund runs out, so the program can pay only what comes in.
- Deposit insurance
A guarantee that depositors will be repaid up to a limit if a bank fails.
- Derived demand
Demand for workers that comes from demand for what they produce.
- Difference principle
Rawls’s rule that inequalities are just only if they most benefit the least advantaged.
- Diminishing marginal utility
Each additional unit of something adds less satisfaction than the one before.
- Diminishing returns
Each added unit of an input adds less output than the one before, when other inputs are fixed.
In: What Does It Really Cost to Make Something?, What Makes Economies Grow?
- Discouraged worker
Wants a job but stopped looking because they believe none is available.
In: What Does the Unemployment Rate Tell Us?, What Does Labor Force Participation Tell Us?
- Discovery procedure
Hayek’s description of competition as a way to find out facts no one knew.
- Discretionary fiscal policy
Changes in taxes or spending that require new decisions by Congress.
- Discretionary spending
Spending Congress sets each year in appropriations bills.
- Diseconomies of scale
Rising average cost as the whole operation grows, often because large organizations are harder to manage.
- Disinflation
A fall in the inflation rate while prices keep rising.
In: What Does the Inflation Rate Tell Us?, Why Are Groceries So Expensive?
- Dispersed knowledge
Hayek’s point that the facts needed to plan an economy are spread among millions of people.
In: Why Do We Trade?
- Displacement effect
Machines taking over tasks, which lowers the demand for labor in those tasks.
- Distributive justice
Fairness of the outcome: who ends up with what.
- Diversification
Spreading money across many investments to lower risk.
- Division of labor
Splitting the making of a good into separate tasks done by different workers.
In: Why Do We Trade?
- Double coincidence of wants
When each trader has what the other wants, which barter requires.
- Dual mandate
The goals Congress gave the Fed: maximum employment and stable prices.
E
- Earned Income Tax Credit
A tax credit that adds to the earnings of low-income working families.
- Easterlin paradox
The finding that average happiness may not rise over time as countries grow richer.
- Economic calculation
Comparing the costs and benefits of different uses of resources, which requires prices.
- Economic freedom index
A score of how much an economy relies on markets, property rights, and open trade.
- Economic growth
A lasting rise in real output per person.
- Economic loss
Revenue that falls short of all costs, a sign resources would do more elsewhere.
- Economic profit
Revenue minus all costs, including the owner’s opportunity cost.
- Economies of scale
Falling average cost as the whole operation grows.
- Effective marginal tax rate
The share of an extra dollar earned lost to taxes and reduced benefits.
- Effective tariff rate
Total tariffs collected as a share of the value of imports.
- Efficiency
Making every trade that creates more value than it costs, and no trade that costs more than it is worth.
- Elastic
Quantity changes by a larger percentage than price.
- Eminent domain
Government’s power to take private property for public use, with just compensation.
- Employment-population ratio
The share of the population 16 and older that is working.
- Entitlement theory
Nozick’s view that holdings are just if fairly acquired, voluntarily transferred, or corrected.
- Entrepreneur
Someone who makes judgment calls about what to produce and how, and bears the result.
- Entrepreneurial alertness
Kirzner’s term for noticing opportunities others have missed.
- Entry and exit
Firms moving into profitable industries and out of losing ones.
- Equilibrium
The point where AD and SRAS cross, which sets real GDP and the price level.
In: What Causes Booms and Busts?, Where Do Prices Come From?
- Excess burden
Another name for the deadweight loss of a tax: the cost beyond the revenue collected.
- Exchange rate
The price of one currency in terms of another.
- Expenditure multiplier
The idea that a change in spending changes GDP by more than the original amount, because one person’s spending is another’s income.
- Exposure
How many of a job’s tasks a technology could do or speed up. It is not a forecast of job loss.
- Extent of the market
How many buyers a producer can reach; it limits how far specialization can go.
In: Why Do We Trade?
- Externality
A cost or benefit that falls on people outside a deal.
In: Who Should Decide?, Who Owns It, and Why Does It Matter?
- Extractive institutions
Rules that let a small elite take wealth from everyone else.
F
- Federal funds rate
The interest rate banks charge one another for overnight loans of reserves.
- Federal Open Market Committee (FOMC)
The 12-member Fed committee that sets interest rates.
- Fiat money
Money with no backing, accepted because the government declares it legal tender and people trust it.
- Filtering
Older homes becoming cheaper as newer ones are built.
- Final good
A good or service sold to its last user, not used to make something else.
- Financial account
Purchases of assets, such as stocks, bonds, and factories, across borders.
- Financial intermediary
A firm, such as a bank, that moves funds from savers to borrowers.
- Financial market
A market where savers supply money and borrowers demand it.
- Finders-keepers
Kirzner’s rule that what someone discovers and claims first is justly theirs.
- Fiscal policy
The government’s decisions about taxes, spending, and borrowing.
- Fiscal rule
A law that limits deficits, debt, or spending, such as a cap or pay-as-you-go rule.
- Fixed cost
A cost that doesn’t change with output in the short run.
- Fixed input
An input that can’t be changed in the short run, such as a building or an oven.
- Forward guidance
Fed statements about the likely future path of interest rates.
- Free rider
Someone who enjoys a good without helping pay for it.
- Frictional unemployment
Time spent between jobs or searching for a first job.
- Friend-shoring
Shifting supply to allied or friendly countries.
- Full price
Everything you give up to get something: money, time, and risk.
- Fungible
Interchangeable. A barrel of oil is worth the same wherever it was pumped.
G
- Gains from trade
The value a trade creates for both sides together.
- GDP per person
GDP divided by population. Also called GDP per capita.
- Generic drug
A copy of a brand-name drug sold after its patent ends.
- Gini index
A 0-to-1 summary of inequality. 0 means equal incomes; 1 means one household has it all.
- Good Is Good Enough fallacy
Otteson’s name for doing something because it does good, without asking what else could do more.
- Government-granted monopoly
A monopoly created by a patent, copyright, or license.
- Great Enrichment
McCloskey’s name for the sustained rise in living standards since about 1800.
- Gross debt
Debt held by the public plus what the government owes its own trust funds.
- Gross domestic product (GDP)
The market value of all final goods and services produced in a country in a period.
H
- Household production
Unpaid work at home, such as cooking and child care, that GDP leaves out.
- Housing shortage
Fewer homes than the number of households who want them.
- Human capital
The skills, knowledge, and health that make a worker productive.
In: Why Do Some Jobs Pay More Than Others?, What Makes Economies Grow?
- Hyperinflation
Extremely rapid inflation, often 50 percent or more a month.
I
- Impartial spectator
An imagined fair, well-informed observer we use to judge our own conduct; “the man within.”
- Implicit cost
The value of what an owner gives up without paying a bill, such as her own time or the return her savings could earn elsewhere.
- Import quota
A limit on how much of a good may come into the country.
- Imputation
Filling in a missing price with an estimate from similar items.
- Incidence
Who actually bears the cost of a policy, whoever is required to pay.
In: Does Rent Control Make Housing Affordable?, Who Benefits from Farm Price Supports?
- Inclusive institutions
Rules that let most people take part and share in the gains.
- Income elasticity
How much demand changes when buyers’ income changes.
- Income mobility
Movement up or down the income ladder over a lifetime or across generations.
- Index fund
A fund that owns a slice of the whole market instead of picking stocks.
- Indexing
Raising a minimum wage automatically each year with inflation.
- Industrial policy
Government support aimed at growing particular industries.
- Inelastic
Quantity changes by a smaller percentage than price.
- Inelastic demand
When quantity bought changes little as price changes, as with gasoline in the short run.
In: Why Are Gas Prices So High?, Why Are Groceries So Expensive?
- Infant industry
A young industry that some argue needs protection until it can compete.
- Infant industry argument
The case for temporary protection while a new domestic industry grows.
In: Why Do We Trade?
- Inflation expectations
What households and businesses expect inflation to be.
- Inflation rate
How fast the price level is rising, usually over 12 months.
- Inflationary gap
When real GDP is above potential, putting upward pressure on wages and prices.
- Institutions
The rules, formal and informal, that shape what people can do and keep.
- Interest on reserve balances (IORB)
The rate the Fed pays banks on their reserves; its main tool for setting rates.
- Interest rate
The price of borrowing money, as a percent of the amount borrowed per year.
- Intermediate good
A good used up in making another good, such as steel in a car.
- Intermediate inputs
Parts and materials used to make other goods.
- Inventories
Goods produced but not yet sold. Adding to them counts as investment.
- Invisible hand
Smith’s phrase for good outcomes no one intended; see The Moral Case for Markets.
In: Beyond the Invisible Hand: Who Was Adam Smith?, The Moral Case for Markets
J
- Justice and beneficence
Not harming others, which can be enforced, and doing good for them, which can’t.
K
- Keynesian economics
The view that spending drives short-run swings and that sticky wages and prices can keep the economy below potential for years.
- Knowledge problem
Hayek’s point that the knowledge an economy needs is scattered across millions of people.
L
- Labor demand
How many workers employers want to hire at a given wage.
- Labor force
Everyone 16 and older who is employed or unemployed.
In: What Does the Unemployment Rate Tell Us?, What Does Labor Force Participation Tell Us?
- Labor productivity
Output per hour of work.
- Labor supply
How many people want to work at a given wage.
- Labor union
An organization of workers that bargains with employers over pay and conditions.
- Labor-market discrimination
Paying or hiring workers differently for reasons unrelated to their work.
- Law of demand
When a good’s price rises, people buy less of it, other things equal.
- Leaky bucket
Okun’s image for the output lost when income is moved from rich to poor.
- Learning curve (Wright’s law)
The pattern in which cost per unit falls by a steady share each time total output ever produced doubles.
- Lender of last resort
A central bank’s role of lending to sound banks short of cash in a panic.
- Liquidity
How easily an asset can be turned into cash to spend.
In: What Sets the Price of Borrowing?, Where Does Money Come From?
- Lobbying
Spending to influence what lawmakers and regulators decide.
- Lock-in
When a benefit that lasts only while you stay makes moving costly.
- Lock-in effect
Owners staying put to keep a low mortgage rate.
- Lockean proviso
Locke’s condition that taking from nature is fair if “enough, and as good” is left for others.
- Long run
The period after people have had time to change cars, homes, jobs, or suppliers.
In: How Do People Respond to Prices?, What Does It Really Cost to Make Something?
- Long-run aggregate supply (LRAS)
A vertical line at potential GDP, showing output once wages and prices have fully adjusted.
- Long-run average cost curve
The lowest cost per unit for each quantity when every input, including the size of the operation, can change.
M
- M1 and M2
Measures of money: M1 is currency, checking, and savings deposits; M2 adds small CDs and retail money funds.
- Malinvestment
In the Austrian view, investment in projects that look profitable only because interest rates sent a false signal.
- Malthusian trap
A pattern in which gains in output are absorbed by population growth, keeping incomes near subsistence.
- Man of system
Smith’s term for a planner who thinks he can arrange society like pieces on a chessboard.
- Mandatory spending
Spending set by existing law that flows automatically to those who qualify.
- Margin
Any part of a deal that can be adjusted, such as upkeep, quality, or who gets the apartment.
In: Does Rent Control Make Housing Affordable?, Who Benefits from Farm Price Supports?
- Marginal analysis
Weighing the extra benefit against the extra cost of a little more or a little less.
- Marginal cost
The extra cost of producing one more unit.
- Marginal product
The extra output from adding one more worker.
In: Why Do Some Jobs Pay More Than Others?, What Does It Really Cost to Make Something?
- Marginal tax rate
The tax on the next dollar of income.
- Market concentration
How much of a market’s sales go to its largest few firms.
- Market design
Building the rules of an exchange, such as Roth’s kidney swaps, to work well.
- Market economy
An economy where most firms are private and market prices guide production.
In: Markets, Planning, or Something in Between?, Who Should Decide?
- Market for ideas
Competition among thinkers that tests ideas and spreads the best ones.
- Market income
Income earned in the market: wages, business income, interest, dividends, and capital gains.
- Market power
The ability to raise prices (or hold down wages) without losing customers (or workers).
In: Who Really Runs the Economy?, Why Are Gas Prices So High?, Why Are Groceries So Expensive?
- Market socialism
Worker or public ownership of firms that buy and sell in markets.
- Marketing order
A federal rule, approved by growers, that sets quality standards and sometimes limits how much of a crop can be sold.
- Markup
How far a price sits above the cost of producing one more unit.
- Medium of exchange
Something widely accepted as payment.
- Mercantilism
The old idea that a nation grows rich by selling more than it buys.
- Minimum efficient scale
The smallest output at which long-run average cost reaches its lowest level.
- Minimum lot size
The smallest piece of land a home may sit on.
- Minimum wage
The lowest hourly pay an employer may legally offer.
- Misallocation
Goods ending up with people who value them less than others who can’t get them.
- Mobility
How easily people move to a new home or a new job.
- Monetary base
Currency plus the reserves banks hold at the Federal Reserve.
- Monetary policy
Actions by a central bank to influence interest rates, inflation, and employment.
- Money income
The Census Bureau’s main measure: pre-tax cash income, before most government benefits.
- Monopsony
A market with one main employer, which can hold wages below what workers add.
In: Why Do Some Jobs Pay More Than Others?, Does the Minimum Wage Help Low-Wage Workers?
- Moral hazard
Taking more risk because someone else will bear part of the loss.
In: Where Does Money Come From?, What Does the Fed Do?, Why Is Health Care So Expensive?
- Mortgage interest deduction
A tax break for interest paid on a home loan.
N
- National saving
Saving by households and businesses plus government saving.
- Natural experiment
A real-world event that splits people into groups almost as if at random, letting researchers compare them.
In: How Do People Respond to Prices?, Markets, Planning, or Something in Between?
- Natural rate of unemployment
The rate when the economy is neither booming nor in recession.
- Neoclassical economics
The view that wages and prices adjust over time, returning the economy to potential GDP.
- Net interest
What the government pays in interest, minus the interest it earns.
- Net interest margin
What a bank earns on loans and securities minus what it pays on deposits, as a share of its assets.
- Net international investment position
What Americans own abroad minus what foreigners own here.
- Net price
What a student actually pays after grants and scholarships.
- Net worth
What a household owns minus what it owes.
- Neutral rate
The real interest rate that would neither speed up nor slow down the economy; it must be estimated.
- New entrant
A worker taking a first job, or returning after years away.
- Nominal GDP
GDP at current prices. BEA calls it current-dollar GDP.
- Nominal value
A value measured in dollars of the day.
- Non-price rationing
Deciding who gets a scarce good by waiting, rules, quality, or connections instead of price.
- Normal profit
Zero economic profit: owners earn just enough to stay in business.
- Normative claim
A statement about what should be. Moral arguments about markets are normative.
- Not in the labor force
Neither working nor looking: students, retirees, caregivers, and others.
In: What Does the Unemployment Rate Tell Us?, What Does Labor Force Participation Tell Us?
- Nudge
A change in how choices are presented that steers people without removing options.
O
- Occupational license
Government permission required to work in a job.
- Offsetting behavior
Taking more risk when something makes you feel safer.
- Oligopoly
A market dominated by a few large sellers.
- Open access
A resource anyone can use and no one controls, such as fish in the open ocean.
- Open market operations
Fed purchases and sales of government bonds, which add or drain reserves.
- Opportunity cost
The value of the next best alternative you give up when you choose.
- Out-of-pocket cost
What a patient pays directly for care.
- Output gap
The difference between real GDP and potential GDP, as a percent of potential.
P
- Paradox of thrift
If everyone tries to save more at once, spending and incomes fall, and total saving may not rise.
- Parity
The 1930s goal of restoring the buying power farm products had in 1909 to 1914.
- Part time for economic reasons
Working part time but wants and is available for full-time work.
- Participation rate
The labor force as a share of the population 16 and older.
- Pass-through
How much of a tariff shows up in the prices buyers pay.
In: Who Pays for Tariffs?, Does the Minimum Wage Help Low-Wage Workers?
- Patent
A time-limited exclusive right to make and sell an invention.
In: Who Owns It, and Why Does It Matter?, Why Is Health Care So Expensive?
- Payment limit
A cap on how much one person or business can collect from a program in a year.
- Payroll tax
A tax on wages that pays for Social Security and Medicare.
- PCE price index
BEA measure covering all consumer spending; the Fed’s target gauge.
- Pell Grant
Federal aid for low-income students that doesn’t have to be repaid.
- Per-gallon tax
A fixed tax per unit, such as the 18.4-cent federal gas tax. It does not rise when prices rise.
- Pharmacy benefit manager
A middleman that manages drug benefits for insurers.
- Phillips curve
The short-run tendency of inflation to rise as unemployment falls.
- Physical capital
Machines, tools, buildings, and software used to produce.
- Pigovian tax
A tax that makes a producer pay for the harm it does to others.
- Polanyi’s paradox
“We know more than we can tell”: skills we can’t explain are hard to program.
- Policy lags
The delay between a problem appearing and a policy taking effect.
- Political power
The ability to shape the rules that everyone else must follow.
- Polycentric
Ostrom’s term for a system with many centers of decision-making.
- Population controls
Yearly updates that match survey totals to new Census population estimates.
- Positional good
Something whose value depends on having more than others, like a home in a top school district.
- Positive vs. normative
Questions about what is, which evidence can test, versus what ought to be.
- Positive-sum
An exchange or activity in which all sides can gain together.
- Potential GDP
The real GDP an economy can sustain when it fully uses its workers, capital, and technology.
- Preemption
A state law that stops local governments from making their own rules on a topic.
In: Does Rent Control Make Housing Affordable?, Does the Minimum Wage Help Low-Wage Workers?
- Preston curve
The link between national income and life expectancy, which has shifted up over time.
- Price ceiling
A legal maximum price, such as rent control or a cap on gas prices.
In: How Do People Respond to Prices?, Does Rent Control Make Housing Affordable?, Why Are Gas Prices So High?, Why Are Groceries So Expensive?
- Price discrimination
Charging different buyers different prices for the same good.
In: When Does a Higher Price Pay Off?, Why Are Gas Prices So High?, Why Are Groceries So Expensive?, Why Does College Cost So Much?, Why Is Health Care So Expensive?
- Price elasticity of demand
How much buyers change what they buy when the price changes.
In: How Do People Respond to Prices?, When Does a Higher Price Pay Off?
- Price elasticity of supply
How much the quantity sellers offer changes when the price changes.
In: When Does a Higher Price Pay Off?, Why Is Housing So Expensive?
- Price floor
A legal minimum price.
In: Who Benefits from Farm Price Supports?, Does the Minimum Wage Help Low-Wage Workers?, Why Are Groceries So Expensive?
- Price level
An average of the prices of all goods and services. Inflation is the rate at which it rises.
In: What Causes Booms and Busts?, What Does the Inflation Rate Tell Us?
- Price signal
A price change that tells people to use less or supply more of something.
In: Why Do We Trade?
- Price signals
Prices that carry information about scarcity and wants, coordinating millions of decisions.
- Price support
A government program that keeps a farm price or income from falling below a set level.
- Primary deficit
- Prime age
Ages 25 to 54, after most people finish school and before most retire.
- Private property
A resource controlled by a person or firm that bears the costs and reaps the rewards.
- Procedural justice
Fairness of the rules and process, such as no force, fraud, or rigged rules.
- Producer surplus
The gap between the price a seller receives and the least the seller would accept.
- Production function
The relationship between the inputs a business uses and the output it gets.
- Productivity
How much a worker produces in an hour.
- Productivity effect
Lower costs and prices that raise demand for goods, and for workers elsewhere.
- Profits and losses
The market’s reward for creating value for customers and its penalty for wasting scarce resources.
In: Why Are Gas Prices So High?, Why Are Groceries So Expensive?
- Progressive tax
A tax that takes a larger share of income as income rises.
In: How Does the Government Tax, Spend, and Borrow?, How Unequal Is America?
- Property right
The authority to decide how a resource is used, to keep what it earns, and to sell it.
- Property rights
Secure, enforceable claims to own, use, and trade what you have.
- Protectionism
Policies that shield domestic producers from foreign competition.
- Prudence
The virtue of taking sensible care of your own health, money, and reputation.
- Public choice
The study of politics using the same tools economists use to study markets.
- Public good
A good no one can be kept from using, and one person’s use doesn’t reduce another’s.
- Purchasing power parity (PPP)
A way to compare countries by valuing output at what money actually buys in each.
Q
- Quantitative easing (QE) and tightening (QT)
Large Fed bond purchases to lower long-term rates, and the reverse.
- Quantity theory of money
The idea that, over time, prices rise with money relative to output.
- Quintile
One-fifth of households, ranked by income.
R
- r versus g
Whether the interest rate on the debt is below or above the economy’s growth rate.
- Rate of return
What an investment pays, as a percent of what was put in.
- Rational expectations
The idea that people use all available information, including expected policy, to forecast the future.
- Rationing
Any method of deciding who gets a scarce good: price, line, lottery, or rule.
- Real GDP
GDP with price changes taken out, so it tracks actual output.
- Real interest rate
An interest rate minus expected inflation.
- Real value
A value adjusted for inflation, measuring buying power.
- Recessionary gap
When real GDP is below potential and unemployment is above normal.
- Reference price
The target price below which Price Loss Coverage pays farmers the difference.
- Refining margin
The gap between the price of crude and the wholesale price of gasoline, also called the crack spread.
- Regressive tax
A tax that takes a smaller share of income as income rises.
- Regulatory capture
When regulation ends up serving the industry it is supposed to oversee.
- Reinstatement
New tasks created by technology that give people new work to do.
- Relative mobility
Moving up or down the income ranks compared with others your age.
- Relative poverty line
A line set as a share of typical income, so it rises as incomes rise.
- Relative price
The price of one good compared with others.
- Relative price change
One good becoming more expensive compared with others.
In: Why Are Gas Prices So High?, Why Are Groceries So Expensive?
- Rent control
A legal limit on the level of rent or how fast it can rise.
In: Does Rent Control Make Housing Affordable?, Why Is Housing So Expensive?
- Rent seeking
Spending resources to win favors from government instead of serving customers.
- Rent stabilization
A limit on yearly rent increases, often set by a board.
- Rent-seeking
Spending resources to win a prize created by a rule, rather than by creating value.
- Repugnant transaction
A trade both sides want that others think should not be allowed.
- Reserves
Money banks keep in their accounts at the Fed and use to pay one another.
- Reshoring
Bringing production back to the home country.
- Residency slot
A paid training position new doctors need before they practice.
- Retaliation
Tariffs other countries impose in response, often on U.S. exports.
In: Who Pays for Tariffs?, Should We Bring Manufacturing Home?
- Risk
How uncertain the return on an investment is.
In: What Sets the Price of Borrowing?, Why Do Profits and Losses Matter?
- Rule of 70
Divide 70 by a growth rate to estimate how many years it takes to double.
- Rule of law
Rules that apply equally to everyone, including property rights and enforceable contracts. Markets depend on it.
- Résumé experiment
A study that sends employers identical résumés that differ only in a name or other trait.
S
- Salience
How visible a price or tax is when people decide.
- Saving glut
Bernanke’s term for the rise in saving abroad that flowed to the United States.
- Saving–investment gap
When a country invests more than it saves, which matches its trade deficit.
In: Is the Trade Deficit a Problem?, Should We Bring Manufacturing Home?
- Scarcity
Having fewer resources, including time, than it would take to meet all our wants.
- Scope of practice
Rules on what each type of provider may legally do.
- Secondary earner
In a two-earner household, the person who earns less, often taxed at the household’s rate.
- Sectoral training
Job training built around specific jobs that local employers need to fill.
- Seen and unseen
Bastiat’s idea: look past a policy’s visible effects to its hidden ones.
- Self-interest
Caring about your own goals, family, and future. Not the same as greed, which ignores others.
- Services surplus
Selling more services abroad, such as software or travel, than we buy.
- Short run
The period before people have had time to fully adjust to a price change.
In: How Do People Respond to Prices?, What Does It Really Cost to Make Something?
- Short-run aggregate supply (SRAS)
The total output firms will produce at each price level while wages and other input costs are fixed.
- Shortage
More is wanted than offered at the current price, so buyers bid the price up.
In: Where Do Prices Come From?, Does Rent Control Make Housing Affordable?
- Signaling
Using a degree or other credential to show employers ability they can’t see directly.
- Soft budget constraint
Kornai’s term for firms that expect to be rescued when they lose money.
In: Markets, Planning, or Something in Between?, Why Do Profits and Losses Matter?
- Specialization
Dividing work so each person or firm focuses on a narrow set of tasks.
In: What Makes Economies Grow?, Why Do We Trade?, Should We Bring Manufacturing Home?
- Spillover
An effect of a policy on people outside it, such as owners of nearby homes.
In: Does Rent Control Make Housing Affordable?, Does the Minimum Wage Help Low-Wage Workers?
- Stablecoin
A digital token designed to keep a steady value, such as one dollar, backed by reserve assets.
- Stagflation
Rising unemployment and rising inflation at the same time, usually after a supply shock.
- Standard-of-living debate
Historians’ long argument over whether early industry made ordinary workers better off.
- Startup rate
The share of employer firms in a given year that are brand new.
- State capitalism
The state as a major owner and investor inside a market economy, pursuing political goals.
- State-owned enterprise
A firm owned and controlled by the government.
- Statutory incidence
Who the law says must pay a tax to the government.
- Sticker price
The published tuition before any aid or discounts.
- Sticky prices
Prices that change slowly even when supply or demand shifts.
- Sticky prices and wages
Prices and wages that adjust slowly because of contracts, menus, and habits.
- Sticky wages and prices
Wages and prices that adjust slowly because of contracts, menu costs, and habits.
- Stock
A share of ownership in a company.
- Store of value
Something that can be held and spent later without losing much value.
- Strategic Petroleum Reserve
The federal government’s emergency stockpile of crude oil.
- Structural unemployment
A mismatch between workers’ skills or locations and available jobs.
- Substitutes
Goods that can replace each other, such as coffee and tea.
In: When Does a Higher Price Pay Off?, Where Do Prices Come From?, Why Are Groceries So Expensive?
- Sunk cost
Money, time, or effort already spent that can’t be recovered.
In: What Does It Really Cost to Make Something?, Why Isn’t Good Good Enough?
- Supply
How much sellers are willing and able to offer at each price.
- Supply shock
An event that shifts SRAS, moving output and prices in opposite directions.
In: What Causes Booms and Busts?, What Does the Inflation Rate Tell Us?, Why Are Gas Prices So High?, Why Are Groceries So Expensive?
- Surplus (excess supply)
More is offered than wanted at the current price, so sellers cut the price.
In: Where Do Prices Come From?, Who Benefits from Farm Price Supports?
- Sympathy (Smith’s sense)
Fellow-feeling: imagining yourself in another person’s place and sharing how they feel.
- System of natural liberty
Smith’s name for an economy where people may pursue their own interests as long as they obey the laws of justice.
T
- Tariff
A tax on imported goods, paid by the importer at the border.
In: Who Pays for Tariffs?, Should We Bring Manufacturing Home?
- Tariff-rate quota
A set amount of imports enters at a low tariff; anything above it pays a higher one.
- Task
One piece of a job; most jobs are bundles of many tasks.
- Tax exclusion
Income that isn’t taxed, like job-based insurance.
- Tax incidence
Who really bears the cost of a tax, buyers or sellers, and in what shares.
In: How Do People Respond to Prices?, When Does a Higher Price Pay Off?, How Does the Government Tax, Spend, and Borrow?, Who Pays for Tariffs?
- Technological unemployment
Keynes’s term for job losses that come faster than new uses for labor appear.
- Third-party payment
When someone other than the buyer pays part of the bill.
In: Why Does College Cost So Much?, Why Is Health Care So Expensive?
- Title
A legal record showing who owns an asset, which lets it be sold or borrowed against.
- Total cost
Fixed cost plus variable cost.
- Total factor productivity
Growth left over after counting more capital and skill: better ideas and better use of resources.
- Total revenue
The price times the quantity sold; the money coming in.
- Total surplus
Consumer surplus plus producer surplus; the total gain from trade in a market. Also called social surplus.
- Trade deficit
Buying more goods and services from other countries than we sell to them.
In: Is the Trade Deficit a Problem?, Should We Bring Manufacturing Home?
- Trade-off
Getting more of one thing by accepting less of another.
- Tragedy of the commons
Overuse of an open-access resource because each user bears only part of the cost.
- Transaction costs
The costs of finding, bargaining with, and enforcing deals with others.
- Transfer
Money that moves from one person or group to another, such as tax revenue, without being lost.
- Transfer payment
Money paid to people with no good or service received in return, such as Social Security.
- Transfer payments
Government payments to households, in cash (Social Security) or in kind (Medicaid, food aid).
- Treasury securities
Bills, notes, and bonds the federal government sells to borrow.
- Trust fund
An account that holds a program’s past surpluses, such as Social Security’s.
- Tuition discount
Aid a college gives from its own funds, cutting its price.
- Turnover
How often workers leave jobs and must be replaced.
U
- U-6
The broadest BLS measure: unemployed, marginally attached, and involuntary part-timers.
- Uncertainty
Knight’s term for what can’t be measured or insured, and the source of profit.
- Underemployment
Working in a job that doesn’t require your degree.
- Unemployed
Without a job, available to work, and actively looked in the past four weeks.
- Unemployment rate
The unemployed as a share of the labor force.
- Unintended consequence
A result a policy’s authors did not aim for, often working against its goal.
In: Does Rent Control Make Housing Affordable?, Who Benefits from Farm Price Supports?
- Unit elastic
Quantity changes by the same percentage as price.
- Unit of account
The measure in which prices and debts are stated.
- Useful knowledge
Mokyr’s term for knowing both how things work and how to make them.
- Usury law
A law that limits the interest rate lenders may charge.
V
- Vacancy decontrol
A rule that lets the rent reset to the market when a tenant moves out.
- Value added
What a business adds to the materials it buys.
- Value of a statistical life
What people together will pay for small risk reductions that, on average, prevent one death.
- Value of the marginal product
The extra output from one more worker times its price.
- Variable cost
A cost that rises and falls with output.
- Variable input
An input that can be changed in the short run, such as hours of work.
- Veil of ignorance
Rawls’s test: choose rules without knowing who you will be in society.
- Voluntary exchange
A trade both sides freely agree to because each expects to gain.
W
- Wage insurance
Payments that make up part of the pay cut when a laid-off worker takes a lower-paying job.
- Wealth (net worth)
What a household owns, such as homes, savings, and stocks, minus what it owes.
- Wealth Is Zero-Sum fallacy
Otteson’s name for the belief that one person’s gain must be another’s loss.
In: Why Do We Trade?
- Willingness to accept
The least a person would take to give up a good or sell it.
- Willingness to pay
The most a buyer would pay for a good.
- Winner-take-all market
A market where small differences in skill bring very large differences in pay.
Z
- Zoning
Local rules on what can be built and where.
No terms match.
A market economy with high taxes and a large welfare state.
In: Markets, Planning, or Something in Between?