Economics

Inferior Good
An inferior good is a type of product for which demand decreases as the income of the consumers rises, leading to a greater consumption of more expensive alternatives.
Inflation
A general increase in prices in an economy, leading to a consequent fall in the purchasing value of money.
Inflation Rate
The inflation rate represents the rate of change in prices over a given period. Two primary U.S. indicators of the inflation rate are the Consumer Price Index (CPI) and the Producer Price Index (PPI), which track changes in prices paid by consumers and producers, respectively.
Inflationary Spiral
An inflationary spiral is an episode of inflation in which price increases occur at an increasing rate, and currency rapidly loses value.
Interest
Interest is the charge applied for borrowing a sum of money, typically expressed as a percentage of the principal loan amount. Interest calculations can vary based on whether simple or compound interest is used, influencing financial decisions significantly.
Intermediate Goods
Intermediate goods are materials or components that are transformed by production processes into another form, often used to create final goods. For example, steel is an intermediate good that can be transformed into automobiles or ships.
Invention
In economics, invention refers to the development of entirely new technologies or methods of production, distinguishing it from innovation which focuses on improving existing technologies and methods.
Invest
To allocate capital to an enterprise with the objective of securing income or profit for the investor.
Investment Demand
Investment demand refers to the desire and willingness of firms and individuals to invest in various projects and financial assets under given economic conditions.
Iron Law of Wages
The Iron Law of Wages is an economic theory proposed by English economist David Ricardo, which suggests that real wages tend to gravitate towards the minimum wages necessary for the subsistence of workers.
J-Curve
In economics, the J-Curve illustrates the expected turnaround in an activity, such as foreign trade, where the initial deterioration is followed by a significant improvement.
Justified Price
Justified price refers to the fair market price that an informed buyer is willing to pay for an asset, whether it be in the form of stocks, bonds, commodities, or real estate.
Lagging Indicators
Lagging Indicators are economic metrics that change after the overall economy has experienced a change. These indicators are observed to confirm trends in economic activity.
Law of Diminishing Returns
The Law of Diminishing Returns, also known as the principle of diminishing marginal productivity, is an economic rule stating that if one factor of production is increased while other factors are fixed, a point will be reached at which additions of the factor will yield progressively smaller increases in output.
Law of Increasing Costs
The Law of Increasing Costs states that as the productivity of a factor of production decreases due to increasing production, the cost of successive units produced must increase.
Law of Supply and Demand
An economic principle that states the price of a good is determined by the relationship between its supply and demand in a free market. Adjustments in supply or demand lead to changes in price to reach market equilibrium.
Leader
A 'leader' in various contexts can signify a stock group forefronting market trends or a dominant product in its industry.
Least-Cost Production Rule
In economics, the least-cost production rule states that in order to maximize profit, a firm must ensure that each dollar spent on each unit of input produces at least an equivalent dollar value of output.
Legal Monopoly
A legal monopoly refers to the exclusive right granted to a company to offer a particular service or product within a specific territory. In exchange, the company agrees to have its policies and rates regulated.
Liquidity Trap
A liquidity trap is an economic situation where adding liquidity through increased money supply and lowered interest rates fails to stimulate borrowing, lending, consumption, and investment. It can sometimes be escaped through fiscal policy or distributing money directly to people.
Long Run
A period of time long enough for an industry to make all necessary adjustments to changing economic conditions, to increase or decrease capacity, or for firms to enter or leave the industry.
Lorenz Curve
A graphic depiction of income distribution across the population, indicating the degree of economic inequality.
Macroeconomics
Macroeconomics is the branch of economics that studies an economy as a whole, focusing on large-scale factors such as national productivity and inflation, and how various sectors and factors interrelate to form a broader economic landscape.
Marginal Cost
Marginal cost represents the cost of producing one additional unit of a product. It includes both direct costs and variable overhead costs associated with the production process.
Marginal Product
Marginal Product refers to the additional amount of output that is produced by employing one more unit of a particular input, holding all other inputs constant. It is a measure of production efficiency and is crucial in understanding the behavior of production processes.
Marginal Product Theory of Distribution
The Marginal Product Theory of Distribution explains how income is distributed among the factors of production based on the marginal product of each factor. This theory asserts that each factor, such as labor and capital, is compensated according to its contribution to the market value of the product.
Marginal Propensity to Invest (MPI)
The Marginal Propensity to Invest (MPI) is a measure in economics that defines the proportion of additional national income that will be invested rather than consumed or saved.
Marginal Propensity to Save (MPS)
The Marginal Propensity to Save (MPS) represents the proportion of additional income that is saved rather than consumed by households. It plays a critical role in determining the economy's potential for investment and growth.
Marginal Revenue Product (MRP)
The Marginal Revenue Product (MRP) is an important concept in economics that represents the additional revenue a firm could receive by employing one more unit of input.
Marginal Utility
The additional usefulness or satisfaction a consumer receives from the consumption of one more unit of a good.
Market Demand
Market demand represents the total demand of all consumers in a market. By summing the quantities demanded by each individual consumer at various prices, it determines the overall demand experienced by the entire market.
Market Equilibrium
Market equilibrium is a situation in a market where the prevailing price causes producers to produce exactly the quantity demanded by consumers at that same price. A market in equilibrium will not experience changes in price or quantity produced.
Market Goods
Market goods are goods that are typically provided and priced by market participants in a competitive marketplace, as contrasted with collective goods, which are typically provided by the government. They are characterized by rivalry in consumption and excludability.
Menu Costs
Menu costs refer to the costs associated with changing prices, named after the expense that restaurants incur when they reprint menus following a price change. This concept is key to understanding price stickiness in economics.
Minimax Principle
The Minimax Principle is a decision criterion aimed at minimizing the maximum possible loss or regret. It involves selecting the outcome with the smallest potential loss, thereby aiming to achieve the least amount of regret in case of failure.
Minimum Cost
In economics, the term minimum cost refers to the cost objective of a firm at varying levels of output, expressed by the firm's cost function. It represents the lowest possible amount spent to produce a certain level of output while maintaining optimal efficiency.
Monetary
Pertaining to, or having to do with, money, money creation, money supply, and government management of money.
Money Demand Schedule
A comprehensive guide to understanding the money demand schedule, which represents the demand for money at varying levels of GDP. This includes the asset demand for money and the transactions demand for money.
Money Income
Income measured only in monetary terms, without adjusting for changes in purchasing power due to inflation or deflation.
Money Supply (M1, M2, M3)
The money supply measures the amount of money circulating in an economy, categorized into different components such as M1, M2, and M3, which include cash, checking deposits, savings deposits, and other financial instruments.
Monopolist
A monopolist is a firm or individual entrepreneur that is the sole producer of a good and represents the entire market supply of that good. This exclusive control allows the monopolist to influence the price and quantity of the product in the market.
Monopoly
Monopoly refers to the control of the production and distribution of a product or service by one firm or a group of firms acting in concert, characterized by the absence of competition, leading to high prices and a general lack of responsiveness to consumer needs.
Monopsony
A market situation where there is only a single consumer of a good or service produced, giving that consumer substantial control over prices and terms.
National Bureau of Economic Research (NBER)
The National Bureau of Economic Research (NBER) is a Cambridge, Massachusetts–based private, nonprofit organization committed to undertaking and disseminating unbiased economic research among public policymakers, business professionals, and the academic community.
National Debt
National debt refers to the total amount of money that the federal government owes to creditors due to borrowing. It consists of various debt instruments such as Treasury bills, Treasury notes, and Treasury bonds. The interest on the national debt is a significant part of the federal government's annual expenses.
Natural Monopoly
A natural monopoly occurs in an industry where the most efficient producer is a single entity, typically due to high fixed costs and significant economies of scale. Most natural monopolies are utilities or similar entities.
Normal Good
A normal good is a type of good for which demand increases as consumer income increases, holding all other factors constant. This inverse relationship between income and demand exemplifies how purchasing power influences consumer behavior.
Normal Profit
Normal profit is the minimum level of income needed for a business to remain competitive in an industry over the long term. It represents the point at which total revenue equals total cost, including explicit and implicit costs.
Objective Value
Objective Value is a term used to describe the value of an asset as determined by market forces, rather than subjective measures like personal opinions or intrinsic valuations.
Paradox of Thrift
The Paradox of Thrift is the proposition that increased saving by households reduces their consumption and, consequently, reduces Gross Domestic Product (GDP).
Paradox of Value
The 'paradox' that many absolute essentials to life (water, air, etc.) are either free or very cheap, while many 'unnecessary' goods are quite expensive (diamonds, truffles, etc.).
Pareto's Law
Pareto's Law, also known as the 80-20 Rule, posits that roughly 80% of effects come from 20% of the causes. In economics, it highlights income distribution where a small percentage of the population controls the majority of the income. This principle is essential for understanding resource allocation, inequality, and economic strategies for improving the lot of the poor.
Parity Price
A parity price is a price for a commodity or service, pegged to another price or a composite average of prices from a selected prior period. The parity is typically indexed on a scale where 100 represents parity.
Partial-Equilibrium Analysis
Partial-equilibrium analysis is an approach in economic analysis that focuses only on the part of the economy affected by the factors being studied, isolating it from the rest of the economy to better understand impact.
Payer
A payer is an individual or entity that is responsible for the payment of a bill, fees, or other financial obligations. The role of the payer is critical in transactional and service delivery contexts within various economic sectors.
Personal Income
Personal income is a component of national income representing the amount of income actually received by households after accounting for various adjustments.
Phillips Curve
The Phillips Curve is an economic proposition stating that there is an inverse relationship between unemployment and inflation rates within an economy. As inflation increases, unemployment tends to decrease and vice versa.
Positive Accounting Theory
An approach in accounting that aims to explain the existing practices and rationale behind accounting methods, rather than prescribing how accounting should be done.
Price Discrimination
Price discrimination is the practice of charging different customers different prices for the same products or services. When this practice is used to reduce competition, it may violate antitrust laws.
Price Elasticity
Price elasticity is a measure of the responsiveness of the quantity demanded or supplied of a good to changes in its price. It helps businesses and economists understand the impact of price changes on supply and demand.
Price Flexibility
Price flexibility refers to the economic circumstance where prices are permitted to vary considerably in response to changes in supply and demand.
Price Inelasticity
Price inelasticity refers to a situation in which the demand for a product or service is not significantly affected by changes in its price. This phenomenon occurs when consumers have few or no substitutes for the product or when it represents a small portion of their budget.
Price Level
Price level refers to the average of current prices across the entire spectrum of goods and services produced in the economy. It is often utilized as a gauge to measure inflation or deflation by comparing it to previous time periods.
Primary Demand
Primary demand refers to the total market demand by consumers for non-capital goods rather than specific brands, focusing on the intrinsic need for a product category as a whole.
Private Good
Private goods are objects or services that possess typical characteristics including excludability and rivalrous consumption. These goods are consumed by individuals, and the consumption by one person prevents others from consuming the same unit or gaining similar benefits.
Produce
The term 'produce' refers to both the act of creating or manufacturing goods and the classification of agricultural products like fruits and vegetables.
Production Function
A mathematical formula that describes the relationship between various inputs and the output they produce, often used to analyze the efficiency and productivity of firms or entire industries.
Production Possibility Frontier
A graphical representation that shows the various combinations of outputs that an economy can produce given the available resources and technology.
Profit Squeeze
An expression that indicates increasing difficulty in maintaining the same amount or rate of profit due to reduced sales, lower prices, rising production costs, financing costs, administrative expenses, or taxes.
Public Goods
Public goods are products and services typically provided by the government because they are more effectively managed in the public domain rather than the private marketplace. Examples include national defense, police services, and public parks.
Purchasing Power
Purchasing power refers to the quantity and quality of goods and services that a given amount of currency can buy. Changes in purchasing power are influenced by inflation and deflation. This concept is crucial for both businesses and consumers as it impacts economic decisions and financial planning.
Purchasing Power of the Dollar
The 'purchasing power of the dollar' refers to the amount of goods and services that one dollar can buy in a particular market and time, compared to prior periods. This measurement considers inflation or deflation using an index of consumer prices.
Purchasing Power Parity
Purchasing Power Parity (PPP) is an economic theory that estimates the currency exchange rates necessary in foreign trade situations so that each currency has the same purchasing power.
Quantity Demanded
Quantity demanded refers to the specific amount of a particular good that buyers are willing to purchase in the market at a given price level. It is a key concept in economics that helps in understanding the dynamics of supply and demand.
Quantity Supplied
The amount of a good or service that will be brought to market at a given price. The schedule of quantities supplied at each market price defines the Aggregate Supply Curve.
Quantity Theory of Money and Prices
A fundamental theory in monetarist economics that posits a relationship between the money supply (M), price levels (P), velocity of money (V), and national income (Q) summarized by the equation MV = PQ.
Quasi Money
Quasi money, also known as near money, refers to assets that are not cash but can be quickly converted into cash with little or no loss of value.
Real
In economics and finance, 'real' is used to describe variables such as prices, wages, and interest rates that have been adjusted for inflation, providing a more accurate representation of purchasing power and economic value over time.
Real Earnings
Real earnings refer to wages, salaries, and other forms of income adjusted for inflation, providing an accurate measure of changes in purchasing power over time.
Real Interest Rate
The real interest rate is the nominal interest rate adjusted for inflation. It represents the true cost of borrowing and the real yield on investments.
Real Value of Money
The real value of money refers to the actual purchasing power of money as corrected for inflation over time.
Real Wages
Real wages refer to money wages that have been adjusted for inflation, providing a measure of the actual changes in purchasing power over time.
Recovery
The term 'recovery' in various fields refers to the period when economic activity picks up after a downturn, absorption of costs or collections in finance, and rising prices in investment markets.
Repatriation
Repatriation involves the movement of financial assets or profits of an organization or individual from a foreign country back to their home country, often for investment or distribution purposes.
Sales Price
Sales price refers to the amount of money required to be paid or previously paid for property or a product. It is a crucial concept in business transactions, determining the financial outcome of sales activities.
Scale
Scale is a versatile term often employed across multiple fields such as economics, labor, and modeling. In economics, scale pertains to the level of production efficiency as the volume of production changes. In labor, it denotes standardized wage rates for specific job types, such as those determined by union agreements. In modeling, scale signifies the relationship between the dimensions of a representation and the actual object.
Scarcity and Scarcity Value
Scarcity refers to the limited nature of a resource or commodity, while scarcity value is the portion of a commodity's value that is attributable to its limited availability. Scarcity value arises when a good's demand surpasses its available supply.
Scarcity, Law of
The basic economic principle that most resources, goods, and services are available in limited quantities, requiring allocation based on willingness to pay the price set by supply and demand in a market economy.
Seller's Market
A seller's market is a situation where demand for a security or product significantly exceeds its supply, leading to rising prices and allowing sellers to set both prices and terms of sale.
Social Overhead Capital
Social overhead capital refers to the investment in infrastructure and services like education, healthcare, and transportation, whose productivity cannot be directly measured but play a crucial role in overall economic growth and societal well-being.
Spillover
Spillover refers to the effects of economic activity or processes on individuals or groups who are not directly involved in the activity. These can be either positive or negative, impacting those who live or work nearby.
Stabilization
Stabilization refers to various efforts and actions aimed at maintaining equilibrium in financial, economic, or market environments, ensuring stability in currency exchange rates, economic cycles, or securities prices.
Stock vs. Flow
In economics, 'stock' represents a quantity measured at a particular moment in time, while 'flow' represents a quantity measured over a specified period.
Structural Unemployment
Structural Unemployment is a type of unemployment caused by a mismatch between the skills that workers in the economy can offer and the skills demanded by employers.
Sub-Marginal
In economics and business, submarginal entities are unable to maintain the minimum profit, production level, and so on to remain permanently in existence.
Substitutes
Substitutes are products or services that can be used in place of each other, fulfilling similar needs or functions. Substitutes play a crucial role in determining market dynamics and consumer choices.
Substitution
Substitution refers to the act of replacing one element with another in various contexts including banking, contract law, economics, law, and securities.
Substitution Effect
The substitution effect in economics refers to the change in consumption patterns due to a change in the relative prices of goods. When the price of a good decreases, consumers are more likely to substitute it for other goods, increasing their consumption of the now cheaper good. Conversely, when the price of a good increases, consumers will tend to switch to substitutes that have become relatively cheaper.
Substitution Slope
In a graphical diagram illustrating relative consumption, the substitution slope represents the relationship of the substitution of any pair of goods with respect to one another at different prices out of a given income.

Accounting Terms Lexicon

Discover comprehensive accounting definitions and practical insights. Empowering students and professionals with clear and concise explanations for a better understanding of financial terms.