Page 901 - Krugmans Economics for AP Text Book_Neat

GLOSSARY G-5

fixed exchange rate an exchange rate financial markets to buy goods and income effect the change in the quan-
regime in which the government keeps services. (p. 105) tity of a good consumed that results
the exchange rate against some other government purchases of goods and from the change in a consumer’s pur-
currency at or near a particular target. services total purchases by federal, chasing power due to the change in
(p. 431) state, and local governments on goods the price of the good. (p. 459)
fixed input an input whose quantity is and services. (p. 105) income-elastic demand when the
fixed for a period of time and cannot government transfers payments by the income elasticity of demand for a good is
be varied (for example, land). government to individuals for which greater than 1. (p. 476)
(p. 542) no good or service is provided in income elasticity of demand the per-
floating exchange rate an exchange rate return. (p. 105) cent change in the quantity of a
regime in which the government lets gross domestic product (GDP) the total good demanded when a consumer’s
the exchange rate go wherever the mar- value of all final goods and services pro- income changes divided by the per-
ket takes it. (p. 431) duced in the economy during a given cent change in the consumer’s
foreign exchange controls licensing period, usually a year. (p. 106) income. (p. 476)
systems that limit the right of individ- growth accounting estimates the con- income-inelastic demand when the
uals to buy foreign currency. (p. 433) tribution of each of the major factors income elasticity of demand for a good is
foreign exchange market the market in (physical and human capital, labor, positive but less than 1. (p. 476)
which currencies are traded. (p. 421) and technology) in the aggregate pro- increasing returns to scale long-run
foreign exchange reserves stocks of for- duction function. (p. 378) average total cost declines as output
eign currency that governments can Herfindahl–Hirschman Index, or HHI is increases (also referred to as economies
use to buy their own currency on the the square of each firm’s share of of scale). (p. 562)
foreign exchange market. (p. 432) market sales summed over the indus- indifference curve a contour line
free entry and exit describes an indus- try. It gives a picture of the industry showing all consumption bundles that
try that potential producers can easily market structure. (p. 573) yield the same amount of total utility
enter or current producers can leave. household a person or a group of peo- for an individual. (p. 789)
(p. 570) ple who share income. (p. 103) indifference curve map a collection
free-rider problem when individuals human capital the improvement in of indifference curves for a given
have no incentive to pay for their own labor created by the education and individual that represents the indi-
consumption of a good, they will take knowledge embodied in the workforce. vidual’s entire utility function; each
a “free ride” on anyone who does pay; (pp. 373, 680) curve corresponds to a different total
a problem that with goods that are illiquid describes an asset that cannot utility level. (p. 789)
nonexcludable. (p. 745) be quickly converted into cash without individual choice the decision by an
frictional unemployment unemployment much loss of value. (p. 226) individual of what to do, which neces-
due to time workers spend in job implicit cost a cost that does not sarily involves a decision of what not
search. (p. 127) require the outlay of money; it is to do. (p. 2)
gains from trade An economic princi- measured by the value, in dollar individual consumer surplus the net
ple that states that by dividing tasks terms, of forgone benefits. (p. 530) gain to an individual buyer from the
and trading, people can get more of implicit cost of capital the opportunity purchase of a good; equal to the dif-
what they want through trade than cost of the capital used by a business; ference between the buyer’s willing-
they could if they tried to be self- that is the income that could have ness to pay and the price paid.
sufficient. (p. 23) been realized had the capital been (p. 485)
game theory the study of behavior in used in the next best alternative way. individual demand curve a graphical
situations of interdependence. Used to (p. 532) representation of the relationship
explain the behavior of an oligopoly. implicit liabilities spending promises between quantity demanded and price
(p. 644) made by governments that are effec- for an individual consumer. (p. 55)
GDP deflator a price measure for a tively a debt despite the fact that they individual labor supply curve a graphi-
given year that is equal to 100 times are not included in the usual debt cal representation showing how the
the ratio of nominal GDP to real GDP statistics. In the United States, the quantity of labor supplied by an indi-
in that year. (p. 146) largest implicit liabilities arise from vidual depends on that individual’s
GDP per capita GDP divided by the Social Security and Medicare, which wage rate. (p. 696)
size of the population; equivalent to promise transfer payments to current individual producer surplus the net
the average GDP per person. (p. 115) and future retirees (Social Security) gain to an individual seller from sell-
and to the elderly (Medicare). ing a good; equal to the difference
Gini coefficient a number summarizes (p. 303) between the price received and the
a country’s level of income inequality seller’s cost. (p. 490)
based on how unequally income is imports goods and services purchased
distributed across the quintiles. from other countries. (p. 105) individual supply curve a graphical
(p. 761) incentive anything that offers rewards representation of the relationship
government borrowing the amount of to people who change their behavior. between quantity supplied and price for
an individual producer. (p. 63)
funds borrowed by the government in (p. 2)