Page 905 - Krugmans Economics for AP Text Book_Neat

GLOSSARY G-9

negative income tax a government nonrival consumption referring to a output gap the percentage difference
program that supplements the income good, describes the case in which the between actual aggregate output and
of low-income working families. same unit can be consumed by more potential output. (p. 196)
(p. 769) than one person at the same time. overuse the depletion of a common
net exports the difference between (p. 744) resource that occurs when individuals
the value of exports and the value of normal good a good for which a rise ignore the fact that their use depletes
imports. A positive value for net in income increases the demand for the amount of the resource remaining
exports indicates that a country is a that good—the “normal” case. (p. 53) for others. (p. 749)
net exporter of goods and services; a normal profit an economic profit equal patent a temporary monopoly given by
negative value indicates that a coun- to zero. It is an economic profit just the government to an inventor for the
try is a net importer of goods and high enough to keep a firm engaged in use or sale of an invention. (p. 572)
services. (p. 108) its current activity. (p. 534) payoff in game theory, the reward
net present value the present value of normative economics the branch of received by a player in a game (for
current and future benefits minus the economic analysis that makes pre- example, the profit earned by an oli-
present value of current and future scriptions about the way the economy gopolist). (p. 644)
costs. (p. 240) should work. (p. 6) payoff matrix in game theory, a dia-
network externality when the value of oligopolist a firm in an industry with gram that shows how the payoffs
a good to an individual is greater only a small number of producers. to each of the participants in a
when more people also use the good. (p. 573) two-player game depend on the
(p. 739) actions of both; a tool in analyzing
oligopoly an industry with only a
new classical macroeconomics an small number of producers. (p. 573) interdependence. (p. 644)
approach to the business cycle that pension fund a type of mutual fund
returns to the classical view that shifts open-market operation a purchase or that holds assets in order to provide
in the aggregate demand curve affect sale of U.S. Treasury bills by the retirement income to its members.
only the aggregate price level, not aggre- Federal Reserve, undertaken to change (p. 228)
gate output. (p. 351) the monetary base, which in turn
changes the money supply. (p. 264) perfectly competitive industry an
new Keynesian economics theory that industry in which all producers are
argues that market imperfections can opportunity cost the real cost of an price-takers. (p. 569)
lead to price stickiness for the econo- item: what you must give up in order
my as a whole. (p. 352) to get it. (p. 3) perfectly competitive market a market
optimal consumption bundle the con- in which all market participants are
nominal GDP the value of all final goods price-takers. (p. 568)
and services produced in the economy sumption bundle that maximizes the
during a given year, calculated using the consumer’s total utility given his or perfectly elastic demand the case in
prices current in the year in which the her budget constraint. (p. 515) which any price increase will cause the
output is produced. (p. 114) optimal consumption rule when a con- quantity demanded to drop to zero; the
sumer maximizes utility, the marginal demand curve is a horizontal line.
nominal interest rate the interest rate (p. 467)
actually paid for a loan, not adjusted utility per dollar spent must be the
for inflation. (p. 138) same for all goods and services in the perfectly elastic supply the case in
consumption bundle. (p. 520) which even a tiny increase or reduc-
nominal wage the dollar amount of tion in the price will lead to very large
any given wage paid. (p. 180) optimal output rule profit is maxi- changes in the quantity supplied, so
mized by producing the quantity of
nonaccelerating inflation rate of unem- output at which the marginal revenue that the price elasticity of supply is infi-
ployment (NAIRU) the unemployment of the last unit produced is equal to nite; the perfectly elastic supply curve
rate at which, other things equal, its marginal cost. (p. 537) is a horizontal line. (p. 479)
inflation does not change over time. perfectly inelastic demand the case in
(p. 336) ordinary goods in a consumer’s utility which the quantity demanded does not
function, those for which additional
noncooperative behavior actions by units of one good are required to respond at all to changes in the price;
firms that ignore the effects of those compensate for fewer units of anoth- the demand curve is a vertical line.
actions on the profits of other firms. er, and vice versa; and for which the (p. 466)
(p. 640) consumer experiences a diminishing perfectly inelastic supply the case in
nonexcludable referring to a good, marginal rate of substitution when which the price elasticity of supply is
describes the case in which the suppli- substituting one good in place of zero, so that changes in the price of
er cannot prevent those who do not another. (p. 795) the good have no effect on the quanti-
pay from consuming the good. other things equal assumption in the ty supplied; the perfectly inelastic sup-
(p. 743) development of a model, the assump- ply curve is a vertical line. (p. 478)
nonprice competition competition in tion that all relevant factors except perfect price discrimination a situation
areas other than price to increase the one under study remain in which a monopolist charges each
sales, such as new product features unchanged. (p. 14) consumer his or her willingness to
and advertising; especially engaged in output the quality of goods and serv- pay—the maximum that the consumer
by firms that have a tacit understand- ices produced. (p. 12) is willing to pay. (p. 627)
ing not to compete on price. (p. 656)