Page 906 - Krugmans Economics for AP Text Book_Neat

G-10 GLOSSARY

physical asset a claim on a tangible ized so that it is equal to 100 in the private good a good that is both exclud-
object that gives the owner the right selected base year; a measure of over- able and rival in consumption. (p. 743)
to dispose of the object as he or she all price level. (p. 143) private information information that
wishes. (p. 224) price elasticity of demand the ratio of some people have that others do not.
physical capital human-made goods the percent change in the quantity (p. 782)
such as buildings and machines used demanded to the percent change in private savings disposable income
to produce other goods and services. the price as we move along the minus consumer spending; disposable
(pp. 373, 680) demand curve (dropping the minus income that is not spent on consump-
Pigouvian subsidy a payment sign). (p. 460) tion but rather goes into financial mar-
designed to encourage activities that price elasticity of supply a measure of kets. (p. 105)
yield external benefits. (p. 738) the responsiveness of the quantity of a producer price index (PPI) a measure
Pigouvian taxes taxes designed to good supplied to the price of that of the cost of a typical basket of goods
reduce external costs. (p. 734) good; the ratio of the percent change and services purchased by producers.
in the quantity supplied to the percent
planned investment spending the change in the price as we move along Because these commodity prices
investment spending that firms intend the supply curve. (p. 477) respond quickly to changes in
to undertake during a given period. demand, the PPI is often regarded as a
Planned investment spending may dif- price leadership a pattern of behavior leading indicator of changes in the
fer from actual investment spending in which one firm sets its price and inflation rate. (p. 145)
due to unplanned inventory investment. other firms in the industry follow. producer surplus a term often used to
(p. 166) (p. 656) refer to either individual producer surplus
political business cycle a business cycle price regulation a limitation on the or to total producer surplus. (p. 490)
that results from the use of macroeco- price that a monopolist is allowed to product differentiation the attempt by
nomic policy to serve political ends. charge. (p. 619) firms to convince buyers that their
(p. 351) price stability when the aggregate products are different from those of
positive economics the branch of price level is changing only slowly. other firms in the industry. If firms
economic analysis that describes the (p. 13) can so convince buyers, they can
way the economy actually works. price-taking consumer a consumer charge a higher price. (p. 655)
(p. 6) whose actions have no effect on the production possibilities curve illus-
potential output the level of real GDP market price of the good or service he trates the trade-offs facing an econo-
the economy would produce if all or she buys. (p. 568) my that produces only two goods;
prices, including nominal wages, were price-taking firm a firm whose actions shows the maximum quantity of one
fully flexible. (p. 185) have no effect on the market price of good that can be produced for each
poverty rate the percentage of the the good or service it sells. (p. 568) possible quantity of the other good
produced. (p. 16)
population with incomes below the price-taking firm’s optimal output rule
poverty threshold. (p. 761) the profit of a price-taking firm is production function the relationship
poverty threshold the annual income maximized by producing the quantity between the quantity of inputs a firm
uses and the quantity of output it pro-
below which a family is officially con- of output at which the market price is duces. (p. 542)
sidered poor. (p. 761) equal to the marginal cost of the last
unit produced. (p. 585) production possibilities curve shows
present value the amount of money the maximum quantity of one good
needed at the present time to produce, price war a collapse of prices when that can be produced for each possible
at the prevailing interest rate, a given tacit collusion breaks down. (p. 654) quantity of the other good produced.
amount of money at a specified future principle of diminishing marginal It illustrates the trade-offs facing an
time. (p. 239) utility the proposition that each suc- economy that produces only two
price ceiling the maximum price sellers cessive unit of a good or service con- goods. (p. 16)
are allowed to charge for a good or sumed adds less to total utility than product markets where goods and
service; a form of price control. (p. 77) does the previous unit. (p. 513) services are bought and sold. (p. 103)
price controls legal restrictions on principle of marginal analysis the progressive tax a tax that takes a
how high or low a market price may proposition that the optimal quantity larger share of the income of high-
go. (p. 77) is the quantity at which marginal
benefit is equal to marginal cost. income taxpayers than of low-income
price discrimination charging different (p. 537) taxpayers. (p. 499)
prices to different consumers for the property rights the rights of owners of
same good. (p. 624) prisoners’ dilemma a game based on
two premises: (1) Each player has an valuable items, whether resources or
price floor the minimum price buyers incentive to choose an action that goods, to dispose of those items as
are required to pay for a good or serv- benefits itself at the other player’s they choose. (p. 3)
ice; a form of price control. (p. 77)
expense; and (2) When both players proportional tax a tax that is the same
price index a measure of the cost of act in this way, both are worse off percentage of the tax base regardless of
purchasing a given market basket in a than if they had acted cooperatively. the taxpayer’s income or wealth.
given year, where that cost is normal- (p. 645) (p. 499)