Decentralized decision making: Economic activity in which the cumulative effect of decisions of individuals in the economy determine prices and output.
Decrease in demand: A change in demand in which the quantity demanded decreases at every potential price. The demand curve shifts to the left.
Decrease in supply: A change in supply in which the quantity supplied decreases at every potential price. The supply curve shifts to the left. Debt: The balance of all outstanding government obligations arising from deficit spending.
Deficit: The amount by which government expenditures exceeds tax revenue in a given year.
Deflation: A period of time in which the general price level decreases. Alternatively, a period of time in which the purchasing power of the currency increases.
Demand: The quantities that consumers would be willing and able to purchase at every potential price. When shown on a graph, it becomes a demand curve.
Demand curve: A graph of the demand schedule. The demand curve is a downward sloping curve, indicating a negative relationship between price and quantity demanded.
Demand for money: The quantity of money that people want to hold at each potential interest rate. An inverse relationship exists between the interest rate and the quantity of money demanded.
Demand schedule: A table which shows the quantity demanded of a product at different price levels.
Demand side economics: Discretionary government policies designed to influence the level of aggregate demand in the economy.
Demand-pull inflation: Inflation caused by an increase in aggregate demand which is not matched by an increase in aggregate supply.
Deposit expansion multiplier: The maximum amount by which a deposit in a bank can increase the money supply throughout the banking system. It is the reciprocal of the reserve requirement. Also called the money multiplier.
Depreciation: The replacement cost of worn-out machinery and equipment. It also means a currency going down in value compared to another currency in a floating exchange rate system.
Determinants of demand: Factors that determine the quantity demanded at every potential price. Determinants of demand are consumer income, consumer tastes, the prices of complements, the prices of substitutes, consumer expectations, and the number of potential buyers.
Determinants of supply: Factors that determine the quantity supplied at every potential price. Determinants of supply are the prices of resources, technology and productivity, expectations of producers, the number of suppliers, and the prices of alternative goods and services that the firm could produce.
Differentiated products: Products of competing firms that consumers consider to be close substitutes, but not identical. Diminishing marginal returns: The concept that after some output level, output per unit of input will decrease.
Discouraged workers: People without jobs who have given up looking for work, and are no longer active in their job searches. These people are not counted as being part of the total labor force, and are not counted as unemployed. They are not part of the unemployment statistics.
Discount rate: The rate that the Fed charges banks for loans directly from the Fed. Discretionary fiscal policy: Government fiscal policies designed to achieve specific economic outcomes. Diseconomies of scale: Production levels above the minimum point on the long run average cost curve.
Disequilibrium: A situation in which equilibrium does not exist. Disequilibrium means that incentives for change exist.
Disposable income: The amount of personal income available for spending or saving after personal income taxes.
Dominant firm: A firm in an oligopoly market that has a much larger market share than any of its competitors.
Earnings: Income received by the factors of production.
Economic approach: The methodology, including the thinking process, or logic, used by economists. Also called economic thinking.
Economic efficiency: A situation in which both productive efficiency and allocative efficiency exist. Economic good: Something that wouldn’t exist in sufficient quantities if it were free. Economic growth: An increase in real GDP.
Economic indicators: Variables that tend to move along with the business cycle. They include leading indicators, coincident indicators, and lagging indicators. Economic problem: Scarcity. The fact that resources are finite, but human wants are infinite.
Economic profit: Profit above the level required to keep a firm operating at its current output level. It is profit that is left over after deducting implicit (opportunity) costs. The existence of positive economic profits means that a business is more profitable than alternatives, and in a competitive environment will attract new competition.
Economic schools of thought: Advocacy of different economic policies based on competing economic theories.
Economic system: The method used by a country to control the production, distribution, and consumption of goods and services.
Economic thinking: The methodology, including the thinking process, or logic, used by economists. Also called the economic approach.
Economics: The study of how people choose to use their scarce resources in an attempt to satisfy their unlimited wants. Economics deals with the questions of what to produce, how to produce it, and who to distribute it to.
Economies of scale: A situation where increasing the size of a firm in the long run will decrease unit costs. This occurs on the downward sloping portion of the long run average cost curve.
Economist: A person who specializes in Economics.
Economy: All activities involving production, distribution, and consumption within a specified area, such as a geographic area (local, national, global, etc.).
Efficiency: Having the maximum benefit at the lowest cost.
Elasticity: A measure of the responsiveness of one variable to a change in another variable. This measurement is found by dividing the percentage change in one variable by the percentage change in the other variable. The absolute value of the result will necessarily center on the number one: if the result is greater than one, it means that the result is elastic; if the result is less than one, it means that the result is inelastic; and if the result is equal to one, it means that the result is unit elastic. An elasticity value is simply a number with no units attached to it.
Elasticity of demand: A measure of the responsiveness of quantity demanded to a change in price. Also known as the price elasticity of demand.
Elasticity of supply: A measure of the responsiveness of quantity supplied to a change in price.
Embargo: Government trade restriction that forbids the import of a specific good or the import of goods from a specific nation. Also known as a trade embargo.
Enterprise: A private organization that produces goods and / or services. The term as used here is interchangeable with firm, business firm, company, business, and producer.
Entrepreneurship: A resource of production that involves the contribution of organizational skills and / or the supply of financial capital in the hopes of earning a profit.
Equilibrium: A situation in which no incentives for changes exist.
Equimarginal principle: When a consumer has maximized utility, which is the point where the marginal utility per cost for every consumption choice is equal. Also known as consumer equilibrium.
Excess capacity: The ability of a firm to increase production in the short run, without having to change any fixed inputs.
Excess reserves: The amount of reserves held by a bank that is available for loans.
Exchange rate: The ratio of the value of one currency to another, used to conduct transactions involving different currencies.
Excise tax: A tax on the consumption per unit on specific goods. Often called a sin tax.
Expansion: The phase of the business cycle in which real GDP is increasing.
Expectations of consumers: The expectations that consumers have that the price of a good or service will change in the future.
Expectations of producers: The expectations that producers have that the price of a good or service will change in the future.
Expected inflation: The inflation rate that is expected to occur in the future. This rate would be included in the nominal interest rate. Also called anticipated inflation.
Expenditures approach: The method of calculating GDP by adding up all the expenditures in the economy. The formula is GDP=C+I+G+(X-M).
Explicit cost: A cost that involves actual payment being made. This would be every cost except implicit cost, which in economics generally refers to opportunity cost.
Exports: Goods produced domestically but sold to consumers in foreign countries.
External benefit: A benefit received by someone who doesn’t pay for it. A positive externality.
External cost: A cost that is not paid for by those imposing the cost or those receiving the benefit. A negative externality.
Externality: A cost or benefit that does not go to those involved in the activity that produces the cost or benefit. A form of market failure.