EcoGloss -- Glossary of terms used in economics (M-Q)

EcoGloss -- A Glossary of Terms Used in Economics

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M1: M1 is a measure of the U.S. money stock that consists of currency held by the public, travelers checks, demand deposits, and other checkable deposits including NOW (negotiable order of withdrawal) and ATS (automatic transfer service) account balances and share draft account balances at credit unions owned by individuals and businesses.
M2: M2 is a measure of the U.S. money stock that consists of M1, certain overnight repurchase agreements and certain overnight Eurodollars, savings deposits (including money market deposit accounts), time deposits in amounts of less than $100,000, and balances in money market mutual funds (other than those restricted to institutional investors).
M3: M3 is a measure of the U.S. money stock that consists of M2, time deposits of $100,000 or more at all depository institutions, term repurchase agreements in amounts of $100,000 or more, certain term Eurodollars, and balances in money market mutual funds restricted to institutional investors.
Macroeconomics: The branch of economics that deals with behavior and choices as they relate to the entire economy in terms of the total amount of goods and services produced, total income earned, the level of employment of productive resources, and the general behavior of prices. Until the 1930s most economic analysis concentrated on individual firms and industries. With the Great Depression, however, and the development of the concept of national income and product statistics, the field of macroeconomics began to expand. The policy goals of the discipline include economic growth, price stability, and full employment. Compare and contrast to microeconomics.
Macroeconomic long run: The macroeconomic long run is a time frame that is sufficiently long for real GDP to return to potential GDP.
Macroeconomic short run: The macroeconomic short run is a period during which real GDP has decreased below or increased above potential GDP.
Marginal benefit: Marginal benefit is the benefit a person receives from consuming one more unit of a good or service. It is measured as the maximum amount that a person is willing to pay for one more unit of the good or service.
Marginal cost: Marginal cost is the opportunity cost of producing one more unit of a good or service. It is the best alternative forgone. It is calculated as the increase in total cost divided by the increase in output.
Marginal cost pricing rule: A rule that sets the price of a good or service equal to the marginal cost of producing it.
Marginal product: Marginal product is the extra output produced as a result of a small increase in the variable input. It is calculated as the increase in total product divided by the increase in the variable input employed, when the quantities of all other factors are constant.
Marginal product of labor: The additional real GDP produced by an additional hour of labor when all other influences on production remain the same.
Marginal propensity to consume (MPC): Marginal propensity to consume is the fraction of an increase in disposable income that is consumed. Mathematically, it is defined as the change in consumption divided by the change in disposable income.
Marginal propensity to import: Marginal propensity to import is the fraction of an increase in real GDP that is spent on imports.
Marginal propensity to save (MPS): Marginal propensity to save is the fraction of an increase in disposable income that is saved. Mathematically, it is defined as the change in savings divided by the change in disposable income.
Marginal rate of substitution: The rate at which a person will give up good y (the good measured on the y-axis) to get more of good x (the good measured on the x-axis) and at the same time remain indifferent (remain on the same indifference curve).
Marginal revenue: Marginal revenue is the change in total revenue received from selling one additional unit of the good or service. It is calculated as the change in total revenue divided by the change in quantity sold.
Marginal revenue product: The change in total revenue that results from employing one more unit of a resource while the quantity of all other resources remains the same. It is calculated as the increase in total revenue divided by the increase in the quantity of the resource.
Marginal social benefit: Marginal social benefit is the dollar value of the benefit from one additional unit of consumption, including the benefit to the buyer and any indirect benefits accruing to other members of society.
Marginal social cost: Marginal social cost is the cost of producing one additional unit of output, including the costs borne by the producer and any other costs indirectly incurred by any other member of society; the marginal cost incurred by the producer of a good together with the marginal cost imposed as an externality on others.
Marginal tax rate: The percentage of an additional dollar of income that is paid in tax.
Marginal utility: Marginal utility is the change in total utility resulting from a one-unit increase in the quantity of a good consumed.
Marginal utility per dollar spent: Marginal utility per dollar spent is the marginal utility obtained from the last unit of a good consumed divided by the price of the good.
Market: A market is any arrangement that enables buyers and sellers to get information and to do business with each other. A market is a place where trade occurs.
Market clearing price: A price which rations the supply of a good among competing consumers so that the quantity of the good demanded is equal to the quantity supplied.
Market demand: Market demand is the relationship between the quantity demanded of a good or service by everyone in the population and its price. The market demand is illustrated by the market demand curve.
Market economy: An economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services.
Market failure: A state in which the market does not use resources efficiently to achieve the greatest possible consumer satisfaction.
Market power: The ability of buyers or sellers to exert influence over the price or quantity of products exchanged in a market. Market power depends on the number of competitors on each side of the market. If a market has relatively few buyers, but many sellers, then the buyers tend to have relatively more market power than sellers. The converse occurs if there are many buyers, but relatively few sellers. If the market is controlled on the supply side by one seller, we have a monopoly, and if it is controlled on the demand side by one buyer, we have a monopsony. Most markets are subject to some degree of power by the participants in it.
Means of payment: Means of payment is a method of settling a debt.
Medium of exchange: An item that buyers give to sellers when they want to purchase goods and services.
Member bank: A depository institution which is a member of the Federal Reserve System. All federally chartered banks are automatically members of the System. State-chartered banks are divided into those that are members of the System (state member banks) and those that are not (nonmember banks).
Microeconomics: The branch of economics which deals with behavior and choices as they relate to relatively small units---an individual, a firm, an industry, a single market -- and the distribution of total production and income among them. It considers individuals both as suppliers of productive resources and as the ultimate consumers of the final product. It also analyzes firms both as suppliers of products and as consumers of productive resources. Microeconomics seeks to analyze the market or other type of mechanism that establishes relative prices among products and allocates society's resources among their many alternative uses. Compare and contrast to macroeconomics.
Minimum efficient scale: The smallest quantity of output at which the long-run average cost curve reaches its lowest level.
Minimum wage: The lowest wage rate at which a firm may legally hire labor.
Minimum wage law: A minimum wage law is a regulation that makes the hiring of labor below a specified wage rate illegal.
Monetarist: An economist who believes that fluctuations in the money stock are the main source of economic fluctuations. The contemporary economist most closely related to monetarism is Milton Friedman.
Monetarist theory of the business cycle: A theory that regards fluctuations in the money stock as the main source of economic fluctuations.
Monetary base: The monetary base is the sum of the Federal Reserve notes, coins, and banks' deposits at the Fed.
Monetary policy: The regulation, by the Federal Reserve System, aimed at stabilizing prices, maintaining full employment, moderating the business cycle, and contributing towards achieving long-term growth by adjusting the quantity of money in circulation (the money supply) and interest rates. See also contractionary monetary policy and expansionary monetary policy.
Money: The accepted common medium of exchange for goods and services in the marketplace that functions as (a) the unit of account, (b) a means of deferred payment and (c) a store of value. Money is any commodity or token that is generally acceptable in these roles.
Money market mutual fund: A financial institution that obtains funds by selling shares and that uses these funds to buy highly liquid assets such as U.S. Treasury bills.
Money multiplier: The money multiplier is the amount by which a change in monetary base is multiplied to determine the resulting change in the quantity of money.
Money supply: The amount of money (coins, paper currency, and checking accounts) that is in circulation in the economy.
Money wage rate: The number of dollars that an hour of labor earns.
Monopolistic competition: A market characterized by a large number of small firms, similar but not identical products sold by all firms, relative freedom of entry into and exit out of the industry, and extensive knowledge of prices and technology. This is one of four basic market structures. The other three are perfect competition, monopoly, and oligopoly. Monopolistic competition approximates most of the characteristics of perfect competition, but falls short of reaching the ideal benchmark that is perfect competition. In fact, the best way to think of monopolistic competition is our imperfect real world's best approximation of perfect competition. It aspires to perfect competition, but doesn't quite make it.
Monopoly: A market in which there is a single seller of a unique product with no close substitute and in which that single seller is protected from competition by barriers to entry preventing the entry of new firms. As the single seller of a unique good with no close substitutes, a monopoly firm essentially has no competition. The demand for a monopoly firm's output is THE market demand. This gives the firm extensive market power, making a monopoly firm a price maker. However, while a monopoly can control the market price, it can not charge more than the maximum demand price that buyers are willing to pay.
Monopsonistic competition: A market structure characterized by a large number of small buyers, that purchase similar but not identical inputs, have relative freedom of entry into and exit out of the industry, and have extensive knowledge of prices and technology. Monopsonistic competition is the somewhat obscure and seldom discussed buying counterpart to a monopolistic competition on the selling side of a market. Whereas monopolistic competition is most relevant to product markets, monopsonistic competition is most relevant to factor markets.
Monopsony: A market in which there is a single buyer of a product. Monopsony is the buying-side equivalent of a selling-side monopoly. Much as a monopoly is the only seller in a market, monopsony is the only buyer. While monopsony could be analyzed for any type of market it tends to be most relevant for factor markets in which a single firm is the only buyer of a factor of production.
Moral hazard: A situation in which one of the parties to an agreement has an incentive after the agreement is made to act in a manner that brings additional benefits to himself or herself at the expense of the other party. The risk that a party to a transaction has not entered into a contract in good faith, has provided misleading information about its assets, liabilities, or credit capacity, or has an incentive to take unusual risks in an attempt to earn a profit before the contract settles.
Multilateralism: An international policy intended to free international trade from the restrictions of bilateralism. Multilateralism represents an effort to permit nations to specialize in production and exchange in accordance with the principle of comparative advantage. Compare to bilateralism.
Multiplier: The multiplier is the amount by which a change in autonomous expenditure is magnified or multiplied to determine the change in equilibrium expenditure and real GDP.
Mutual fund: An institution that sells shares to the public and uses the proceeds to buy a portfolio of stocks and bond.
Mutual savings banks: Depository institutions which accept deposits primarily from individuals and place a large portion of their funds into mortgage loans. These banks are prominent in many of the northeastern states. Savings banks generally have broader asset and liability powers than savings and loan associations but narrower powers than commercial banks. Savings banks are authorized to offer checking-type accounts.

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Nash equilibrium: The outcome of a game that occurs when player A takes the best possible action given the action of player B and player B takes the best possible action given the action of player A.
National income: The total income earned by the citizens of the national economy as a result of their ownership of resources used in the production of final goods and services during a given period of time, usually one year. This is the government's official measure of how much income is generated by the economy. National income, generally abbreviated as NI, is the broadest, most comprehensive of three income measures reported quarterly (every three months) in the national income and product accounts by the Bureau of Economic Analysis. The other two are personal income (PI) and disposable income (DI). Two related measures of production worth a mention are gross domestic product (GDP) and net domestic product (NDP).
National saving: Saving by households and businesses plus government saving.
Natural monopoly: One producer supplying all of the market at lower costs than many producers could.
Natural rate hypothesis: The claim that unemployment eventually returns to its normal, or natural, rate, regardless of the rate of inflation.
Natural rate of unemployment: The natural rate of unemployment is the unemployment rate when the economy is at full employment. There is no cyclical unemployment, all unemployment is frictional and structural.
Negative income tax: A redistribution scheme that gives every family a guaranteed minimum annual income and taxes all income above the guaranteed minimum at a fixed marginal tax rate.
Negative relationship: A negative relationship is a relationship between variables that move in opposite directions. This is also called an inverse relationship.
Neolassical growth theory: Neoclassical growth theory is a theory of economic growth that proposes that real GDP grows because technological change induces saving and investment.
Net borrower: A net borrower is a country that is borrowing more from the rest of the world than it is lending to it.
Net exports: Net exports are equal to exports of goods and services minus imports of goods and services.
Net investment: Net increase in the capital stock--gross investment minus depreciation.
Net lender: A net lender is a country that lends more to the rest of the world than it borrows from the rest of the world.
Net present value: The present value of the future flow of marginal revenue product generated by capital minus the cost of the capital.
Net taxes: Net taxes are taxes paid to governments minus transfer payments received from governments.
New classical theory of the business cycle: A rational expectations theory of the business cycle that regards unanticipated fluctuations in aggregate demand as the main source of economic fluctuations.
New growth theory: New growth theory is a theory of economic growth based on the idea that real GDP grows because of the choices that people make in the pursuit of ever greater profit and that growth can persist indefinitely.
New Keynesian theory of the business cycle: A rational expectations theory of the business cycle that regards unanticipated fluctuations in aggregate demand as the main source of economic fluctuations but leaves room for anticipated demand fluctuations to play a role.
Nominal GDP: The value of the current period’s production in current period prices.
Nominal GDP targeting: An attempt to keep the growth rate of nominal GDP steady.
Nonexhaustible natural resource: Natural resources that can be used repeatedly without depleting what is available for future use.
Nontariff barrier: A nontariff barrier is any action other than a tariff that restricts international trade.
Normal goods: Normal goods are products which exhibit a direct relationship between changes in income and changes in their demand, holding the price of the product constant. As income increases, there is an increase in demand for those products which are normal goods. As their name implies, most products are normal goods. Products which have a positive income elasticity of demand are normal goods. Contrast with inferior goods.
Normal profit: Normal profit is the expected return for supplying the resource known as entrepreneurship. Normal profit is included in the total costs of the firm and is a source of income for the household. The total normal profit earned in a nation over the course of a year is included in that nation's gross domestic product (GDP).
Normative economics: Normative economics is the study of "what should be" in economic matters. Normative economics is subject to, and relies on, personal biases, opinions, and moral beliefs which may cloud the question at hand. The study of normative issues is more than likely to exist in the realm of political science and philosophy than in the strict study of economics, although economists occasionally study normative topics. Contrast with positive economics.
North American Free Trade Agreement (NAFTA): NAFTA is an agreement signed in 1994 between the United States, Canada, and Mexico to virtually eliminate all barriers to international trade between them in 15 years.
Note: See Treasury note.

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Occupational mobility: The mobility, or movement, of factors of production from one type of productive activity to another type of productive activity. In particular, occupational mobility is the ease with which resources can change occupations. For example, a worker leaves a job as an accountant to take a job as a computer programmer. Some factors are highly mobile and thus can easily moved jobs. Other factors are highly immobile and not easily able to switch production activities.
Official settlements account: The official settlements account is a record of the change in a country's official reserves.
Official U.S. reserves: Official U.S. reserves are the government's holdings of foreign currency.
Oligopoly: A market dominated by a small number of large firms, selling either identical or differentiated products, and significant barriers to entry into the industry. This is one of four basic market structures. The other three are perfect competition, monopoly, and monopolistic competition.
Oligopsony: A market structure dominated by a small number of large buyers controlling the buying-side of a market. Oligopsony is the somewhat obscure and seldom discussed buying counterpart to an oligopoly seller that controls the selling side of a market. Whereas oligopoly is most relevant to product markets, oligopsony is most relevant to factor markets.
Open economy: An economy that interacts freely with other economies around the world. Contrast with closed economy.
Open market operation (OMO): An open market operation is the purchase or sale of government securities by the Federal Reserve System in the open market.
Opportunity cost: The opportunity cost of an activity (or choice) is the highest-valued alternative activity which is forgone. In economic decision-making, one goal is usually to minimize the opportunity cost of the selected activity.
Own price: The price of a good. For example, if the price of oranges is $1, this is the own price of oranges.

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Paper currency

Paper usually issued by the national government that are used as money. Metal coins are also frequently included under the generic heading of currency. Currency in the U.S. economy is issued by the Federal Reserve System (paper) and the U.S. Treasury (coins). This constitutes about 30 to 40 percent of the M1 money supply. Most modern currency is fiat money.

Paper economy

Markets, exchanges, and assorted economic activity that deal with legal or paper claims on physical assets rather than the physical assets. The vast majority of activities for the paper economy take place through financial markets. The paper (or financial) economy is based legal claims on these physical goods and resources. The term paper economy is used because these legal claims historically have been pieces of paper -- paper that you can't eat, wear, or live in to satisfy wants and needs. However, as technology progresses, much of the paper is giving way to electronic data storage.

Paradox of thrift

Increased saving increases withdrawals from the money flow. Unless these withdrawals are successfully channeled into new investment spending, capital formation will decline.

Partnership

One of the three basic forms of business organization (the other two being corporation and proprietorship). A partnership is a business which is owned and operated by two or more people. The owners and the business are legally considered one and the same. As such, each owner has unlimited liability, which means that an owner is held personally responsible for any and all of the business's debts, including those made by any of the partners.

Patent

A government-sanctioned exclusive right granted to the inventor of a good, service, or productive process to produce, use, and sell the invention for a given number of years.

Payoff matrix

A table that shows the payoffs for every possible action by each player for every possible action by each other player.

Peak

A peak is a business cycle phase in which the trend growth of real GDP is at its maximum. A peak follows an expansion (or recovery) and precedes a recession. A peak is the opposite of a trough in the cycle.

Perfect competition

An ideal market structure characterized by a large number of small firms, identical products sold by all firms, freedom of entry into and exit out of the industry, and perfect knowledge of prices and technology. This is one of four basic market structures. The other three are monopoly, oligopoly, and monopolistic competition. Perfect competition is an idealized market structure that's not observed in the real world. While unrealistic, it does provide an excellent benchmark that can be used to analyze real world market structures. In particular, perfect competition efficiently allocates resources.

Perfectly elastic demand

Demand is perfectly elastic when the price elasticity of demand is infinity; the quantity demanded is infinitely responsive to a change in the price.

Perfectly inelastic demand

Demand is perfectly inelastic when the price elasticity of demand is zero; the quantity demanded remains constant when the price changes.

Perfect price discrimination

Price discrimination that extracts the entire consumer surplus.

Personal income

The total income received by the members of the domestic household sector, which may or may not be earned from productive activities during a given period of time, usually one year. The primary use of personal income is to measure the income actually paid out to the household sector. After adjusting for income taxes, personal income forms the basis for consumption expenditures on gross domestic product.

Personal income tax

A tax on individual income. This is the primary source of revenue for the federal government and a major source for many state and local governments. In principle, personal income taxes are progressive, based on a graduated tax scale. However, it's much more proportional today than it was several decades ago.

Per unit tax

See excise tax.

Phillips curve

A curve that shows a relationship between inflation and unemployment.

Pigovian tax

A tax enacted to correct the effects of a negative externality.

Political equilibrium

The outcome that results from the choices of voters, politicians, and bureaucrats.

Positive economics

Positive economics is the study of "what is" in economic matters. Positive economics focuses on the analysis of and data associated with the question at hand and does not rely on personal biases, opinions, and moral beliefs -- indeed, it attempts to ignore these as best as possible. Contrast with normative economics.

Positive relationship

A positive relationship is a relationship between two variables that move in the same direction.

Potential Gross Domestic Product (potential GDP)

Potential GDP is the value of production when all the economy's resources (labor, land, capital, and entrepreneurship) are fully employed. Unemployment is at its natural rate and the economy is at full employment.

Poverty

A state in which a family’s income is too low to be able to buy the quantities of food, shelter, and clothing that are deemed necessary.

Poverty line

An absolute level of income set by the federal government for each family size below which a family is deemed to be in poverty.

Poverty rate

The percentage of the population whose family income falls below an absolute level called the poverty line.

Present value

The amount of money that, if invested today, will grow to be as large as a given future amount when the interest that it will earn is taken into account.

Price ceiling

A price ceiling is a regulation that makes it illegal to charge a price higher than a specified level. An "effective" price ceiling (below the equilibrium price) generally leads to a shortage, which is an unintended (but predictable) consequence.

Price discrimination

Price discrimination is the practice of selling different units of a good or service for different prices or of charging one customer different prices for different quantities bought. For a firm to be able to price discriminate, it must:

possess market power so that it has the ability to influence price and quantity;
identify differences between consumers on which they would be willing and able to pay different prices (usually along the lines of differences in price elasticities of demand); and
be able to separate the different consumers so they are unable to buy the product as a member of the lower-priced group of consumers then re-sell it in the higher-priced market (arbitrage).

Price effect

The change in consumption that results from a change in the price of a good or service, other things remaining the same.

Price elasticity of demand

Price elasticity of demand is a measure of the responsiveness of the quantity demanded of a good to a change in its price, all other influences on buyers' plans remaining the same. It is equal to the percentage change in quantity demanded divided by the percentage change in price.

Price floor

A price floor is a regulation that makes it illegal to charge a price lower than a specified level. An "effective" price floor (above the equilibrium price) generally leads to a surplus, which is an unintended (but predictable) consequence.

Price index

A measure of the weighted-average of the price for a "market basket" of goods calculated as a ratio to market basket price in a given time period (the base year). Mathematically, [(price in a given year) divided by (price in base year)]. A price index is primarily used to compare relative prices, or changes in the group prices over time. Such an index is a handy indicator of overall price trends. Two common price indexes that surface in the study of macroeconomics are the Consumer Price Index (CPI) and the GDP price deflator, both used to indicate the macroeconomy's average price level and the inflation rate.

Price level

The average of the prices of goods and services produced in the aggregate economy. In a theoretical sense, the price level is the price of aggregate production. In a practical sense, the price level is measured by either of two price indexes, the Consumer Price Index (CPI) or the GDP price deflator. The CPI is the price index widely publicized in the media and used by the general public. The GDP price deflator, in contrast, is less well-known, but is usually the price index of choice among economists. When calculated as percentage changes from year-to-year, changes in the price level indicate the inflation rate.

Price maker

A price maker is a buyer (individual) or seller (firm) which possesses adequate little market power that it has the ability to influence, if not completely determine, the price of the good or service in the market. From the selling side of the market, a monopoly is the best example of a price maker. As the only seller in the market, a monopoly firm has the ability to control the price as it has significant market power. Firms operating under oligopoly and monopolistic competition are also price makers, although to a lesser degree, depending on their relative market power. From the buying side of the market, a monopsony is also a price maker. As the only buyer in the market, a monopsony firm is able to control the price. Firms operating under oligopsony and monopsonistic competition are price makers, also to a lesser degree Contrast to price taker.

Price taker

A price taker is a buyer (individual) or seller (firm) which possesses so little market power that it cannot influence the price of the good or service it produces. Therefore it "takes" the market price as given in determining. The market structure which is populated by firms which are price takers, each individually incapable of changing the market price, is perfect competition. Contrast to price maker.

Principal-agent problem

The problem of devising incentive rules (such as compensation) which induce individuals who have control over resources (agents) to act in the best interest of those they are supposed to be serving (principals) instead of their own self-interest.

Principle of minimum differentiation

The tendency for competitors to make themselves identical as they try to appeal to the maximum number of clients or voters.

Prisoners' dilemma

A particular 'game' between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial.

Private good

A private good is a good or service which cannot be consumed simultaneously by everyone, even if they do pay for it. A private good is excludable in consumption. A private good is nearly an opposite to a public good.

Private information

Information that is available to one person but is too costly for anyone else to obtain.

Private sector surplus or deficit

The private sector surplus or deficit is an amount equal to saving minus investment.

Producer efficiency

Producer efficiency occurs when firms cannot lower the cost of producing a given output by changing the resources they use.

Producer surplus

Producer surplus is the price a producer gets for a good or service minus the opportunity cost of producing it.

Product

A product is the final result of the firm combining resources in making its output. When a product is produced, the firm utilizes resources, based on a chosen technology, and pays the costs of production associated with using those resources and that technology. A product may fall into one of three categories -- a good, a service, or a bad.

Product differentation

Making a good or service slightly different from that of a competing firm for the purpose of increasing sales.

Production efficiency

Production efficiency is a situation in which the economy cannot produce more of one good without producing less of some other good.

Production function

Production function is the relationship between the maximum output attainable and the quantities of both labor and capital.

Production Possibilities Frontier (PPF)

The production possibilities frontier (PPF) is a representation of the various combinations of the maximum quantities of two products which an economy can produce given the full employment of its resources using the best available technology at a point in time. This representation may be either in graphic or tabular format.

All combinations of products which represent the maximum quantities of the products (points on the PPF) are attainable and efficient.
All combinations of products which represent less than the maximum quantities of the products (points inside the PPF) are attainable but inefficient and suggest either less than full employment of resources or use of less than the best available technology.
All combinations of products which represent more than the maximum quantities of the products (points beyond the PPF) are not presently attainable and necessitate economic growth to become attainable by expanding the PPF.

Productive resources

The economy's productive resources are land, labor, capital, and entrepreneurship. Productive resources are also called "resources" or "factors of production".

Productivity

The quantity of goods and services produced from each hour of a worker's time.

Productivity growth slowdown

A productivity growth slowdown is a slowdown in the growth rate of output per person.

Progressive income tax

A tax on income at a marginal rate that increases with the level of income.

Property rights

The conditions of ownership of an asset -- the rights to own, use and sell.

Proprietorship

One of the three basic forms of business organization (the other two being corporation and partnership). It's a business which is owned and operated by one person. The owner and the business are legally considered one and the same. As such, the owner gets any and all profit and has what is termed unlimited liability, which means that the owner is held personally responsible for any and all of the business's debts. The owner can lose personal property over and above the amount invested in the business itself. The majority of businesses in our economy are proprietorships, but because their size is limited by the resources of a single person, they tend to be relatively small.

Proportional income tax

A tax on income which remains at a constant rate, regardless of the level of income.

Public good

A public good is a good or service which can be consumed simultaneously by everyone, even if they don't pay for it. A pubic good is non-excludable in consumption. A public good can exist in nature (such as the air you breathe), can be produced by a government (such as national defense), or can be produced by private individuals or firms (such as over-the-airwaves radio programs). A public good is nearly an opposite to a private good.

Public interest theory

A theory of regulation that states that regulations are supplied to satisfy the demand of consumers and producers to maximize total surplus -- that is, to attain efficiency.

Purchasing power parity

Purchasing power is the value of money and parity is equality hence, purchasing power parity means that in different currencies and countries, money has equal value. A theory by which the exchange rate between any two currencies adjusts to reflect changes in the price levels within those two countries.

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Quantity demanded: The quantity demanded of a product is the amount that consumers are willing and able to purchase at a particular price during a given period of time.
Quantity of labor demanded: The labor hours hired by the firms in the economy.
Quantity of labor supplied: The number of labor hours that all households in the economy plan to work.
Quantity supplied: The quantity supplied of a product is the amount that producers are willing and able to produce and sell at a particular price during a given period of time.
Quantity theory of money: The proposition that in the long run, an increase in the quantity of money brings an equal percentage increase in the price level.
Quota: A quota is a quantitative restriction on the import of a particular good, which specifies the maximum amount that can be imported in a given time period.

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