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Absolute advantage The ability
of a country to produce a product
more efficiently than another.
Aggregate The total amount;
for instance, aggregate demand
is the total demand for goods and
services in an economy.
Asymmetric information An
imbalance of information; for
instance, buyers and sellers may
have more or less information
about the product than each other.
Austrian School A school of
economics founded by Carl Menger
in the late 19th century. It attributes
all economic activity to the actions
and free choice of individuals and
opposes all forms of government
intervention in an economy.
Balance of trade The difference
in value of a country’s imports and
exports over a given time period.
Bankruptcy A legal declaration
that an individual or a firm cannot
repay their debts.
Barter system A system of
exchange in which goods or services
are exchanged for one another
directly without the use of a medium
of exchange, such as money.
Bear market A period of
decline in the value of shares
or other commodities.
Behavioral economics A branch
of economics that studies the effects
of psychological and social factors
on decision making.
Bond An interest-bearing form of
loan used to raise capital. Bonds
are issued as certificates by the
bond issuer (such as a government
or firm) in return for a sum of money;
the bond issuer agrees to repay the
borrowed sum plus interest at a
fixed date in the future.Bretton Woods system A system
of exchange rates agreed upon
between the world’s major industrial
nations in 1945. It tied the value of
the US dollar to gold, and the value
of other currencies to the US dollar.Budget A financial plan that lists
all planned expenses and incomes.Budget constraint The limit
on the goods and services that
a person can afford.Bull market A period when
the value of shares or other
commodities increase.Business cycle An economy-
wide fluctuation in growth that
is characterized by periods of
expansion (boom) and periods
of contraction (bust).Capital The money and physical
assets (such as machines and
infrastructure) used to produce
an income. A key ingredient of
economic activity, along with land,
labor, and enterprise.Capitalism An economic system in
which the means of production are
privately owned, firms compete to
sell goods for a profit, and workers
exchange their labor for a wage.Cartel A group of firms that agree
to cooperate in such a way that
the output of a particular good is
restricted, and prices are driven up.Central bank An institution that
manages a country’s currency,
alters money supply, and sets
interest rates. It may also act as
a lender of last resort to banks.Central planning A system
of centralized government
control of an economy, where
decisions regarding production
and allocation of goods are made
by government committees.Chaos theory A branch of
mathematics that shows how small
changes in initial conditions can
cause larger effects later on.Chicago School An avidly free
market group of economists—linked
to the University of Chicago—whose
ideals of market liberalization and
deregulation became mainstream
in the 1980s.Classical economics An early
approach to economics developed
by Adam Smith and David Ricardo,
focusing on the growth of nations
and free markets.Collusion An agreement between
two or more firms not to compete
so they can fix prices.Command economy An economy
in which all aspects of economic
activity are controlled by a central
authority, such as the state. Also
called a planned economy.GLOSSARY