negative income taxa government
program that supplements the income
of low-income working families.
(p. 769)
net exports the difference between
the value of exportsand the value of
imports.A positive value for net
exports indicates that a country is a
net exporter of goods and services; a
negative value indicates that a coun-
try is a net importer of goods and
services. (p. 108)
net present valuethe present valueof
current and future benefits minus the
present value of current and future
costs. (p. 240)
network externalitywhen the value of
a good to an individual is greater
when more people also use the good.
(p. 739)
new classical macroeconomicsan
approach to the business cyclethat
returns to the classical view that shifts
in the aggregate demand curveaffect
only the aggregate price level,notaggre-
gate output.(p. 351)
new Keynesian economicstheory that
argues that market imperfections can
lead to price stickiness for the econo-
my as a whole. (p. 352)
nominal GDPthe value of all final goods
and servicesproduced in the economy
during a given year, calculated using the
prices current in the year in which the
output is produced. (p. 114)
nominal interest rate the interest rate
actually paid for a loan, not adjusted
for inflation. (p. 138)
nominal wagethe dollar amount of
any given wage paid. (p. 180)
nonaccelerating inflation rate of unem-
ployment (NAIRU)the unemployment
rate at which, other things equal,
inflationdoes not change over time.
(p. 336)
noncooperative behavioractions by
firms that ignore the effects of those
actions on the profits of other firms.
(p. 640)
nonexcludablereferring to a good,
describes the case in which the suppli-
er cannot prevent those who do not
pay from consuming the good.
(p. 743)
nonprice competitioncompetition in
areas other than price to increase
sales, such as new product features
and advertising; especially engaged in
by firms that have a tacit understand-
ing not to compete on price. (p. 656)
nonrival consumptionreferring to a
good, describes the case in which the
same unit can be consumed by more
than one person at the same time.
(p. 744)
normal gooda good for which a rise
in income increases the demand for
that good—the “normal” case. (p. 53)
normal profitan economic profit equal
to zero. It is an economic profit just
high enough to keep a firm engaged in
its current activity. (p. 534)
normative economicsthe branch of
economic analysis that makes pre-
scriptions about the way the economy
should work. (p. 6)
oligopolist a firm in an industry with
only a small number of producers.
(p. 5 73)
oligopolyan industry with only a
small number of producers. (p. 573)
open-market operationa purchase or
sale of U.S. Treasury bills by the
Federal Reserve, undertaken to change
the monetary base,which in turn
changes the money supply.(p. 264)
opportunity costthe real cost of an
item: what you must give up in order
to get it. (p. 3)
optimal consumption bundlethe con-
sumption bundlethat maximizes the
consumer’s total utilitygiven his or
herbudget constraint.(p. 515)
optimal consumption rulewhen a con-
sumer maximizes utility, the marginal
utility per dollar spent must be the
same for all goods and services in the
consumption bundle. (p. 520)
optimal output ruleprofit is maxi-
mized by producing the quantity of
output at which the marginal revenue
of the last unit produced is equal to
itsmarginal cost.(p. 537)
ordinary goodsin a consumer’s utility
function,those for which additional
units of one good are required to
compensate for fewer units of anoth-
er, and vice versa; and for which the
consumer experiences a diminishing
marginal rate of substitution when
substituting one good in place of
another. (p. 795)
other things equal assumptionin the
development of a model, the assump-
tion that all relevant factors except
the one under study remain
unchanged. (p. 14)
outputthe quality of goods and serv-
ices produced. (p. 12)output gap the percentage difference
between actual aggregate outputand
potential output.(p. 196)
overuse the depletion of a common
resourcethat occurs when individuals
ignore the fact that their use depletes
the amount of the resource remaining
for others. (p. 749)
patenta temporary monopoly given by
the government to an inventor for the
use or sale of an invention. (p. 572)
payoff ingame theory,the reward
received by a player in a game (for
example, the profit earned by an oli-
gopolist). (p. 644)
payoff matrixingame theory,a dia-
gram that shows how the payoffs
to each of the participants in a
two-player game depend on the
actions of both; a tool in analyzing
interdependence. (p.644)
pension funda type of mutual fund
that holds assets in order to provide
retirement income to its members.
(p. 228)
perfectly competitive industryan
industry in which all producers are
price-takers. (p. 569)
perfectly competitive marketa market
in which all market participants are
price-takers. (p. 568)
perfectly elastic demandthe case in
which any price increase will cause the
quantity demandedto drop to zero; the
demand curveis a horizontal line.
(p. 467)
perfectly elastic supplythe case in
which even a tiny increase or reduc-
tion in the price will lead to very large
changes in the quantity supplied,so
that the price elasticity of supply is infi-
nite; the perfectly elastic supply curve
is a horizontal line. (p. 479)
perfectly inelastic demandthe case in
which the quantity demandeddoes not
respond at all to changes in the price;
the demand curveis a vertical line.
(p. 466)
perfectly inelastic supplythe case in
which the price elasticity of supplyis
zero, so that changes in the price of
the good have no effect on the quanti-
ty supplied;the perfectly inelastic sup-
ply curveis a vertical line. (p. 478)
perfect price discrimination a situation
in which a monopolist charges each
consumer his or her willingness to
pay—the maximum that the consumer
is willing to pay. (p. 627)GLOSSARY G-9