fixed exchange rateanexchange rate
regimein which the government keeps
the exchange rateagainst some other
currency at or near a particular target.
(p. 431)
fixed inputaninputwhose quantity is
fixed for a period of time and cannot
be varied (for example, land).
(p. 542)
floating exchange rateanexchange rate
regimein which the government lets
the exchange ratego wherever the mar-
ket takes it. (p. 431)
foreign exchange controls licensing
systems that limit the right of individ-
uals to buy foreign currency. (p. 433)
foreign exchange market the market in
which currencies are traded. (p. 421)
foreign exchange reservesstocksof for-
eign currency that governments can
use to buy their own currency on the
foreign exchange market.(p. 432)
free entry and exitdescribes an indus-
try that potential producers can easily
enter or current producers can leave.
(p. 570)
free-rider problem when individuals
have no incentiveto pay for their own
consumption of a good, they will take
a “free ride” on anyone who does pay;
a problem that with goods that are
nonexcludable.(p. 745)
frictional unemploymentunemployment
due to time workers spend in job
search.(p. 127)
gains from tradeAn economic princi-
ple that states that by dividing tasks
and trading, people can get more of
what they want through tradethan
they could if they tried to be self-
sufficient. (p. 23)
game theorythe study of behavior in
situations of interdependence.Used to
explain the behavior of an oligopoly.
(p. 644)
GDP deflatora price measure for a
given year that is equal to 100 times
the ratio of nominal GDPtoreal GDP
in that year. (p. 146)
GDP per capitaGDP divided by the
size of the population; equivalent to
the average GDP per person. (p. 115)
Gini coefficient a number summarizes
a country’s level of income inequality
based on how unequally income is
distributed across the quintiles.
(p. 761)
government borrowing the amount of
funds borrowed by the government in
financial markets to buy goods and
services. (p. 105)
government purchases of goods and
servicestotal purchases by federal,
state, and local governments on goods
and services. (p. 105)
government transferspayments by the
government to individuals for which
no good or service is provided in
return. (p. 105)
gross domestic product (GDP)the total
value of all final goods and servicespro-
duced in the economyduring a given
period, usually a year. (p. 106)
growth accountingestimates the con-
tribution of each of the major factors
(physical and human capital, labor,
and technology) in the aggregate pro-
duction function.(p. 378)
Herfindahl–Hirschman Index, orHHIis
the square of each firm’s share of
market sales summed over the indus-
try. It gives a picture of the industry
market structure. (p. 573)
householda person or a group of peo-
ple who share income. (p. 103)
human capitalthe improvement in
labor created by the education and
knowledge embodied in the workforce.
(pp. 373, 680)
illiquiddescribes an asset that cannot
be quickly converted into cash without
much loss of value. (p. 226)
implicit costa cost that does not
require the outlay of money; it is
measured by the value, in dollar
terms, of forgone benefits. (p. 530)
implicit cost of capitalthe opportunity
costof the capital used by a business;
that is the income that could have
been realized had the capital been
used in the next best alternative way.
(p. 532)
implicit liabilitiesspending promises
made by governments that are effec-
tively a debt despite the fact that they
are not included in the usual debt
statistics. In the United States, the
largest implicit liabilities arise from
Social Security and Medicare, which
promise transfer payments to current
and future retirees (Social Security)
and to the elderly (Medicare).
(p. 303)
importsgoods and services purchased
from other countries. (p. 105)
incentive anything that offers rewards
to people who change their behavior.
(p. 2)income effect the change in the quan-
tity of a good consumed that results
from the change in a consumer’s pur-
chasing power due to the change in
the price of the good. (p. 459)
income-elastic demandwhen the
income elasticity of demandfor a good is
greater than 1. (p. 476)
income elasticity of demandthe per-
cent change in the quantity of a
good demanded when a consumer’s
income changes divided by the per-
cent change in the consumer’s
income. (p. 476)
income-inelastic demandwhen the
income elasticity of demandfor a good is
positive but less than 1. (p. 476)
increasing returns to scalelong-run
average total costdeclines as output
increases (also referred to as economies
of scale). (p. 562)
indifference curvea contour line
showing all consumption bundlesthat
yield the same amount of total utility
for an individual. (p. 789)
indifference curve mapa collection
ofindifference curves for a given
individual that represents the indi-
vidual’s entire utility function; each
curve corresponds to a different total
utilitylevel. (p. 789)
individual choicethe decision by an
individual of what to do, which neces-
sarily involves a decision of what not
to do. (p. 2)
individual consumer surplusthe net
gain to an individual buyer from the
purchase of a good; equal to the dif-
ference between the buyer’s willing-
ness to payand the price paid.
(p. 485)
individual demand curvea graphical
representation of the relationship
between quantity demandedand price
for an individual consumer. (p. 55)
individual labor supply curvea graphi-
cal representation showing how the
quantity of labor supplied by an indi-
vidual depends on that individual’s
wage rate. (p. 696)
individual producer surplusthe net
gain to an individual seller from sell-
ing a good; equal to the difference
between the price received and the
seller’s cost.(p. 490)
individual supply curvea graphical
representation of the relationship
between quantity suppliedandpricefor
an individual producer. (p. 63)GLOSSARY G-5