Glossary

Absolute advantage: Occurs when a person can produce more units per hour in a particular task, compared to someone else. (Lesson 8)

Anarchists: People who think there should be no government. (Lesson 15)

Arbitrage opportunity: The ability to earn a “sure profit” when the same good sells at different prices at the same time. (Lesson 7)

Austrian economics: A school of thought (inspired by Carl Menger and others who happened to be Austrian) that blames recessions on government interference with the economy and recommends tax and spending cuts to help the economy during a recession. (Lesson 2)

Axioms: The starting assumptions or foundations in a deductive system. For example, the method of constructing a straight line between two points could be an axiom in a geometry textbook. Axioms are not proved, but are assumed to be true in order to prove other, less obvious, statements. (Lesson 2)

Bank: A common credit intermediary, which takes deposits from many different lenders and makes loans to many different borrowers. (Lesson 12)

Bankrupt: The situation that occurs when a business has liabilities greater than its assets. (Lesson 14)

Barter: A situation where people exchange goods and services directly, rather than using money in an intermediary transaction. (Lesson 1)

Beggar-thy-neighbor policies: Policies (usually involving currencies and trade restrictions) that make other countries poorer, in the attempt to make one’s own country richer. (Lesson 19)

Benefits: The subjective enjoyments flowing from a course of action. (Lesson 4)

Black market: The system of illegal transactions that violate government regulations. (Lesson 18)

Bond: A corporation’s IOU, which is a legally binding promise to repay borrowed money plus interest. The buyer of a bond gives money to the corporation today, in the hopes of receiving back the principal plus interest in the future. (Lesson 12)

Borrowing / dissaving: The amount by which consumption spending is greater than income. (Lesson 10)

Budget deficits: The excess of government spending over tax receipts. The deficit is the amount the government must borrow to pay its bills in a given period. (Lessons 2, 18)

Business cycle / boom-bust cycle: The regular pattern in market economies where a “boom” period—characterized by low unemployment and prosperity—is followed by a “bust” or recession period—characterized by high unemployment and business failures. (Lesson 23)

Callable bonds: Bonds that the issuer (borrower) has the right to pay off ahead of schedule. (Lesson 14)

Calculation problem: The objection Ludwig von Mises raised against socialism, which points out that because socialist planners lack market prices for resources, they can’t determine if a particular project uses up more resources than it produces in goods and services. Even if the planners were angels, they would have no idea whether they were using scarce resources in an efficient way to best serve the citizens. (Lesson 15)

Capital consumption: Achieving a higher standard of living (temporarily) by failing to invest enough in the maintenance of capital goods. “Eating the seedcorn,” metaphorically speaking. (Lesson 23)

Capital goods: Producer goods that are produced by human beings; they are not direct gifts from nature. (Lesson 4)

Capitalism: A economic system relying on private property and free enterprise. No single person or group controls the system as a whole. (Lesson 5)

Capitalists: The people in a capitalist society who control (large amounts of) financial wealth. The very wealthy capitalists exercise a large degree of control over businesses. (Lesson 5)

Collateral: An asset that a borrower “puts up” when applying for a loan. If the borrower defaults, the lender may take possession of the collateral as compensation. (For example, if a borrower wants money to buy a house or a car, these items themselves can serve as the collateral, meaning that if the borrower fails to make his or her payments on schedule, the lender can take control of the house or car.) (Lesson 12)

Command economy / command-and-control economy / socialism: An institutional arrangement in which the government owns all the major resources, and directs labor, according to a unified central plan. (Lesson 15)

Communism: An economic and political ideology that seeks to gain government ownership of the means of production (in the name of the workers) through violent revolution. (Lesson 16)

Comparative advantage: Occurs when a person has the relative superiority in a particular task, when taking all other tasks into account. (Jim can have a comparative advantage in a certain task, even if Mary has the absolute advantage, because Mary might have an absolute advantage that’s even greater in something else.) (Lesson 8)

Competition: The rivalry that exists between entrepreneurs who have the option of hiring the same workers and buying the same resources, in order to produce goods and services to be sold to the same customers. (Lesson 9)

Complements: Goods (or services) that consumers use together. For example, hot dogs and mustard might be complements if someone goes to the store in preparation for a cookout. A change in the price of one good tends to cause a change in the opposite direction in the demand for a complement. (A reduction in the price of hot dogs will probably cause an increase in the demand for mustard.) (Lesson 11)

Consumer goods and services: Scarce physical items or services that directly satisfy a person’s preferences. (Lesson 4)

Consumer Price Index (CPI): The Bureau of Labor Statistics’ gauge of the “price level” affecting regular households. The CPI is an average (weighted by their relative importance) of the prices of gasoline, food, and other common items. (Lesson 21)

Corporate Stock: Partial ownership claims to a corporation. If there are 100,000 total shares of stock in a corporation, someone who buys 5,000 shares owns 5% of the corporation itself. (Lesson 14)

Corruption: In the context of the drug trade, the failure of police and other government officials to execute their duties, either because they are accepting bribes from drug dealers or because they themselves are trafficking in prohibited substances. In some cases police officers have simply robbed drug dealers (of cash) at gunpoint, knowing that they had no recourse. (Lesson 20)

Countercyclical policies: Standard government and Federal Reserve policies that are supposed to counteract the movements of the free market. For example, Keynesian economists would justify government deficits during a recession as a way to stimulate total spending and to boost employment. (Lesson 23)

Credit card: A device that allows the borrower to achieve virtually instant loans from the credit card company when making purchases. (Lesson 12)

Credit history: A person’s record of borrowing and repayment behavior. (Lesson 12)

Credit limit: The maximum amount of money that a person can borrow from a pre-approved source (such as a credit card). (Lesson 12)

Credit intermediary: A person or organization that is the “middleman” between lenders and borrowers. (Lesson 12)

Credit risk: The likelihood that a borrower will be unable to pay back a loan. (Lesson 12)

Credit score: A number that an agency will assign to a person based on his or her credit history, which helps potential lenders decide on the riskiness of lending money to the person. (Lesson 12)

Crowding out: The reduction in private-sector investment that results from government deficit spending. The government’s borrowing increases the demand for loanable funds, which makes the equilibrium interest rate higher than it otherwise would be. At the higher interest rate, private-sector businesses borrow less to fund investment spending. (Lesson 22)

Credit Transaction: An exchange where one person gives up something (such as money) today, while the other person promises to give up something (such as money) in the future. (Lesson 12)

Debasement: Government policies that weaken the money. When coins were valued because of their precious metal content, debasement meant melting the coins and re-minting them with baser (less valuable) metals added to the mixture. Under fiat money, debasement involves the rapid creation of new money, which reduces the value of a single unit of money. (Lesson 21)

Default: A situation when a borrower stops making repayments on a loan. (Lesson 12)

Delinquencies: Cases where borrowers are not in good standing with the lender (such as a bank), because they have not been keeping up with their required payments. (Lesson 12)

Demand: The relationship between the price of a good (or service), and the number of units that consumers want to purchase at each hypothetical price. (Lesson 11)

Demand curve: A graphical illustration of the demand relationship, with price placed on the vertical axis and quantity on the horizontal axis. Sometimes a generic demand curve is drawn as a smooth, curved line or even as a simple straight line. Demand curves are “downward sloping,” meaning that they start in the upper left and move down and to the right. (Lesson 11)

Demand schedule: A table that illustrates the demand relationship either for an individual or a group. (Lesson 11)

Depositors: People who give their money to a bank. (Lesson 12)

Depreciation: The wearing away or “using up” of capital goods during the course of production. (Lesson 4)

Direct exchange / barter: Trading that occurs when people swap goods that they directly value. (Lesson 6)

Discount: The percentage by which the value of a unit of money is reduced, because it will not be received until the future. (Lesson 12)

Disequilibrium: An unstable situation in which at least two people stand to benefit from an additional trade. (Lesson 6)

Disutility of labor: Economists’ term to describe the fact that people prefer leisure to labor. People only engage in labor because of its indirect rewards. (Lesson 4)

Dividend: A disbursement of a portion of a corporation’s net earnings to the stockholders. (Lesson 14)

Division of labor / specialization: The situation where each person works on one or a few tasks, and then trades to obtain the things produced by others. (Lesson 8)

Drug prohibition: Severe penalties that the government imposes on the consumption and especially the production and sale of certain drugs. (Lesson 20)

Economic democracy: An analogy to politics often used by (democratic) socialists to justify socialism. Most people would not like an aristocratic system in which a few elites made all the political decisions, but would instead prefer a democratic “one person, one vote” system. The socialists argue that their program simply applies this logic to the economic arena, taking power away from the small group of wealthy capitalists and showering it on the masses. (Lesson 15)

Economic problem: How to allocate society’s scarce resources (including labor) in order to produce the combination of goods and services that best satisfies people’s preferences. (Lesson 13)

Economies of scale: A condition in which output will increase more than proportionally as inputs are increased. For example, there are economies of scale if doubling the amount of inputs leads to a tripling in output. (Lesson 8)

Economize: The act of treating a resource with care because it is scarce and can only satisfy a limited number of goals or preferences. (Lesson 4)

Entrepreneur: The person in a market economy who hires workers and buys resources in order to produce goods and services. (Lesson 9)

Equilibrium: A stable situation after all disturbances or changes have worked themselves out. (Lesson 4)

Equilibrium position: A stable situation in which there are no further gains from trade. (Lesson 6)

Equilibrium price / market-clearing price: The price at which producers want to sell exactly the number of units that consumers want to purchase. On a graph, the equilibrium price occurs at the intersection of the supply and demand curves. (Lesson 11)

Equilibrium quantity: The number of units that producers want to sell, and consumers want to buy, at the equilibrium price. On a graph, the equilibrium quantity occurs at the intersection of the supply and demand curves. (Lesson 11)

Exchange rate: The “price” of one currency in terms of another, or how many units of one currency will trade for one unit of another currency. (Lesson 12)

Expectations: An individual’s forecasts of the future, which involve his or her understanding of “how the world works” and therefore guide current actions. (Lesson 4)

Expenses: The amount of money an entrepreneur spends on labor, raw materials, and other inputs during a period of time. (Lesson 9)

Exports: Goods (and services) that the people of a country sell to foreigners. (Lesson 19)

Face value of a bond: The amount of money the bond issuer promises to pay to the holder of the bond at the maturity date. (Lesson 22)

Fascism: An economic and political ideology that also seeks extensive government regulation of all resources in the service of the collective good, though fascism (unlike communism) allows private individuals to officially retain ownership of the factories and other capital goods. (Lesson 16)

Federal Reserve: The central bank of the United States, founded in 1913. The “Fed” is responsible for U.S. monetary policy, and has the dual mandate of providing stable economic growth (which implies full employment) and low price inflation. (Lesson 21)

Fiat money: Paper money that is not “backed” by anything. The only reason people accept fiat money in trade, is that they expect it to have purchasing power in the future. (Lesson 21)

Fixed costs: Monetary expenses that do not increase when a business expands output. For example, a barber shop’s monthly water bill will be roughly the same whether it provides 1 haircut or 100 haircuts per day, and so this is a fixed cost. (Lesson 20)

Flow variable: A concept that is measured over a period of time. For example, the flow rate of an irrigation pipe could be 100 gallons per minute. This measurement wouldn’t refer to the total amount of gallons contained in the entire pipe, but instead would refer to how many gallons passed through a particular section of the pipe every 60 seconds. (Lesson 22)

Fractional Reserve Banking: The typical practice where banks do not keep all of their customers’ deposits in the vault. In other words, all of the bank’s customers have more money on deposit, than the bank has cash in the vault. (Lesson 12)

Free enterprise: A system in which individuals can choose their own occupations and are free to start whatever business they wish. They don’t need special permission from anyone to enter an industry. (Lesson 5)

Free trade: An environment in which governments do not impose artificial restrictions on the flow of goods and services between their citizens and foreigners. (Lesson 19)

Gains from trade: A situation in which two people can both gain (subjective) benefits from swapping their property with each other. (Lesson 6)

Going public: Allowing the general public to buy shares of stock in a corporation, as opposed to restricting ownership to those specifically invited by the owners. (Lesson 14)

Goods: Scarce physical items that an individual values because they can help to satisfy his preferences. (Lesson 3)

Graduated income tax: An income tax that applies higher rates to higher levels of income. (Lesson 18)

Gross profit / accounting profit: The excess of revenues over out-of-pocket expenses. This is what newspapers mean when they report on a corporation’s “profits” for a given time period. (Lesson 13)

Guilds: The organization of occupations in the medieval period, before the capitalist era. A person who wanted to become a blacksmith or a carpenter would first need to be accepted by other members of the guild. (Lesson 5)

Hazard pay: The higher earnings necessary to attract workers into an industry that is more dangerous than others. (Lesson 20)

Hyperinflation: Very severe inflation. There is no precise boundary between inflation and hyperinflation, but in a hyperinflation people begin buying anything at all in order to unload their money holdings which are losing value by the hour. (Lesson 21)

Import quota: A maximum limit on the amount of a particular good that can be imported during a certain time period. (Lesson 19)

Imports: Goods (and services) that the people of a country buy from foreigners. (Lesson 19)

Income: The flow of consumer goods and services that a person has the potential to enjoy during a specific period of time. (Lesson 4)

Income / earnings (business): Revenues minus expenses. (Lesson 10)

Income (individual): The amount of money that can be spent on consumption goods in a certain period, from the sale of labor and the earnings of other assets (such as stocks). (Lesson 10)

Income tax: A tax that applies to the earnings of an individual or a corporation. Income taxes are usually applied as percentages of the pre-tax dollar income. (Lesson 18)

Income Tax Brackets: The thresholds of income that are taxed at various rates. For example, the lowest tax bracket might include incomes ranging from $0 to $10,000, which is taxed at 3%, while the next bracket might include incomes ranging from $10,001 to $20,000, which is taxed at 5%. (Lesson 18)

Incorporation: Transforming a business into a corporation, so that its ownership is allotted by shares of stock. (Lesson 14)

Indirect exchange: Trading that occurs when at least one of the parties accepts an item that he or she does not intend to use personally, but instead will trade it away in the future to get something else. (Lesson 6)

Inflation: A term that originally referred to the creation of new money, but nowadays often means an increase in prices. (Lessons 18, 21)

Initial public offering (IPO): The auction of shares to the general public when a corporation first decides to go public. (Lesson 14)

Institutions: Social relationships and practices that allow people to interact with each other. Institutions provide a framework of predictability in society. (Lesson 5)

Interest: The income earned during a period of time from lending savings to others. Interest is usually quoted as a percentage of the principal (the amount of money originally lent) earned per year. For example, if someone lends $1,000 today and is paid back $1,050 twelve months later, then the principal is $1,000, the interest earned is $50, and the interest rate is 5%. (Lesson 10)

Interest rate risk: The risk bondholders face because rising interest rates will reduce the market value of their bonds. (Lesson 14)

Interventionism: The philosophy of the mixed economy, in which the government heavily intervenes in the capitalist system to regulate how individuals can use their private property. (Lesson 17)

Investment: Diverting resources or savings into projects that are expected to increase future income. (Lessons 4, 10)

Issuing debt: Raising funds by selling bonds to lenders. (Lesson 14)

Issuing stock / issuing equity: Raising funds by selling stock shares to investors. (Lesson 14)

Keynesian economics: A school of thought (inspired by John Maynard Keynes) that prescribes government budget deficits as a way to lift the economy out of recession and restore full employment. (Lesson 2)

Labor: The contribution to production flowing from a person’s body. (Lesson 4)

Land / natural resources: Factors of production that are gifts of nature. (Lesson 4)

Law of Demand: If other influences stay the same, then a lower price will lead consumers to buy more units of a good (or service), while a higher price will lead them to buy fewer units. (Lesson 11)

Law of Supply: If other influences stay the same, then a higher price will lead producers to sell more units of a good (or service), while a lower price will lead producers to sell fewer units. (Lesson 11)

Leisure: A special type of consumer good that results from using one’s body (and time) to directly satisfy preferences, as opposed to engaging in labor. (Lesson 4)

Leverage: Enhancing the potential returns from an investment by using borrowed money. (Lesson 14)

Loan sharking: The practice of lending money at high interest rates and using illegal methods to obtain repayment. (Lesson 20)

Loanable funds market: The market in which lenders give money to borrowers at an agreed-upon interest rate. (Lesson 12)

Logical deduction: A form of reasoning that starts from one or more axioms and moves step-by-step to reach a conclusion. (Lesson 2)

M1: A popular measure of the total amount of money in an economy. Ml includes the actual currency held by the public (in their wallets, purses, and cashiers’ drawers) but also the total amount of checking account balances. (Because of the fractional reserve banking system, Ml is larger than the number of dollars printed on green pieces of paper. If everyone tried to withdraw his or her checking account from the banks at the same time, there wouldn’t be enough currency to go around. This is why Ml indicates more total money than just the amount of paper currency.) (Lesson 21)

Macroeconomics: The subdivision of economics that focuses on economy-wide issues such as price inflation and the business cycle. (Lesson 23)

Marginal productivity: The increased revenues that result from hiring an extra worker. (Lesson 9)

Marginal utility: A technical economics term referring to the subjective enjoyments of one additional unit of a good or service. (Lesson 4)

Market economy: Can be a synonym for capitalism. It also refers to the collection of voluntary exchanges that occur in a capitalist system. (Lesson 5)

Maturity: The time duration of a specific loan, and the interest rate that applies to it. (Loans and their corresponding bonds can have shorter or longer maturities.) (Lesson 12)

Medium of exchange: An object that is accepted in a trade, not because the person receiving it wants to directly use it, but because he or she wants to trade it away in the future to acquire something else. Every indirect exchange requires a medium of exchange, which is the good through which the ultimate trade occurs. (Likewise, sound waves require a medium to travel through, in order to reach your ears. When it comes to sound waves, the medium will usually be the air, but it can also be water if you are in a pool with your head below the surface.) (Lesson 7)

Mercantilism: The economic doctrine that views the accumulation of wealth as the path to national prosperity. It encourages exports and discourages imports. (Lesson 19)

Minimum wage: A price floor on payments to workers. (Lesson 17)

Mixed economy: A system that allows private citizens to legally own resources, but in which government officials lay down rules that limit the choices the legal owners can make with their property. (Lesson 5)

Monetary inflation: An expansion in the total amount of money in the economy. (Lesson 21)

Monetary profit: The amount by which revenues are greater than expenses. (Lesson 9)

Monetary loss: The amount by which expenses are greater than revenues. (Lesson 9)

Money: A good that is accepted by everyone in the economy on one side of every trade. In economics jargon, it is a widely (or universally) accepted medium of exchange. (Lessons 6, 7)

Mortgage: A special type of loan in which the borrower buys a house (or other real estate) with the funds. Usually the property serves as collateral for the mortgage. (Lesson 12)

National debt / public debt: Usually refers to the total outstanding value of bonds issued by the U.S. Treasury. As of May 2010, the “public debt” was almost $13 trillion, but much of this consists of Treasury bonds held by other government agencies (such as the Social Security Administration’s “trust fund”). When economists compare the levels of debt owed by various governments, they usually net out the “intragovernmental holdings” and report only the government debt held by the public. As of May 2010, this figure for the U.S. Treasury was almost $8.5 trillion. (See http://www.treasurydirect.gov/govt/reports/pd/mspd/2010/opds052010.pdf.) (Lesson 22)

Net profit / economic profit: The portion of gross profits over and above the normal interest return on the invested capital. (Lesson 13)

(Opportunity) cost: The benefits of the next-best alternative to a given action. (Lesson 4)

Owner: The person who has legal authority to decide how a particular unit of a resource or good shall be used. The owner can usually transfer ownership to another person. (Lesson 5)

Paternalism: Overriding the desires of someone else because he or she is not considered competent to make the right decision. (Lesson 18)

Preferences: An individual’s goals or desires. Economists interpret a person’s actions as attempts to satisfy his or her preferences. (Lesson 3)

Price: The terms of a trade, meaning how many units of one item are given up to acquire a unit of a different item. (Lesson 6)

Price ceiling: A type of price control on a particular good or service that sets a maximum level on the amount a buyer can pay a seller. (Lesson 17)

Price controls: Policies that punish people who exchange goods and services at prices different from the acceptable range prescribed by the government. (Lesson 17)

Price floor: A type of price control on a particular good or service that sets a minimum level that a buyer must pay a seller. (Lesson 17)

Price inflation: A general increase in the prices of goods and services, quoted in units money. Price inflation is the same thing as a fall in the purchasing power of money. (Lesson 21)

Price supports: Government policies that maintain a desired minimum price not by threatening buyers who pay too little, but instead by having the government directly buy the good or service whenever its market price would otherwise fall below the floor. (The effects of price supports are different from the effects of price floors.) (Lesson 17)

Private property: A system in which resources are owned by people outside of the government. (Lesson 5)

Private sector: The portion of an economy that is controlled by people outside of the government. (For example, a grocery store is in the private sector.) (Lesson 5)

Producer goods / factors of production / means of production: Scarce physical items or services that indirectly satisfy preferences, because they can be used to produce consumer goods and services. (Lesson 4)

Productive debt: Debt used to finance investments. Ideally, the extra income from the investment spending will allow the borrower to make the interest payments resulting from the increase in debt, so that the extra borrowing “pays for itself.” (Lesson 12)

Productivity: The amount of output produced by a factor of production in a period of time, often used in reference to labor. (Lesson 4)

Productivity of labor: The amount of output a worker can produce in a certain period of time. (Lesson 8)

Progressive income taxation: A system that taxes individuals or corporations at higher rates based on the level of income. (Lesson 3)

Protectionism: The philosophy that uses government trade restrictions in an attempt to help workers within the home country. The rationale is that by restricting foreign imports, the government will encourage consumers to “buy local,” providing employment for local workers. (Lesson 19)

Public sector: The portion of an economy that is controlled by the government. (For example, the local police station is in the public sector.) (Lesson 5)

Purposeful action: An activity undertaken for a conscious reason; behavior that has a goal. (Lesson 2)

Raise capital: The process of obtaining funds for a growing business by selling partial ownership of the business to outside investors. (Lesson 14)

Reduction in demand / leftward shift in the demand curve: A situation in which a change besides the price of a good (or service) causes consumers to reduce the number of units they want to purchase, at various possible prices. On a graph, this change causes the demand curve itself to move to the left. (Lesson 11)

Reduction in supply / leftward shift in the supply curve: A situation in which a change besides the price of a good (or service) causes producers to reduce the number of units they want to sell, at various possible prices. On a graph, this change causes the supply curve itself to move to the left. (In a similar way, an increase in supply or a rightward shift in the supply curve, occurs when a change causes producers to increase the number of units they want to sell, at various possible prices.) (Lesson 11)

Refinancing (a mortgage): The situation that occurs when a homeowner gets a new mortgage from the bank (perhaps at a lower interest rate or with lower monthly payments) and uses it to pay off the current mortgage. (Lesson 14)

Rent control: A price ceiling placed on apartment rents. (Lesson 17)

Residual claimants: Refers to stockholders, who are entitled to the earnings of a corporation only after the other creditors have first been paid. (Lesson 14)

Revenues: The amount of money customers spend on an entrepreneur’s output during a period of time. (Lesson 9)

Rolling over debt: Paying off an old set of bondholders by issuing new bonds. (Lesson 14)

Sales tax: A tax that applies to goods and services as they are sold to the customer. Sales taxes are usually applied as percentages of the pre-tax dollar amount. (Lesson 18)

Saving: Consuming less than one’s income would allow; living below one’s means. (Lesson 4)

Savings: The amount by which income is greater than spending on consumption. (Lesson 10)

Scarcity: The condition of desires exceeding the available resources to satisfy them. Scarcity is a universal fact requiring people to make exchanges. (Lesson 1)

Service: A person’s performance of a task that another person values because it helps to satisfy preferences. Services are the “goods” that people create through their labor power. (Lesson 3)

Secured loan: A loan that has an asset (such as a house, car, etc.) pledged as collateral, in case the borrower defaults. The advantage to the borrower is that the interest rate is lower than it would be for a comparable unsecured loan. (Lesson 12)

Shirking: Deliberately working less than one’s potential. (Lesson 15)

Short sale: A transaction in which a person borrows an asset (such as a share of stock) from an existing owner, in order to sell it at the current price. The person eventually must buy back the asset to return it to the original owner. (Lesson 14)

Shortage: A situation where consumers want to buy more units than producers want to sell. This occurs when the actual price is below the market-clearing price. (Lesson 11)

Sin taxes: High sales taxes on goods such as cigarettes and liquor that are imposed not merely to raise revenue, but also to encourage people to reduce their purchases of these dubious items. (Lesson 20)

Slavery: A system in which some human beings are considered the legal property of others. (Lesson 5)

Slumlord: The unflattering term applied to a landlord who doesn’t maintain the quality of the apartments and who is generally unscrupulous. (Lesson 17)

Socialism: An economic system in which government officials decide how society’s resources shall be used to produce particular goods and services. (Lesson 5)

Sole proprietorship: A business owned by a single person. (Lesson 14)

Speculator: A person who buys an asset (such as a corporate stock) thinking its price will rise, or who sells an asset thinking its price will fall. (Lesson 14)

Spontaneous order: A predictable pattern that is not planned by any one person. Examples would include the rules of grammar in the English language, the style of clothing that characterized the 1970s disco clubs, and the use of money. (Lesson 7)

Spread: The difference between the interest rate that a credit intermediary (such as a bank) earns from its borrowers, compared to the interest rate it pays to its lenders or depositors. A positive spread allows the credit intermediary to earn income from its activities, so long as it has correctly estimated the likelihood of default by its borrowers. (Lesson 12)

Stock brokerages: Companies that help individuals buy and sell stocks. The broker will act on behalf of the client and execute his or her orders to buy and sell shares. (Lesson 14)

Stock exchanges: Particular locations or venues where stocks are traded. The most famous example is the New York Stock Exchange, located on Wall Street. (Lesson 14)

Stock of money: The total amount of money in the economy at a particular time. (Lesson 21)

Stock market: A special type of market in which buyers and sellers exchange shares of corporate stock. (Lesson 14)

Stock variable: A concept that is measured at a specific point in time. For example, a man’s weight at 9 a.m. on May 11,2010 could be 150 pounds. This measurement wouldn’t refer to the number of pounds the man had recently gained or lost, but instead would refer to his weight at that very moment. (Lesson 22)

Subjective: Unique to each individual; “in the eye of the beholder.” (Lesson 3)

Substitutes: Goods (or services) that consumers use for similar purposes. For example, Coke and Pepsi might be substitutes if someone goes to the store looking to buy soda. A change in the price of one good tends to cause a change in the same direction in the demand for a substitute. (A reduction in the price of Coke will probably cause a reduction in the demand for Pepsi.) (Lesson 11)

Supply: The relationship between the price of a good (or service), and the number of units that producers want to sell at each hypothetical price. (Lesson 11)

Supply curve: A graphical illustration of the supply relationship, with price placed on the vertical axis and quantity on the horizontal axis. Sometimes a generic supply curve is drawn as a smooth, curved line or even as a simple straight line. Supply curves are “upward sloping,” meaning that they start in the bottom left and move up and to the right. (Lesson 11)

Supply schedule: A table illustrating the supply relationship, either for an individual or group of producers. (Lesson 11)

Surplus / glut: A situation where producers want to sell more units of a good (or service) than consumers want to purchase. This occurs when the actual price is higher than the market-clearing price. (Lesson 11)

Tariff (duty): A tax levied on foreign imports. (Lesson 19)

Tax Deduction: A provision in the tax code that allows a particular expense (such as medical expenses or the purchase price of a new solar panel) to be subtracted from an individual’s taxable income. This means that tax-deductible items are paid for with “pretax dollars,” which allows an individual to buy more with his income. (Lesson 18)

Taxable income: The amount of income actually subject to the official tax rates for each bracket. Taxable income is the original income after all deductions and other adjustments have been made. (Lesson 18)

Taxation: The process in which the government takes ownership of portions of income or other assets from private individuals. (Lesson 18)

Time preference: The degree to which people prefer to consume sooner rather than later; a gauge of people’s impatience to receive enjoyments. (Lesson 12)

Trade deficit: The amount by which imports exceed imports, measured in money. (Lesson 19)

Trade surplus: The amount by which exports exceed imports, measured in money. (Lesson 19)

Tradeoffs: The unfortunate fact (caused by scarcity) that making one choice means that other choices become unavailable. (Lesson 1)

Unemployment: A surplus or glut on the labor market, meaning that some workers cannot find jobs even though they are willing to work for the same pay and can perform the jobs just as well as the people who are employed. (Lesson 17)

Unsecured loan: A loan that has no collateral serving as a backup. If the borrower defaults, the lender has no other options. The advantage to the borrower is that none of his or her other assets can be seized (or “repossessed”) in the case of default. (Lesson 12)

Usury laws: Price ceilings on interest rates. (Lesson 20)

Utility: A term common in economics textbooks to describe how much value a person gets from a good or service. (Lesson 3)

Zero-sum game: A situation in which the gain of one person (or country) corresponds to an equal loss of another person (or country). In a zero-sum game, mutually advantageous, win-win outcomes are not possible. There are winners and losers. (Lesson 19)