Quantity demanded: The amount of a specific good or service that people are willing and able to purchase at one specific price.

Quantity supplied: The amount of a specific good or service that producers are willing and able to offer for sale at one specific price.

Rate of inflation: The percentage change in the average level of prices from one year to the next.

Rational self-interest: The assumption in economics that the choices people make are done rationally, based on the information known at the time, in an attempt to maximize their satisfaction. Also known as bounded rationality.

Real GDP: Total output of an economy measured in constant prices.

Real GDP per capita: Total output of an economy measured in constant prices, divided by total population.

Real interest rate: The nominal (stated) interest rate minus the anticipated rate of inflation.

Real value: A value that has been adjusted for changes in the average level of prices.

Recession: A period of significant decline in total output, income, employment, and trade, usually lasting from six months to a year, and marked by widespread contractions in many sectors of the economy.

Recessionary gap: A situation in which a GDP gap exists, or when equilibrium real GDP is below potential real GDP. Redistribution of wealth: Anything that changes the wealth distribution between different groups of people.

Rent: The earnings of land, with land being a factor of production.

Required reserve ratio: The percentage of deposits that banks have to keep on hand, and not make available for loans.

Required reserves: The amount of deposits that a bank has that cannot be loaned out, in order to meet the required reserve ratio.

Reserve ratio: The percentage of deposits at a bank that have not been loaned out.

Reserve requirement: The required reserve ratio. Reserves: In banking, the deposits at a bank that have not been loaned out. Same as bank reserves.

Resource prices: The prices that producers pay for the use of resources.

Resources: The use of factors of production. Used interchangeably with the term “inputs”.

Responsiveness: The amount that one variable will change in response to a change in another variable.

Revenue: Proceeds from sales. Same as total revenue. Equal to price times quantity.

Ricardian Equivalence: The theory that consumers reduce current consumption because of the future tax increases that they believe will occur to pay for the government debt.

Scarcity: Things are not available in sufficient quantities in comparison with the quantities wanted by everyone, regardless of price.

Seasonal unemployment: Unemployment that is caused by the slow season in an industry.

Sector: Classification of different portions of the economy: the household sector, the business sector, the government sector, the international sector.

Services: The output of a firm that is not comprised of physical merchandise.

Services account: The portion of the current account of the balance of payments that includes transactions between countries involving services, such as tourism and transportation.

Shadow economy: Economic activity that is not reported for tax purposes and is not included in official government statistics. Also known as the black market, underground economy, hidden economy, informal economy, and parallel economy.

Short run: A time frame sufficiently short enough so that at least one input is fixed.

Short run aggregate supply curve: SRASC. The aggregate supply curve in the short run. It would be upward sloping.

Short run average total cost: The sum of average variable cost and average fixed cost in the short run.

Shortage: The amount by which demand exceeds supply.

Shut down price: The price below which a profit-maximizing firm will shut down in the short run.

Shut down rule: A competitive firm should shut down in the short run if it cannot find an output level that will allow it to cover total variable costs. Otherwise, it should continue to produce.

Silver standard: An economy in which the value of the currency is tied to the value of silver. The currency can be exchanged for an equal value of silver upon demand.

Social benefit: Total benefit of a transaction. Private benefit plus external benefit.

Social cost: Total cost of a transaction. Private cost plus external cost.

Socialism: An economic system in which the government owns the means of production.

Specialization and trade: The concept that individuals or nations should specialize in the production of things for which they have comparative advantage, and trade for the things that they do not have comparative advantage.

Speculative demand for money: The amount of money that the public prefers to hold as a hedge against price changes in other financial assets.

Spending multiplier: The amount by which an increase in spending will increase real GDP. Equal to the reciprocal of leakages: (1 / (MPS + MPI)). Spillover: The effect that actions of producers or consumers have on people who are not parties to private transactions.

SRATC: Short run average total cost. The sum of average variable cost and average fixed cost in the short run. Stagflation: A situation in which inflation and unemployment are both rising at the same time.

Standardized products: Products of different firms that have no differences in the minds of consumers. Consumers do not prefer the products of one firm over another firm. The products are considered to be perfect substitutes. Also known as identical products and homogeneous products.

Stock concept: A stock is something that is measured at a specific point in time rather than over a period of time, which would be a flow concept. For example, standard accounting statements include an income statement, which is a flow concept, and a balance sheet, which is a stock concept.

Store of value: The function of money that allows people to make purchases at times that do not coincide with the time that income is received.

Strategic behavior: Actions taken by one that depend on actions taken by another.

Structural unemployment: The type of unemployment caused by a difference between the job skills required to fill the openings available, and the job skills that applicants possess.

Subsidy: A payment made by the government to a domestic producer, effectively decreasing the production costs for domestic production.

Substitutes: Goods consumers consider to be similar enough so that if the price of one increases, consumers will purchase more of another good instead of the one with the price increase.

Supply: The quantities that producers are willing and able to offer for sale at every potential price. When shown on a graph, it becomes a supply curve.

Supply and demand: An economic model that explains market price and quantity outcomes.

Supply and demand equilibrium: The price where the quantity supplied is equal to the quantity demanded. In equilibrium, no market forces for changes exist.

Supply curve: A graph of the supply schedule. The supply curve is an upward sloping curve, indicating a positive relationship between price and quantity supplied.

Supply of money: The quantity of money in the economy. Since the money supply is controlled by the government or the central bank, it is not determined by market forces, and therefore does not change as the price level changes. The money supply curve is a vertical line.

Supply schedule: A table of supply. Supply shock: Inflation caused by a sudden increase in the price of a key product or resource in the economy.

Supply side economics: Discretionary government policies designed to influence the level of aggregate supply in the economy.

Surplus: In supply and demand analysis, the amount by which supply exceeds demand. In market structure analysis, the benefit received when the market price is different from the price that consumers are willing to pay (consumer surplus), or the price that producers are willing to sell for (producer surplus).

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