Glossary

The long-run resting point of a dynamic economic model: the level of capital per worker where investment exactly offsets depreciation and population growth, so the state variables stop changing. The reference point the Solow-Swan, Ramsey, and overlapping-generations models all converge toward.

The central solution concept of non-cooperative game theory: a strategy profile in which every player is best-responding to the others, so no one can gain by unilaterally deviating. Underpins Cournot and Bertrand competition, the prisoner's dilemma, and auction theory.

The net change in an economy's capital stock over time: gross investment minus depreciation. Its law of motion is the engine of neoclassical growth theory — the equation that drives the Solow-Swan, Ramsey, and overlapping-generations models toward their steady states.

What you give up when you make a choice — the value of the next-best alternative forgone. The idea behind every trade-off, the gap between economic and accounting profit, and the slope of the production possibilities frontier.

Market equilibrium is the price at which the quantity buyers want to purchase exactly equals the quantity sellers want to supply, leaving no unsold stock and no unfilled demand — the resting point every competitive market is pulled toward.

How much sellers offer at each price. The upward-sloping half of every market: why a higher price draws out more output, what shifts the whole curve versus moving along it, and how supply meets demand to set the market price.

How much buyers want at each price. The downward-sloping half of every market: the law of demand, what moves along the curve versus what shifts it, and the foundation of consumer surplus and elasticity.

How sharply quantity demanded responds to a price change. The number that tells you whether a price cut raises or lowers revenue, why salt is inelastic and a single cereal brand is elastic, and what determines responsiveness.

The bonus buyers get when they pay less than the most they were willing to pay — the area under the demand curve and above the price. One half of the total gains from trade and a building block of welfare analysis.

The bonus sellers get when they are paid more than the least they would accept — the area above the supply curve and below the price. The mirror image of consumer surplus and the second half of the gains from trade.

The cost of producing one more unit — the change in total cost per extra unit of output. The curve that decides how much a firm produces, where it meets marginal revenue, and why the supply curve slopes up.

The extra satisfaction from consuming one more unit, and why it falls as you consume more. The idea behind the downward-sloping demand curve and the rule for spending a budget so the last dollar on each good buys equal utility.

The value lost when a market trades away from its efficient quantity — gains from trade that vanish under a tax, price control, or monopoly. The triangle of lost surplus at the heart of market-failure analysis.

The total market value of all final goods and services a country produces in a period — the single headline number for the size of an economy. Why it is measured as C + I + G + NX, what counts and what does not, and how it differs from real GDP.

GDP measured at constant prices, so growth reflects more output rather than just higher prices. How deflating nominal GDP by a price index strips out inflation, and why economists track real GDP to judge whether an economy is actually growing.

The sustained rise in the general price level — why your money buys a little less each year. How the inflation rate is calculated from a price index, and the difference between a one-off price jump and ongoing inflation.

The Consumer Price Index — the cost of a fixed basket of everyday goods, tracked over time to measure inflation. How the basket is priced against a base year, and why the CPI is the number behind most cost-of-living and inflation headlines.

The share of the labor force that is out of work but actively looking. How it is calculated, who counts as being in the labor force, and why a low rate does not always mean a healthy job market.

The total quantity of goods and services everyone in an economy wants to buy at each price level — the economy-wide version of a demand curve. Its four components (C + I + G + NX) and why it slopes downward.

The total output firms are willing to produce at each price level. Why the short-run curve slopes up while the long-run curve is vertical at potential output, and what shifts each one.

The government's use of spending and taxes to steer the economy — speeding it up in a slump, cooling it in a boom. The two main levers, how they work through the multiplier, and how fiscal policy differs from monetary policy.

How a central bank manages interest rates and the money supply to keep inflation and employment in check. The main tools, why lower rates stimulate spending, and how it differs from fiscal policy.

Why an initial change in spending ends up changing total output by a larger amount, as one person's spending becomes another's income. How the multiplier depends on the marginal propensity to consume, with the formula 1/(1 - MPC).