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Glossary

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    127056
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    circular flow diagram a diagram that views the economy as consisting of households and firms interacting in a goods and services market and a labor market        
    command economy an economy where economic decisions are passed down from government authority and where resources are owned by the government        
    division of labor the way in which the work required to produce a good or service is divided into tasks performed by different workers        
    economics the study of how humans make choices under conditions of scarcity        
    economies of scale when the average cost of producing each individual unit declines as total output increases        
    exports products (goods and services) made domestically and sold abroad        
    fiscal policy economic policies that involve government spending and taxes        
    globalization the trend in which buying and selling in markets have increasingly crossed national borders        
    goods and services market a market in which firms are sellers of what they produce and households are buyers        
    gross domestic product (GDP) measure of the size of total production in an economy        
    imports products (goods and services) made abroad and then sold domestically        
    labor market the market in which households sell their labor as workers to business firms or other employers        
    macroeconomics the branch of economics that focuses on broad issues such as growth, unemployment, inflation, and trade balance.        
    market interaction between potential buyers and sellers; a combination of demand and supply        
    market economy an economy where economic decisions are decentralized, resources are owned by private individuals, and businesses supply goods and services based on demand        
    microeconomics the branch of economics that focuses on actions of particular agents within the economy, like households, workers, and business firms        
    model see theory        
    monetary policy policy that involves altering the level of interest rates, the availability of credit in the economy, and the extent of borrowing        
    private enterprise system where the means of production (resources and businesses) are owned and operated by private individuals or groups of private individuals        
    scarcity when human wants for goods and services exceed the available supply        
    specialization when workers or firms focus on particular tasks for which they are well-suited within the overall production process        
    theory a representation of an object or situation that is simplified while including enough of the key features to help us understand the object or situation        
    traditional economy typically an agricultural economy where things are done the same as they have always been done        
    underground economy a market where the buyers and sellers make transactions in violation of one or more government regulations        
    allocative efficiency when the mix of goods being produced represents the mix that society most desires        
    budget constraint all possible consumption combinations of goods that someone can afford, given the prices of goods, when all income is spent; the boundary of the opportunity set        
    comparative advantage when a country can produce a good at a lower cost in terms of other goods; or, when a country has a lower opportunity cost of production        
    invisible hand idea that self-interested behavior by individuals can lead to positive social outcomes        
    law of diminishing marginal utility as we consume more of a good or service, the utility we get from additional units of the good or service tend to become smaller than what we received from earlier units        
    law of diminishing returns as additional increments of resources are added to producing a good or service, the marginal benefit from those additional increments will decline        
    marginal analysis examination of decisions on the margin, meaning a little more or a little less from the status quo        
    normative statement statement which describes how the world should be        
    opportunity cost measures cost by what is given up in exchange; opportunity cost measures the value of the forgone alternative        
    opportunity set all possible combinations of consumption that someone can afford given the prices of goods and the individual’s income        
    positive statement  statement which describes the world as it is        
    production possibilities frontier a diagram that shows the productively efficient combinations of two products that an economy can produce given the resources it has available.        
    productive efficiency when it is impossible to produce more of one good (or service) without decreasing the quantity produced of another good (or service)        
    sunk costs costs that are made in the past and cannot be recovered        
    utility satisfaction, usefulness, or value one obtains from consuming goods and services        
    ceteris paribus other things being equal        
    complements goods that are often used together so that consumption of one good tends to enhance consumption of the other        
    consumer surplus the extra benefit consumers receive from buying a good or service, measured by what the individuals would have been willing to pay minus the amount that they actually paid        
    deadweight loss the loss in social surplus that occurs when a market produces an inefficient quantity        
    demand the relationship between price and the quantity demanded of a certain good or service        
    demand curve a graphic representation of the relationship between price and quantity demanded of a certain good or service, with quantity on the horizontal axis and the price on the vertical axis        
    demand schedule a table that shows a range of prices for a certain good or service and the quantity demanded at each price        
    economic surplus see social surplus        
    equilibrium the situation where quantity demanded is equal to the quantity supplied; the combination of price and quantity where there is no economic pressure from surpluses or shortages that would cause price or quantity to change        
    equilibrium price the price where quantity demanded is equal to quantity supplied        
    equilibrium quantity the quantity at which quantity demanded and quantity supplied are equal for a certain price level        
    excess demand at the existing price, the quantity demanded exceeds the quantity supplied; also called a shortage        
    excess supply at the existing price, quantity supplied exceeds the quantity demanded; also called a surplus        
    factors of production the combination of labor, materials, and machinery that is used to produce goods and services; also called inputs        
    inferior good a good in which the quantity demanded falls as income rises, and in which quantity demanded rises and income falls        
    inputs the combination of labor, materials, and machinery that is used to produce goods and services; also called factors of production        
    law of demand the common relationship that a higher price leads to a lower quantity demanded of a certain good or service and a lower price leads to a higher quantity demanded, while all other variables are held constant        
    law of supply the common relationship that a higher price leads to a greater quantity supplied and a lower price leads to a lower quantity supplied, while all other variables are held constant        
    normal good a good in which the quantity demanded rises as income rises, and in which quantity demanded falls as income falls        
    price what a buyer pays for a unit of the specific good or service        
    price ceiling  a legal maximum price        
    price control government laws to regulate prices instead of letting market forces determine prices        
    price floor a legal minimum price        
    producer surplus the extra benefit producers receive from selling a good or service, measured by the price the producer actually received minus the price the producer would have been willing to accept        
    quantity demanded the total number of units of a good or service consumers are willing to purchase at a given price        
    quantity supplied the total number of units of a good or service producers are willing to sell at a given price        
    shift in demand when a change in some economic factor (other than price) causes a different quantity to be demanded at every price        
    shift in supply when a change in some economic factor (other than price) causes a different quantity to be supplied at every price        
    shortage at the existing price, the quantity demanded exceeds the quantity supplied; also called excess demand        
    social surplus the sum of consumer surplus and producer surplus        
    substitute a good that can replace another to some extent, so that greater consumption of one good can mean less of the other        
    supply the relationship between price and the quantity supplied of a certain good or service        
    supply curve a line that shows the relationship between price and quantity supplied on a graph, with quantity supplied on the horizontal axis and price on the vertical axis        
    supply schedule a table that shows a range of prices for a good or service and the quantity supplied at each price        
    surplus at the existing price, quantity supplied exceeds the quantity demanded; also called excess supply        
    total surplus see social surplus        
    interest rate  the “price” of borrowing in the financial market; a rate of return on an investment        
    minimum wage a price floor that makes it illegal for an employer to pay employees less than a certain hourly rate        
    usury laws laws that impose an upper limit on the interest rate that lenders can charge        
    constant unitary elasticity when a given percent price change in price leads to an equal percentage change in quantity demanded or supplied        
    cross-price elasticity of demand the percentage change in the quantity of good A that is demanded as a result of a percentage change in good B        
    elastic demand when the elasticity of demand is greater than one, indicating a high responsiveness of quantity demanded or supplied to changes in price        
    elastic supply when the elasticity of either supply is greater than one, indicating a high responsiveness of quantity demanded or supplied to changes in price        
    elasticity an economics concept that measures responsiveness of one variable to changes in another variable        
    elasticity of savings the percentage change in the quantity of savings divided by the percentage change in interest rates        
    inelastic demand when the elasticity of demand is less than one, indicating that a 1 percent increase in price paid by the consumer leads to less than a 1 percent change in purchases (and vice versa); this indicates a low responsiveness by consumers to price changes        
    inelastic supply when the elasticity of supply is less than one, indicating that a 1 percent increase in price paid to the firm will result in a less than 1 percent increase in production by the firm; this indicates a low responsiveness of the firm to price increases (and vice versa if prices drop)        
    infinite elasticity the extremely elastic situation of demand or supply where quantity changes by an infinite amount in response to any change in price; horizontal in appearance        
    perfect elasticity see infinite elasticity        
    perfect inelasticity  see zero elasticity        
    price elasticity the relationship between the percent change in price resulting in a corresponding percentage change in the quantity demanded or supplied        
    price elasticity of demand percentage change in the quantity demanded of a good or service divided the percentage change in price        
    price elasticity of supply percentage change in the quantity supplied divided by the percentage change in price        
    tax incidence manner in which the tax burden is divided between buyers and sellers        
    unitary elasticity when the calculated elasticity is equal to one indicating that a change in the price of the good or service results in a proportional change in the quantity demanded or supplied        
    wage elasticity of labor supply the percentage change in hours worked divided by the percentage change in wages        
    zero inelasticity the highly inelastic case of demand or supply in which a percentage change in price, no matter how large, results in zero change in the quantity; vertical in appearance        
    backward-bending supply curve for labor the situation when high-wage people can earn so much that they respond to a still-higher wage by working fewer hours        
    behavioral economics a branch of economics that seeks to enrich the understanding of decision-making by integrating the insights of psychology and by investigating how given dollar amounts can mean different things to individuals depending on the situation.        
    budget constraint line shows the possible combinations of two goods that are affordable given a consumer’s limited income        
    consumer equilibrium when the ratio of the prices of goods is equal to the ratio of the marginal utilities (point at which the consumer can get the most satisfaction)        
    diminishing marginal utility the common pattern that each marginal unit of a good consumed provides less of an addition to utility than the previous unit        
    fungible the idea that units of a good, such as dollars, ounces of gold, or barrels of oil are capable of mutual substitution with each other and carry equal value to the individual.        
    income effect a higher price means that, in effect, the buying power of income has been reduced, even though actual income has not changed; always happens simultaneously with a substitution effect        
    marginal utility the additional utility provided by one additional unit of consumption        
    marginal utility per dollar  the additional satisfaction gained from purchasing a good given the price of the product; MU/Price        
    substitution effect  when a price changes, consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price; always happens simultaneously with an income effect        
    total utility satisfaction derived from consumer choices        
    accounting profit total revenues minus explicit costs, including depreciation        
    average profit profit divided by the quantity of output produced; profit margin        
    average total cost total cost divided by the quantity of output        
    average variable cost variable cost divided by the quantity of output        
    constant returns to scale  expanding all inputs proportionately does not change the average cost of production        
    diseconomies of scale the long-run average cost of producing each individual unit increases as total output increases        
    economic profit total revenues minus total costs (explicit plus implicit costs)        
    explicit costs out-of-pocket costs for a firm, for example, payments for wages and salaries, rent, or materials        
    firm an organization that combines inputs of labor, capital, land, and raw or finished component materials to produce outputs.        
    fixed cost expenditure that must be made before production starts and that does not change regardless of the level of production        
    implicit costs opportunity cost of resources already owned by the firm and used in business, for example, expanding a factory onto land already owned        
    long-run average cost curve shows the lowest possible average cost of production, allowing all the inputs to production to vary so that the firm is choosing its production technology        
    LRAC shows the lowest possible average cost of production, allowing all the inputs to production to vary so that the firm is choosing its production technology        
    marginal cost the additional cost of producing one more unit        
    private enterprise the ownership of businesses by private individuals        
    production the process of combining inputs to produce outputs, ideally of a value greater than the value of the inputs        
    production technologies alternative methods of combining inputs to produce output        
    revenue income from selling a firm’s product; defined as price times quantity sold        
    short-run average cost curve the average total cost curve in the short term; shows the total of the average fixed costs and the average variable costs        
    SRAC the average total cost curve in the short term; shows the total of the average fixed costs and the average variable costs        
    total cost the sum of fixed and variable costs of production        
    variable cost cost of production that increases with the quantity produced        
    entry the long-run process of firms entering an industry in response to industry profits        
    exit the long-run process of firms reducing production and shutting down in response to industry losses        
    long-run equilibrium where all firms earn zero economic profits producing the output level where P = MR = MC and P = AC        
    marginal revenue the additional revenue gained from selling one more unit        
    market structure the conditions in an industry, such as number of sellers, how easy or difficult it is for a new firm to enter, and the type of products that are sold        
    perfect competition each firm faces many competitors that sell identical products        
    price taker a firm in a perfectly competitive market that must take the prevailing market price as given        
    shutdown point level of output where the marginal cost curve intersects the average variable cost curve at the minimum point of AVC; if the price is below this point, the firm should shut down immediately        
    allocative efficiency producing the optimal quantity of some output; the quantity where the marginal benefit to society of one more unit just equals the marginal cost        
    barriers to entry the legal, technological, or market forces that may discourage or prevent potential competitors from entering a market        
    copyright a form of legal protection to prevent copying, for commercial purposes, original works of authorship, including books and music        
    deregulation removing government controls over setting prices and quantities in certain industries        
    intellectual property the body of law including patents, trademarks, copyrights, and trade secret law that protect the right of inventors to produce and sell their inventions        
    legal monopoly legal prohibitions against competition, such as regulated monopolies and intellectual property protection        
    marginal profit profit of one more unit of output, computed as marginal revenue minus marginal cost        
    monopoly a situation in which one firm produces all of the output in a market        
    natural monopoly economic conditions in the industry, for example, economies of scale or control of a critical resource, that limit effective competition        
    patent a government rule that gives the inventor the exclusive legal right to make, use, or sell the invention for a limited time        
    predatory pricing when an existing firm uses sharp but temporary price cuts to discourage new competition        
    trade secrets methods of production kept secret by the producing firm        
    trademark an identifying symbol or name for a particular good and can only be used by the firm that registered that trademark        
    cartel a group of firms that collude to produce the monopoly output and sell at the monopoly price        
    collusion when firms act together to reduce output and keep prices high        
    differentiated product a product that is perceived by consumers as distinctive in some way        
    duopoly an oligopoly with only two firms        
    game theory  a branch of mathematics often used by economists that analyzes situations in which players must make decisions and then receive payoffs based on what decisions the other players make        
    imperfectly competitive firms and organizations that fall between the extremes of monopoly and perfect competition        
    kinked demand curve a perceived demand curve that arises when competing oligopoly firms commit to match price cuts, but not price increases        
    monopolistic competition many firms competing to sell similar but differentiated products        
    oligopoly when a few large firms have all or most of the sales in an industry        
    prisoner’s dilemma a game in which the gains from cooperation are larger than the rewards from pursuing self-interest        
    acquisition when one firm purchases another        
    antitrust laws laws that give government the power to block certain mergers, and even in some cases to break up large firms into smaller ones        
    bundling a situation in which multiple products are sold as one        
    concentration ratio an early tool to measure the degree of monopoly power in an industry; measures what share of the total sales in the industry are accounted for by the largest firms, typically the top four to eight firms        
    cost-plus regulation when regulators permit a regulated firm to cover its costs and to make a normal level of profit        
    exclusive dealing an agreement that a dealer will sell only products from one manufacturer        
    four-firm concentration ratio the percentage of the total sales in the industry that are accounted for by the largest four firms        
    Herfindahl-Hirschman Index (HHI) approach to measuring market concentration by adding the square of the market share of each firm in the industry        
    market share the percentage of total sales in the market        
    merger when two formerly separate firms combine to become a single firm        
    minimum resale price maintenance agreement an agreement that requires a dealer who buys from a manufacturer to sell for at least a certain minimum price        
    price cap regulation when the regulator sets a price that a firm cannot exceed over the next few years        
    regulatory capture when the firms supposedly being regulated end up playing a large role in setting the regulations that they will follow and as a result, they “capture” the people doing the regulation, usually through the promise of a job in that “regulated” industry once their term in government has ended.        
    restrictive practices practices that reduce competition but that do not involve outright agreements between firms to raise prices or to reduce the quantity produced        
    tying sales a situation where a customer is allowed to buy one product only if the customer also buys another product        
    additional external cost additional costs incurred by third parties outside the production process when a unit of output is produced        
    biodiversity the full spectrum of animal and plant genetic material        
    command-and-control regulation laws that specify allowable quantities of pollution and that also may detail which pollution-control technologies must be used        
    externality a market exchange that affects a third party who is outside or “external” to the exchange; sometimes called a “spillover”        
    international externalities externalities that cross national borders and that cannot be resolved by a single nation acting alone        
    market failure When the market on its own does not allocate resources efficiently in a way that balances social costs and benefits; externalities are one example of a market failure        
    marketable permit program a permit that allows a firm to emit a certain amount of pollution; firms with more permits than pollution can sell the remaining permits to other firms        
    negative externality a situation where a third party, outside the transaction, suffers from a market transaction by others        
    pollution charge a tax imposed on the quantity of pollution that a firm emits; also called a pollution tax        
    positive externality a situation where a third party, outside the transaction, benefits from a market transaction by others        
    property rights the legal rights of ownership on which others are not allowed to infringe without paying compensation        
    social costs costs that include both the private costs incurred by firms and also additional costs incurred by third parties outside the production process, like costs of pollution        
    spillover see externality        
    free rider those who want others to pay for the public good and then plan to use the good themselves; if many people act as free riders, the public good may never be provided        
    intellectual property the body of law including patents, trademarks, copyrights, and trade secret law that protect the right of inventors to produce and sell their inventions        
    nonexcludable when it is costly or impossible to exclude someone from using the good, and thus hard to charge for it        
    nonrivalrous even when one person uses the good, others can also use it        
    positive externalities beneficial spillovers to a third party or parties        
    private benefits the dollar value of all benefits of a new product or process invented by a company that can be captured by the investing company        
    private rates of return when the estimated rates of return go primarily to an individual; for example, earning interest on a savings account        
    public good good that is nonexcludable and nonrivalrous, and thus is difficult for market producers to sell to individual consumers        
    social benefits the dollar value of all benefits of a new product or process invented by a company that can be captured by other firms and by society as a whole        
    social rate of return when the estimated rates of return go primarily to society; for example, providing free education        
    earned income tax credit a method of assisting the working poor through the tax system        
    EITC a method of assisting the working poor through the tax system        
    effective income tax percentage of total taxes paid divided by total income        
    estate tax a tax imposed on the value of an inheritance        
    income a flow of money received, often measured on a monthly or an annual basis        
    income inequality when one group receives a disproportionate share of total income or wealth than others        
    Lorenz curve a graph that compares the cumulative income actually received to a perfectly equal distribution of income; it shows the share of population on the horizontal axis and the cumulative percentage of total income received on the vertical axis        
    Medicaid a federal–state joint program enacted in 1965 that provides medical insurance for certain (not all) low-income people, including the near-poor as well as those below the poverty line, and focusing on low-income families with children, the low-income elderly, and the disabled        
    near-poor those who have incomes just above the poverty line        
    poverty the situation of being below a certain level of income needed for a basic standard of living        
    poverty line the specific amount of income needed for a basic standard of living        
    poverty rate percentage of the population living below the poverty line        
    poverty trap antipoverty programs set up so that government benefits decline substantially as people earn more income—as a result, working provides little financial gain        
    progressive tax system a tax system in which the rich pay a higher percentage of their income in taxes, rather than a higher absolute amount        
    quintile dividing a group into fifths, a method often used to look at distribution of income        
    redistribution taking income from those with higher incomes and providing income to those with lower incomes        
    safety net the group of government programs that provide assistance to the poor and the near-poor        
    Supplemental Nutrition Assistance Program  a federally funded program, started in 1964, in which each month poor people receive SNAP cards they can use to buy food        
    SNAP Supplemental Nutrition Assistance Program        
    wealth the sum of the value of all assets, including money in bank accounts, financial investments, a pension fund, and the value of a home        
    affirmative action active efforts by government or businesses that give special rights to minorities in hiring, promotion, or access to education to make up for past discrimination        
    collective bargaining negotiations between unions and a firm or firms        
    discrimination actions based on the belief that members of a certain group or groups are in some way inferior solely because of a factor such as race, gender, or religion        
    labor union an organization of workers that negotiates with employers over wages and working conditions        
    adverse selection when groups with inherently higher risks than the average person seek out insurance, thus straining the insurance system        
    asymmetric information a situation where the seller or the buyer has more information than the other regarding the quality of the item being sold        
    coinsurance when an insurance policyholder pays a percentage of a loss, and the insurance company pays the remaining cost        
    collateral something valuable—often property or equipment—that a lender would have a right to seize and sell if the loan is not repaid        
    copayment when an insurance policyholder must pay a small amount for each service, before insurance covers the rest        
    cosigner another person or firm who legally pledges to repay some or all of the money on a loan if the original borrower does not do so        
    deductible an amount that the insurance policyholders must pay out of their own pocket before the insurance coverage pays anything        
    fee-for-service when medical care providers are paid according to the services they provide        
    health maintenance organization an organization that provides health care and is paid a fixed amount per person enrolled in the plan—regardless of how many services are provided        
    HMO health maintenance organization        
    imperfect information a situation where either the buyer or the seller, or both, are uncertain about the qualities of what is being bought and sold        
    insurance method of protecting a person from financial loss, whereby policy holders make regular payments to an insurance entity; the insurance firm then remunerates a group member who suffers significant financial damage from an event covered by the policy        
    money-back guarantee a promise that the buyer’s money will be refunded under certain conditions        
    moral hazard when people have insurance against a certain event, they are less likely to guard against that event occurring        
    occupational license licenses issued by government agencies, which indicate that a worker has completed a certain type of education or passed a certain test        
    premium payment made to an insurance company        
    risk group a group that shares roughly the same risks of an adverse event occurring        
    service contract the buyer pays an extra amount and the seller agrees to fix anything specified in the contract that goes wrong for a set time period        
    warranty a promise to fix or replace the good for a certain period of time        
    actual rate of return the total rate of return, including capital gains and interest paid on an investment at the end of a period of time        
    bond a financial contract through which a borrower like a corporation, a city or state, or the federal government agrees to repay the amount that was borrowed and also a rate of interest over a period of time in the future        
    bond yield the rate of return a bond is expected to pay at the time of purchase        
    bondholder someone who owns bonds and receives the interest payments        
    capital gain a financial gain from buying an asset, like a share of stock or a house, and later selling it at a higher price        
    certificate of deposit a mechanism for a saver to deposit funds at a bank and promise to leave them at the bank for a time, in exchange for a higher rate of interest        
    CD certificate of deposit        
    checking account a bank account that typically pays little or no interest, but that gives easy access to money, either by writing a check or by using a “debit card”        
    compound interest an interest rate calculation on the principal plus the accumulated interest        
    corporate bond a bond issued by firms that wish to borrow        
    corporate governance the name economists give to the institutions that are supposed to watch over top executives in companies owned by shareholders        
    corporation a business owned by shareholders who have limited liability for the company’s debt yet a share of the company’s profits; may be private or public and may or may not have publicly-traded stock        
    coupon rate the interest rate paid on a bond; can be annual or semi-annual        
    debit card a card that lets the person make purchases, and the cost is immediately deducted from that person’s checking account        
    diversification investing in a wide range of companies to reduce the level of risk        
    dividend a direct payment from a firm to its shareholders        
    equity  the monetary value a homeowner would have after selling the house and repaying any outstanding bank loans used to buy the house        
    expected rate of return how much a project or an investment is expected to return to the investor, either in future interest payments, capital gains, or increased profitability        
    face value the amount that the bond issuer or borrower agrees to pay the investor        
    financial intermediary an institution, like a bank, that receives money from savers and provides funds to borrowers        
    high yield bonds bonds that offer relatively high interest rates to compensate for their relatively high chance of default        
    index fund a mutual fund that seeks only to mimic the overall performance of the market        
    initial public offering the first sale of shares of stock by a firm to outside investors        
    IPO initial public offering        
    junk bonds see high yield bonds        
    liquidity refers to how easily money or financial assets can be exchanged for a good or service        
    maturity date the date that a bond must be repaid        
    municipal bonds a bond issued by cities that wish to borrow        
    mutual funds funds that buy a range of stocks or bonds from different companies, thus allowing an investor an easy way to diversify        
    partnership a company run by a group as opposed to an individual        
    present value a bond’s current price at a given time        
    private company a firm owned by the people who run it on a day-to-day basis        
    public company a firm that has sold stock to the public, which in turn can be bought and sold by investors        
    risk a measure of the uncertainty of that project’s profitability        
    savings account a bank account that pays an interest rate, but withdrawing money typically requires a trip to the bank or an automatic teller machine        
    shareholders people who own at least some shares of stock in a firm        
    shares the stock of a firm, divided into individual portions        
    simple interest an interest rate calculation only on the principal amount        
    sole proprietorship a company run by an individual as opposed to a group        
    stock a claim on partial ownership of a specific firm        
    Treasury bond a bond issued by the federal government through the U.S. Department of the Treasury        
    venture capital financial investments in new companies that are still relatively small in size, but that have potential to grow substantially        
    logrolling the situation in which groups of legislators all agree to vote for a package of otherwise unrelated laws that they individually favor        
    median voter theory theory that politicians will try to match policies to what pleases the median voter preferences        
    pork-barrel spending spending that benefits mainly a single political district        
    rational ignorance the theory that rational people will not vote if the costs of becoming informed and voting are too high or because they know their vote will not be decisive in the election        
    special interest groups groups that are small in number relative to the nation, but well organized and thus exert a disproportionate effect on political outcomes        
    voting cycle the situation in which a majority prefers A over B, B over C, and C over A        
    absolute advantage when one country can use fewer resources to produce a good compared to another country; when a country is more productive compared to another country        
    gain from trade a country that can consume more than it can produce as a result of specialization and trade        
    intra-industry trade international trade of goods within the same industry        
    splitting up the value chain many of the different stages of producing a good happen in different geographic locations        
    tariffs taxes that governments place on imported goods        
    anti-dumping laws laws that block imports sold below the cost of production and impose tariffs that would increase the price of these imports to reflect their cost of production        
    common market economic agreement between countries to allow free trade in goods, services, labor, and financial capital between members while having a common external trade policy        
    disruptive market change innovative new product or production technology which disrupts the status quo in a market, leading the innovators to earn more income and profits and the other firms to lose income and profits, unless they can come up with their own innovations        
    dumping selling internationally traded goods below their cost of production        
    economic union economic agreement between countries to allow free trade between members, a common external trade policy, and coordinated monetary and fiscal policies        
    free trade agreement economic agreement between countries to allow free trade between members        
    General Agreement on Tariffs and Trade forum in which nations could come together to negotiate reductions in tariffs and other barriers to trade; the precursor to the World Trade Organization        
    GATT General Agreement on Tariffs and Trade        
    import quotas numerical limits on the quantity of products that can be imported        
    national interest argument the argument that there are compelling national interests against depending on key imports from other nations        
    nontariff barriers ways a nation can draw up rules, regulations, inspections, and paperwork to make it more costly or difficult to import products        
    protectionism government policies to reduce or block imports        
    race to the bottom when production locates in countries with the lowest environmental (or other) standards, putting pressure on all countries to reduce their environmental standards        
    World Trade Organization organization that seeks to negotiate reductions in barriers to trade and to adjudicate complaints about violations of international trade policy; successor to the General Agreement on Tariffs and Trade (GATT)        
    WTO World Trade Organization        
               
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