Term Definition
Absolute Advantage

The ability of a party to produce a greater quantity of a good, product, or service than competitors, using the same amount of resources.

Adam Smith

Adam Smith (16 June 1723 – 17 July 1790) was a Scottish economist, philosopher and author. Also known as ''The Father of Economics'' or ''The Father of Capitalism", Smith wrote two classic works, The Theory of Moral Sentiments (1759) and An Inquiry into the Nature and Causes of the Wealth of Nations (1776). The Wealth of Nations, is considered his magnum opus and the first modern work of economics. 

Adverse selection

A situation where market participation is affected by asymmetric information.


An agent is the person tasked with making decisions on behalf of another entity (the principal). 

Aggregate Demand

The sum total of the demand for all the goods and services in an economy. 

Antitrust Law

laws that regulate the conduct and organization of business corporations, generally to promote competition for the benefit of consumers.


a resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide a future benefit. In general, assets can include cash, inventory, supplies, equipment, and buildings. 

Asset Turnover

A measure of how productively a firm is using its assets. The asset turnover ratio takes on key item from the profit and loss statement (sales or revenue), and one key item from the balance sheet (total assets). Asset turnover is computed as total sales or revenue divided by total assets. If for example, a firm has $100,000 in sales and $25,000 in assets, then its asset turnover is 4.0. This means that for each dollar of assets, the firm generates $4 in sales or revenue. Firms generally strive for high asset turnover. Asset turnover is one of the ratios used in the Dupont Model of financial performance. 

Asymmetric Information

When one party to an economic transaction possesses greater material knowledge than the other party.


achievable, or something that can be attained. 

Balance Sheet

Shows the assets, liability, and equity of a business. It is referred to as a balance sheet because the total value of the assets must balance, or equal the liabilities and equity. The basic accounting equation is: A = L+E, where A= assets, L= liabilities, and E= equity. 


A financial institution licensed to receive deposits and make loans. Banks may also provide financial services, such as wealth management, currency exchange, and safe deposit boxes. There are two types of banks: commercial/retail banks and investment banks.

Barrier to Entry

the existence of high start-up costs or other obstacles that prevent new competitors from easily entering an industry or area of business. Barriers to entry can be manmade or naturally occurring. 


The action or system of exchanging goods or services without using money.

Base Money

 The total amount of bank notes and coins circulating in the economy.


Represents a loan made by an investor to a borrower (typically corporate or governmental). A bond could be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments. Bonds are used by companies, municipalities, states, and sovereign governments to finance projects and operations.


The promotion of a particular product or company by means of advertising and distinctive design.

Broken Windows Fallacy

The fallacious belief that destruction is good for the economy. The parable of the broken window was introduced by Frédéric Bastiat in his 1850 essay "That Which We See and That Which We Do Not See," to illustrate why destruction, and the money spent to recover from destruction, is not actually a net benefit to society.


The practice of making one's living by engaging in commerce.


In economics, capital is a stock of resources that may be employed in the production of goods and services and the price paid for the use of credit or money, respectively. In classical economics, the three factors of production are land, labor, and capital.

Central Planner

A centrally planned economy is an economy where decisions on what to produce, how to produce and for whom are taken by the government in a centrally managed bureaucracy. In such a society, the government is the "Central Planner."


Coins collectively, or the act or process of coining

Commodity Exchange

The central location where commodities are traded. Commodities traders exchange futures contracts for specific goods, like (for example) gold, wheat, and corn.

Common Law

The part of law that is derived from custom and judicial precedent rather than statutes. Often contrasted with statutory law


The cultural and natural resources accessible to all members of a society, including natural materials such as air, water, and a habitable earth. These resources are held in common, not owned privately.

Communal Property

 Property that is held and managed collectively. This is in contrast to private property which is held and managed privately. 


A group of people living together and sharing possessions and responsibilities. Private property is generally limited in a commune. 

Comparative Advantage

The ability to produce goods and services at a lower opportunity cost than that of trade partners. If  someone  has  a  lower  opportunity  cost of  producing  a  given  service,  that  person  enjoys  a comparative advantage in  the production  of  that  service. 


A number or quantity of something, especially that required to make a group complete. In economics, A complementary good is a good whose use is related to the use of an associated or paired good. Two goods (A and B) are complementary if using more of good A requires the use of more of good B. For example, the demand for one good (printers) generates demand for the other (ink cartridges).

Compound Interest

Interest calculated on the initial principal, which also includes all of the accumulated interest of previous periods of a deposit or loan.

Consumer Price Index (CPI)

A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them.

Consumer Surplus

The difference between the price that consumers pay and the price that they are willing to pay.


A voluntary, deliberate, and legally binding agreement between two or more competent parties. Contracts help ensure trust between the two parties. 


Fiscal policy is said to be "contractionary" when the spending plan results in a surplus. 


The process of working together towards the same end. 


The misuse of power in the form of money or authority to achieve certain goals in illegal, dishonest or unfair ways.