Term Definition

The state or fact of having a duty to deal with something or of having control over someone.

Return on Assets

Takes the net profit (after taxes) from the profit and loss statement, and divides it into the total assets from the balance sheet. A firm with $25,000 in total assets and $3000 in net profits (after taxes) would have a return on assets (ROA) of $3000/$25000 or 12 percent. For each dollar of assets, the firm earns 12 cents in profit (after taxes). Return on Assets is one of the ratios used in the Dupont Model of financial performance. 

Return on Equity

Also known as ROE, return on equity is computed by taking net profit (after taxes) and dividing it by the total equity. Consider a firm with $3000 in net profit after taxes, and $12,500 in equity. It would have a ROE of $3,000/$12,500 or 24 percent. Return on Equity is one of the ratios used in the Dupont Model of financial performance. 


the income that a firm receives from the sale of a good or service to its customers. Revenue is calculated by multiplying the price (p) of the good by the quantity produced and sold (q).

Rule of Law

the restriction of the arbitrary exercise of power by subordinating it to well-defined and established laws.


Refers to the basic economic problem, the gap between limited – that is, scarce – resources and theoretically limitless wants.


In one sense, being self-sufficient means needing no outside help in satisfying one's basic needs. However, very few people could ever come close to producing enough to to meet their own needs. In another sense, people are self-sufficient when they have earned the goods they need to sustain themselves.

Service-Dominant Logic

One way of analyzing commercial activity. In contrast to goods-dominant logic, service-dominant logic is the belief that wealth occurred from the exchange of knowledge and skills rather than goods. 

Short Run

A conceptual time period, the length of which varies depending on the business or industry. The short run can be contrasted against the long run. In the short run, there are some factors of production that are variable, and some that are fixed. In the short run, a firm may be constrained from entering or exiting an industry. 


a condition where the quantity demanded is greater than the quantity supplied at the market price.


The method of production whereby an entity focuses on the production of a limited scope of goods to gain a greater degree of efficiency.

Spontaneous Order

The order that results spontaneously from human actions, not from human design. 


Ownership shares of a company or of a commodity such as corn, gold, or wheat. 

Stock Exchange

A place or electronic market where owners of businesses get together to buy and sell their shares of stock.

Subjective Value

The idea that the value of a good is not determined by any inherent property of the good, but instead value is determined by the importance an acting individual places on a good for the achievement of his desired ends


a benefit given to an individual, business, or institution, usually by the government. The subsidy is typically given to remove some type of burden, and it is often considered to be in the overall interest of the public, given to promote a social good or an economic policy


A person or thing acting or serving in place of another. In economics, substitute goods or substitutes are at least two products that could be used for the same purpose by the same consumers. If the price of one of the products rises or falls, then demand for the substitute goods or substitute good (if there is just one other) is likely to increase or decline. 


Describes the total amount of a specific good or service that is available to consumers. Supply can relate to the amount available at a specific price or the amount available across a range of prices if displayed on a graph.

Supply Schedule

The relationship between quantity supplied and own price, holding all other factors constant. 


The value generated by trading. The amount of surplus generated in a market depends on the quantity traded, and who is trading. 


A thing that is perceptible by touch.


A tax or duty to be paid on a particular class of imports or exports.


A means by which governments finance their expenditure by imposing charges on citizens and corporate entities. Governments use taxation to encourage or discourage certain economic decisions.

The United States Constitution

The supreme law of the United States of America. Part of what the Constitution does is limit the powers of the various branches of government. 


The economic concept involving the buying and selling of goods and services, with compensation paid by a buyer to a seller, or the exchange of goods or services between parties.

Tragedy of the Commons

A situation in a shared-resource system where individual users, acting independently according to their own self-interest, behave contrary to the common good of all users, by depleting or spoiling that resource through their collective action.

Transaction Cost

The cost associated with exchange of goods or services and incurred in overcoming market imperfections. 


The  willingness  to  make  oneself  vulnerable  to another  person.

Unemployment Rate

The ratio of the number of unemployed individuals by all individuals currently in the labor force. 


An estimate the usefulness, importance, or monetary worth of something.

Value Proposition

A promise of some benefit associated with a market offering. 

Zero-sum game

Relating to or denoting a situation in which whatever is gained by one side is lost by the other.