Ability to Pay Principle - The idea that a fair tax policy takes taxes from people according to their ability to pay. See progressive taxes.

Alienation - When industrial workers tasks become so specialized that they lose personal feelings for their work and become "cogs in the machine". In Marxist theory, widespread alienation among workers is one factor that will lead to revolution.

All Else Being Equal - Our world is complex. Therefore, economic analysis must often depend on thought experiments that consider the changes that would come from varying one factor while all other factors are left unchanged. While it's true that such things never happen in real life, "all else being equal" is nevertheless a very useful tool for analyzing relationships.

Benefits Received Principle - The idea that a fair tax policy takes taxes from people according to the value of public benefits they have enjoyed.

Broad-based Taxation - The notion that taxation will place the least burden on production if it is spread out over as many sources as possible.

Business Cycle - The tendency of an economy to experience periodic slowdowns in production, in which people lose jobs and demand for goods declines; also called the "boom/bust" cycle.. The business cycle has been a recurring phenomenon since the mid-nineteenth century.

Capital - Physical products of human labor that are used in production, or are in the course of exchange. Capital tends to make labor more productive.

Capitalism - An economic system in which, generally, the factors of production are owned by private individuals or firms, and most economic decisions are made by self-interested entrepreneurs.

Capitalist - A loaded term that is sometimes used in sharply different ways. A "capitalist" is an owner of capital goods -- or, a "capitalist" is a member of the class of bosses who extort surplus value from labor -- or, a "capitalist" is a believer in the benefits of a free market. Sometimes context makes the meaning clear; sometimes it doesn't. The best way to avoid confusion is to remember, in any case, the proper definition of capital as an economic factor.

Cartel - A group of firms (or nations) who agree to keep the price of certain goods above the level to which they would otherwise fall under free competition.

Class Struggle - Generally, the tension between the "haves" and the "have nots". In Marxist theory, class struggle will always intensify as capitalism progresses and workers are ever more exploited.

Communism - A collective society in which all the factors of production belong to the community.

Comparative Advantage - The principle by which people make decisions about whether to produce products for export. In our discussion of Dulcinian sugar exports, the United States had an absolute advantage (they could produce sugar more cheaply), but the Dulcinians had a comparative advantage (US consumers would still benefit, because lands that could have been used to grow sugar could be put to more profitable alternative uses).

Competition - When producers compete to bring goods and services to market, consumers benefit from lower prices and better quality. Thus, competition can be seen as a kind of "unconscious cooperation" that benefits the entire society.

Diminishing Returns - When additional units of a factor of production are added, a point will be reached where the additional output resulting from each added unit begins to decrease. That is called the point of diminishing returns. A colloquial expression of this is "too many cooks in the soup". Diminishing returns is a universal principle (all else being equal) because production is limited in space and time, and things can get crowded.

Dynamic - The word refers, generally, to systems or communities that are in a constant state of change. Used as a noun, as it was in our text, a "dynamic" is a whole set of forces and consequences that follow from some major movement in society. For example, we could talk about the dynamic of the military-industrial complex, or the dynamic of the welfare state.

Elasticity - The degree to which the supply or demand of something responds to changes in price.

Entrepreneur - A person who earns a living by taking risks and making business decisions. An entrepreneur is a type of worker; entrepreneurship is a subset of the overall category of labor.

Equilibrium - In a market, equilibrium is the point at which the quantity supplied of a good or service equals the quantity demanded. Markets tend to move toward equilibrium as a consequence of the fact that people seek to satisfy their desires with the least exertion. Equilibrium is a characteristic of any kind of market, whether individual or aggregate.

Exertion - In economic terms, exertion is synonymous with labor that is done to earn a living. Activities in which we exert ourselves for the fun of doing it are not "exertion" in the economic sense.

Externality - An externality is a cost (or benefit) that results from some action but is not paid (or enjoyed) by the one doing the action. Externalities can be either positive or negative.

Factors of Production - Land, labor and capital: the three categories of things that contribute to production.

Firm - The basic entity that produces things. A firm could be an individual, or a large corporation.

Full Employment - In modern economies, the lowest level of unemployment that does not bring about an unacceptably high level of inflation. Currently in the United States, "full employment" has between five and six per cent of the work force officially listed as unemployed.

GATT - General Agreement on Tariffs and Trade. A series of meetings of representatives from many nations, which have led to multilateral trade agreements.

Genuine Progress Indicator - An alternative measure of economic progress which seeks to take into account the social and environmental costs of production.

Gross Domestic Product - The total value of all the final goods and services consumed in one year's time.

HIPC - Heavily Indebted Poor Country. A category of deeply troubled nation that emerged during renogiations of national debts, and imposition of "structural adjustment" programs under the International Monetary Fund in the 1990s.

Infant Industry - A new industry that has not (yet) become competitive. Some advocate temporary tariff protections for "infant industries", so they can allow a nation to expand its industrial capacity.

Hot Dog Stand - A type of business firm that sells round pink sausages, also called frankfurters, from a mobile vending station.

Inflation - A general increase in prices, usually associated with an increase in the money supply.

Labor - In economics, labor is human exertion, mental or physical, in production. Like capital, however, "labor" is a loaded term that is used in various ways. "Labor" can refer to the social class that stands in opposition to "Capital" -- or, "Labor" might refer to the organized labor-union movement.

Laissez-Faire - "Let it alone" -- the idea that the economy functions best when there is minimal interference from government.

Land - The entire material universe, outside of human beings and their products. Economically, "land" is far more than just plots of ground; it is all natural materials and opportunities.

Land Speculation - The withholding of land from use or sale, because of anticipation of higher rents or prices in the future.

LDC - Less-developed Country. One of the many developing, post-colonial nations that has experience a poitical-economic syndrome of low capital investment, widespread poverty, often coupled with political corruption and instability, and large external debts.

Macroeconomics - The branch of economics that deals with the economic performance of the entire society, and is concerned with fiscal policy, taxation, unemployment, monetary and trade policy.

Malthusianism - The notion, made famous in Thomas R. Malthus's Essay on the Principle of Population (1798), that human population growth will always, eventually, outstrip the ability to provide subsustence. More generally today, the term often alludes to the idea that continued economic growth will place too great a burden on the ecological carrying capacity of the Earth.

Margin - The place (or time) at which one more unit of some factor is added or subtracted. The reason why the change of one more unit is so important is the insight it can give us toward making economic choices and, therefore, evaluating opportunity costs.

Marginal Cost - The extra cost needed to produce one more unit of output (or the reduction in total cost of producing one less unit of output).

Marginal Revenue - The additional revenue (income) that a firm gets from selling one more unit of output. Thinking in terms of marginal revenue helps firms decide how to set a price for their products in advance.

Marginal Utility - The benefit or satisfaction that one gets from consuming one more unit of something.

Market - The process by which buyers and sellers interact, which sets the prices for goods and services.

Market Failure - Usually, the give-and-take of the marketplace tends to produce efficient allocation of goods and services. When it does not, this is called "market failure". Two important types of market failure are brought about by monopolies and externalities.

Market-clearing Price - The price at which quantity demanded equals quantity supplied -- at which, in other words, the whole supply of goods bought to market are bought by consumers.

Marxism - An interpretation of history and political economy inspired by, and largely based on, the ideas of Karl Marx. In Marxist theory, society moves through a definite sequence of economic stages, from feudalism to capitalism, then by revolution moving into socialism, and finally evolving into pure communism.

Microeconomics - The branch of economics that deals with the behavior of individual firms and consumers.

Monopolistic Competition - A type of imperfect competition in which many substitute goods are available, but large firms can affect the prices of goods through advertising and brand identification, etc. Examples are the markets for beer, soft drinks or magazines.

Monopoly - A market in which there is only one seller. A "monopoly price" is whatever the buyer is willing to pay rather than go without the thing.

Multilateral Agreement - A pact agreed to by a number of nations regarding trade or other aspects of economic policy.

NAFTA - North American Free Trade Agreement. A controversial multilateral trade agreement, signed in 1993, among the United States, Canada and Mexico.

NAIRU - Acronym for Non-Accelerating Inflation Rate of Unemployment -- the highest rate of unemployment that will not trigger unacceptably high inflation. Same as "Full Employment Point".

Nontariff Barrier - A regulation, other than a tariff, that inhibits free movement of imports or exports. A particular "nontariff barrier" may be legitimate or worthwhile, even if it is penalized under international trade agreements.

Oligopoly - A type of imperfect competition in which there are few firms, all of whom can have some effect on prices.

Opportunity Cost - The highest income, profit or satisfaction that one gives up when choosing something.

Per Capita GDP - Gross domestic product, divided by the number of people (usually in a single nation).

Perfect Competition - A market in which there are many suppliers, and the goods are the same as others that can be substituted.

Planned Economy - An economic system in which allocation decisions are made by central planners, rather than by entrepreneurs.

Political Economy - In the days of the "classical economists" such as the French Physiocrats, Adam Smith, David Ricardo, etc., "political economy" was the term used for the study of economics. But in the 20th century, the term "economics" came into general use, and "political economy" came to mean something different. Nowadays, "economics" tends to mean an objective, scientific study of economic behavior, and "political economy" a system that proscribes how the economy ought to work. Today's science of "economics" often proclaims itself to be value-free; in other words, it says that economics should not deal in "shoulds" -- but it doesn't take a Genius to see the illogic in that statement.

Potential Output - In macroeconomics, the highest level of overall production (usually expressed in terms of GDP) that does not lead to too much inflation.

Productivity - The useful result, or output, that one gets from a given unit of a factor of production, or input. For example, labor gets more productive when workers produce more widgets in the same number of hours.

Profit - In general, the useful result that one gets from doing business. "Profit" is one of those terms, like "capital" or "wealth", that is often used in many different ways. For example, "economic profit" is the return above one's opportunity costs, while "accounting profit" is the return over what one actually spent. It helps to try to make sure what people mean when they use terms like this.

Progressive Tax - A tax that takes more from those who have a greater income, or more ability to pay.

Proletariat - Industrial workers. In Marxist theory, the proletariat is the class of alienated industrial workers who will first rise up to seize the means of production and create a socialist economy.

Real Estate - The class of property that includes land and the buildings and improvements on it. The term creates confusion, in economic policy, because it lumps together two distinct factors of production, land and wealth.

Real GDP - Gross Domestic Product once distortions due to inflation are factored out. Usually Real GDP is calculated using some particular year as a base price. (The term "real" usually refers to removing the effect of inflation on some number; we can also speak of "real wages" in the same way.)

Recession - The periodic slowdown in production that characterizes the business cycle. Nowadays, the conventional definition of a recession is two consecutive quarters of downturn in Real GDP.

Regressive Tax - A tax that places a greater burden on people with lower incomes.

Single Tax - The economic system, proposed most notably by Henry George, in which the rental value of land and natural resources are collected for public revenue, and no other taxes are used.

Socialism - The idea that most of the means of production (capital and labor) should be owner by the community, so that wealth will be more equitably distributed.

Speculative Bubble - This happens when an asset, such as a piece of land or a stock, increases in value, and more people buy some of it, paying more, causing its price to increase still more, which tempts more people to buy it, around and around, until... the bubble bursts. In this way, a great deal of "paper wealth" can be lost. Speculation in the stock market had much to do with the Great Depression of the 1930s; speculation in land is a feature of every business cycle.

Structural Adjustment - Catch-all term for a series of impositions made by the International Monetary Fund on heavily-indebted poor countries, so they could restructure their foreign debts. These terms called for privatization of state-run firms, liberalization of trade, and steps to remove government corruption. In many cases they also entailed the devaluation of local currency, which led to widespread suffering and hardship.

Suburban Sprawl - The pervasive phenomenon of new construction outside urban areas, even (or especially) when the city within the sprawl is losing population and economic activity.

Sunk Costs - The cost of productive inputs (factors) that have already been purchased.

Supply and Demand - The two sides of a market, which interact, and tend toward equilibrium.

Tariff - A tax imposed on imported goods.

Trade - The exchange of goods (or services) for other goods (or services). While individuals are quite happy to exchange things for money, in macroeconomic terms, the exchange of a thing for money is not really a trade, because money does not satisfy desires directly. The trade is completed when the money is exchanged for something else.

Traditional Economy - A set of customs, laws and practices regarding production and consumption, that has grown organically within a society.

Urban Blight - The counterpart of Suburban sprawl: the tendency for downtown areas to lose population and business activity -- often associated with poverty and crime.

Utility - The capacity of a thing to satisfy human desires.

Wealth - Physical objects that have been moved, formed or processed by human labor, that satisfy desires and have exchange value. "Wealth" is probably the most mis-defined and sloppily-used term in the field of economics. In its strict definition, wealth is distinct from land (which is not produced by human labor), and from money (which does not satisfy desires). But, of course, to individuals, the distinction between land, money and wealth makes no difference, because they are all valued in the same terms. One must search the context for what people mean when they use the term "wealth".

Welfare State - A political system in which the tendency for wages to decline is mitigated by various kinds of public support such as minimum wage laws, social security, Medicare, etc.

Widget - A basic unit of output, a product. What widget-makers make, and widget-fanciers fancy.