11 terms were found starting with the letter r.

Rate of Return (ROR)

The average annual benefits from an investment divided by the net present value of all costs associated with the investment. Average annual benefits are calculated as the net present value of all benefits divided by the useful life of the investment.

Rational Expectations

The theory that, over time, firms, households, and other economic agents learn the processes that determines prices, wages, and other economic variables. Having learned these processes, they use this knowledge when making forecasts for these variables. Rational expectations does not imply that forecasts are always right, but rather that economic agents come up with the best possible forecasts given the information at their disposal.

Real Income

Nominal (or money) income adjusted for inflation.

Real Interest Rate

Equals the money (or nominal) rate of interest minus the rate of inflation.

Renewable Resource

A resource that can grow or regenerate itself within a time span relevant to human decision making (for example, years instead of centuries).

Rent Seeking

The pursuit of government policies or programs that transfer income to one person or group at the expense of others.

Research and Development (R&D)

Scientific investigation designed to develop new consumer goods and services, new inputs into production, new methods of producing goods and services, or new ways of operating and managing organizations. There are two types of R&D: basic and applied. Basic R&D does not have a specific commercial objective, while applied R&D does.

Reserve Currency

A foreign currency (e.g., the U.S. dollar) that a government holds as part of its foreign exchange reserves.

Revealed Comparative Advantage (RCA)

Measured by a good’s share in a country’s total exports relative to that good’s share in world trade. If the share of the good in the country’s exports is larger than its share in world trade, the country has a revealed comparative advantage in that good. If the share of the good in the country’s exports is smaller than its share in world trade, the country has a revealed comparative disadvantage in that good.

Risk Aversion

Occurs when someone is willing to pay to reduce or avoid uncertainty even though, on average, they would be better off financially by living with the uncertainty.

Rule of Law

A legal environment in which civil cases (contracts, employment, property, etc.) and criminal cases are handled in a non-arbitrary manner according to a well-developed and well-understood body of law.

2 terms were found starting with the letter q.

Quantitative Restriction

A restriction on imports or exports limiting the amount that is traded. An import quota is a type of quantitative restriction.

Quota Rent

The economic rent received by the holder of the right to import or export under the quota.

29 terms were found starting with the letter p.

Pareto Optimal

A situation where it is not possible for individuals, households, or firms to bargain or trade in such a way that everyone is at least as well off as they were before and at least one person is better off. Also known as an efficient outcome.

Partial Equilibrium

A method of economic analysis that examines one or more sectors of an economy, taking what is happening in the rest of the economy as exogenous (in other words, not affected by the sectors being analyzed). Useful for detailed study of one or more sectors.

Pastoral Nomadism

A type of farming system in which farmers and farm families travel, more or less continuously, with herds of livestock.

Per Capita Income

Total income divided by total population; in other words, average income per person.

Perfect Competition

Occurs when the none of the actions of any buyer or seller has an effect on the market price. The opposite of perfect competition is imperfect competition.

Perfect Equality Line

A 45-degree line in a Lorenz curve diagram showing what income distribution would be in the case of perfect equality among individuals or households.

Perfect Information

Occurs when every buyer knows the true benefits associated with the consumption of a good or service, and when every seller knows the true costs associated with the production of a good or service. The opposite of perfect information is imperfect information.

Physical Capital

Another name for ordinary capital; in other words, tangible investment goods such as plant and equipment, machinery, and buildings. Often used to distinguish ordinary capital from human capital.

Pigouvian Tax

A tax on an externality equal to the difference between the marginal private cost of the activity causing the externality (e.g., automobiles emitting pollutants) and the marginal social cost of this activity.

Point Source Pollution

Pollution that is released into the environment at distinct locations that can be identified and monitored at a reasonable cost (e.g., the tip of a factory’s smokestack). The opposite of point source pollution is nonpoint source pollution.

Political Risk

The risk that a government will unexpectedly change the rules of the game under which businesses in that country operate.

Pollution Abatement Technology

A technology designed to treat pollutants or reduce emissions of pollutants after they have been physically created.

Pollution Prevention Technology

A technology designed to alter production processes so as to prevent the physical creation of pollutants.

Poverty

A situation in which a person or household lacks the resources necessary to be able to consume a certain minimum basket of goods. The basket consists either of food, clothing, housing and other essentials (moderate poverty) or of food alone (extreme poverty).

Poverty Gap

The amount of income that would be required to bring every poor person exactly up to the poverty line, thereby eliminating poverty.

Predatory Pricing

A pricing policy designed to drive one or more competitors out of business.

Price Discrimination

Charging different prices to different customers for similar goods.

Price Taker

A firm, household, or other economic agent that constitutes such a small share of the market for a good that its decisions do not influence the market price.

Primary Commodity

A commodity that has not yet had any significant degree of processing (e.g., agricultural commodities, wood, oil, minerals).

Private Cost

The cost of an activity to the individual, household, or firm undertaking the activity.

Private Good

A good that is both excludable and rival. A good is excludable if it is possible to prevent someone from consuming that good once it has been made available to the public. A good is rival if one person’s consumption of that good reduces the quantity available for consumption by someone else.

Producer Support Estimate/Producer Subsidy Equivalent (PSE)

An indicator of the annual monetary value of gross transfers from consumers and taxpayers to support producers, arising from government policies directed toward producers in a particular sector (e.g., agriculture). Is negative if policies transfer income away from producers and toward consumers or taxpayers.

Producer Surplus

A measure of the gains to producers from production of a good or service. Defined as total revenues earned, minus the area underneath the supply curve up to the total quantity produced.

Production Possibilities Frontier (PPF)

A curve showing the possible alternative combinations of two goods (for example, agricultural and nonagricultural goods) that an economy can produce using the available factors of production.

Productivity

Same as average product – the total quantity of output divided the total quantity of some input.

Profit Maximization

Choosing the level of output, and the quantities of inputs into production needed to achieve that level of output, so as to make profits as large as possible.

Protectionism

The practice of shielding domestic firms by using tariffs, quotas, or other trade barriers to discourage imports. Usually substantial output inefficiencies follow and consumer welfare decreases.

Public Good

A good that is both nonexcludable and nonrival. A good is nonexcludable if it is not possible to prevent anyone from consuming the good once it has been made available to the public. A good is nonrival if one person’s consumption of that good does not reduce the quantity available for consumption by someone else.

Purchasing Power Parity (PPP)

A method to more accurately compare incomes across countries. Converts income in each country from that country’s domestic currency to U.S. dollars using purchasing power parities rather than the usual method of using official exchange rates or market exchange rates. Purchasing power parity adjusts official exchange rates for cost-of-living differences between the U.S. and the country in question.

12 terms were found starting with the letter o.

Official Exchange Rate

The rate at which the government will buy and sell the domestic currency in terms of a foreign currency such as the U.S. dollar. Countries with floating exchange rates typically do not have any official exchange rate; the government leaves the determination of the exchange rate to the market.

Oligopoly

A market for a good or service in which the decisions of at least one of the sellers have an impact on the market price. The limiting case of an oligopoly is a monopoly.

Oligopsony

A market for a good or service in which the decisions of at least one of the buyers have an impact on the market price. The limiting case of an oligopsony is a monopsony.

Open Access Good

A good that is rival but nonexcludable. A good is rival if one person’s consumption of that good reduces the quantity available for consumption by someone else. A good is nonexcludable if it is not possible to prevent someone from consuming that good once it has been made available to the public.

Open Access Resource

A natural resource having the characteristics of an open access good, namely, that it is rival but nonexcludable. A good is rival if one person’s consumption of that good reduces the quantity available for consumption by someone else. A good is nonexcludable if it is not possible to prevent someone from consuming that good once it has been made available to the public.

Opportunity Cost

The value of resources used in a consumption or production activity if they had been used in the next best alternative instead. The opportunity cost is essentially what must be forgone in order to consume or produce a particular good or service.

Option Value

An economic value placed on an environmental or natural resource because people want to preserve the option of using the resource in the future, above and beyond any expected value attached to the future use of the resource.

Organization for Economic Cooperation and Development (OECD)

An international organization composed of 30 industrialized, market-economy countries. Representatives from member countries meet periodically to exchange information and harmonize policy.

Organization of Petroleum Exporting Countries (OPEC)

A cartel of major oil exporting countries set up in 1960. Currently consists of 11 members. Reached the height of its power in 1973 with an oil embargo directed at the U.S. and other countries and a subsequent quadrupling of oil prices.

Over-Quota Tariff

For a country with a tariff rate quota (TRQ) system for a particular commodity, the tariff applied on imports over the quota. The tariff on imports within the quota is referred to as the in-quota tariff.

Overvalued Exchange Rate

Occurs when a country sets the value of its currency – the official exchange rate – at a level higher than the level that would prevail if there were a free market in foreign exchange.

Own-Price Elasticity of Demand

The percentage change in the consumption of some good or service in response to a 1% increase in the price of that good or service.