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Economics Key Terms

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❶Extreme points occur at an input value, but the extreme value is an output value. The branch of mathematics involving derivatives and integrals.

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11 thoughts to “Economics: Key Terms and Definitions”

That is, potentially observable random variables in the model have different distributions for different values of the parameter. IC is a locus of points representing different baskets of commodities X and Y that may give consumers the same level of utility or satisfaction so that he is indifferent among them. A flow of money into an interest-bearing account over a period of time. When the money flows continuously into the account, the flow is called a continuous income stream.

A discrete income stream is a one into which money flows at specific intervals of time quarterly, monthly, daily, and so on. A term applied to the output of a function that infinitely increases in height. Increasing without bound may describe either the end behavior of a function or the limiting value of a function as the input approaches a certain value. An ongoing rise in the average level of absolute prices. A point where the concavity of a graph changes.

Cubic and logistic functions have one point. Sine and cosine functions have two inflection points in each cycle and an infinite number of inflection points over all real number inputs. In real-life applications, the inflection point is interpreted as the point of most rapid change or least rapid change in an area near the inflection point. A known point on the graph of a particular solution for a differential equation.

Instantaneous rate of change: The instantaneous rate of change at a point on a curve is the slope of the curve at that point and the slope of the line tangent to the curve at that point. Instantaneous rates of change have labels of output units per input unit.

The process of evaluating a definite integral to determine the accumulation of change or the process of recovering a quantity function from a rate-of-change function. Interpretation of a result: A simple non-technical sentence explaining the real-life meaning of a result. The input value where the graph crosses or touches the horizontal axis or the output value where the graph touches or crosses the vertical axis.

The process of predicting an output value using an input value that is within a given interval of input data. If a rule obtained by reversing the input and output of a function is also a function, then it is called an inverse function. An Ito process is a stochastic process: A generalized Wiener process is a continuous-time random walk with a drift and random jumps at every point in time.

A jackknife estimator creates a series of estimates, from a single data set by generating that statistic repeatedly on the data set, leaving one data value out each time. This produces a mean estimate of the parameter and a standard deviation of the estimates of the parameter. The constant k is the constant of proportionality. A parameter describing the peakedness and tails of a probability distribution. All else equal, if the price of a good goes up, quantity demanded goes down and vice versa.

A procedure to determine the line that best fits a set of data using the criterion that the sum of the squares of the deviations of all the data points from the fitted line, i. The linear function that best fits a set of data, where best fit is defined according to the least squares method.

Economic Incidence of a Tax Legal incidence refers to the division of a tax burden according to who is required by law to pay the tax, while economic incidence refers to the division of a tax burden according to who actually pays the tax after all price adjustments are taken into account.

A change in the legal incidence of a tax will have no effect on the economic incidence. If the legal incidence of a per-unit tax is entirely on suppliers, the supply curve will shift up by the amount of the tax. On the other hand, if the legal incidence is entirely on demanders, the demand curve will shift down by the amount of the tax.

In both situations, the equilibrium quantity will fall, suppliers will receive a lower post-tax price, and demanders will pay a higher post-tax price.

Leverage ratios measure the degree of protection of suppliers of long-term funds and can also aid in judging a firm's ability to raise additional debt and its capacity to pay its liabilities on time, for example: A number to which the output of a function becomes closer and closer as the input becomes closer and closer to a stated value.

A function that repeatedly and at even intervals adds the same value to the output. In the linear function, a is the constant rate of change of the output, i. When input values in a set of data are evenly spaced and the first differences of the output values are constant, the data should be modeled by a linear function.

Linear system of equations: Two or more equations in which all the variables occur to the first power and there are no terms in which two different variables are multiplied or divided.

Liquidity ratios measure a firm's ability to meet its current obligations, for example: The principle that if we graph a smooth, continuous function over a small enough interval around a point, then the graph looks like the line tangent to the curve at that point. That is, the tangent line and the curve are basically indistinguishable over the interval.

We refer to L as the limiting value or carrying capacity or saturation level of the function. A type of approximation of change used in economics. The rates of change of cost, revenue, and profit with respect to the number of units produced or sold are called marginal cost, marginal revenue, and marginal profit.

These rates are often used to approximate the actual change in cost, revenue, or profit when the number of units produced or sold is increased by one. The marginal utility of a good say X is defined to be the amount of additional utility derived from the consumption of an additional unit of X while keeping the quantity of the other good say Y as constant.

The actual price that a consumer pays for one unit of goods or services. The process of translating a real-world problem into a useable mathematical equation. A rectangular arrangement of numbers in rows and columns. Matrices are useful in solving systems of linear equations. One of the measures of the center of a probability distribution, the mean also called the expected value or average is the input value of the "balance point" of the region between the density function and the horizontal axis.

Microeconomics is the study of the economic choices made by individual economic units such as consumers, households and firms etc. A mathematical model is an equation, along with descriptions and units of the variables, that describes a real-life situation. There are four important elements to every model: If a certain firm is the only one that can produce a certain goodsor service, it has a monopoly in the market for that goods or service.

It is an estimate of the fees that you will pay to close your loan. If your equity in your property qualifies, you can refinance with a loan amount greater than your current mortgage - and keep the difference!

Use it for home improvement, debt consolidation, or whatever you desire. Your income, debt, and mortgage payments are the primary factors that affect whether you qualify for a loan. If you do qualify for a loan, you can apply, and ditech. To determine your qualification, the first thing ditech. This provides your housing-to-income ratio. If the resulting percentage falls within a certain range, the next step is to divide your total monthly debt by your gross monthly income. This provides your debt-to-income ratio.

Again, if the ratio falls within prescribed limits, you are qualified for the loan. The limits within which your housing and debt ratios must fall are determined primarily by the size of the loan, the value of the property, and the ratio between the two known as the loan-to-value ratio, or LTV. This loan-to-value ratio is one of the most important factors in determining a home loan. The appraisal determines the value of the property in question, which becomes a prime factor in determining the loan-to-value - or LTV - ratio the amount of your loan divided by the value of your property.

Your LTV is important because it determines your equity in the property. With the exception of leveraged equity and some second mortgages, ditech. An appraiser is an authorized professional who estimates the value of the property and sends the information to ditech.

Your income, debt, and mortgage payments make up your income-to-debt ratio. These are the primary factors that affect whether or not you qualify for a loan. Owner's estimate of value: You can estimate the value by reviewing neighborhood comparable properties comps.

A good way to do this is to simply call a local real estate agent. You can also visit open house events in your neighborhood. This may give you an indication of what prices are being asked for various properties. That is, each month your payment to your lender will consist of:. Common wisdom holds that the more equity a borrower has in a property, the lower the risk of defaulting on the loan. What is prequalification vs. Because this preapproval is based on information provided to ditech.

Once all closing conditions and lender requirements are satisfied, the loan will receive final approval. Rolling in your loan costs is especially attractive when refinancing. By rolling in your costs, you incur no expenses, thus you have no "payback period. By rolling in the cost of your refinance, your actual savings begin immediately.

Rolling in your costs is particularly appropriate if you are planning to sell or refinance again in a few years because, in this case, it doesn't really matter that your loan amount is higher as long as you enjoy savings right now. Equity Line of Credit and another type of second mortgage: An Equity Line of Credit is money in an account that can be used as you need it.

You can use any portion of it at any time and pay it back at any time. The interest rate is usually variable and is tied to the prime rate.

Other types of second mortgages, such as the Home Equity Loan and percent Freedom Loans are simple interest products. You borrow a lump sum and pay it back over a period of years with interest. The interest rate for these products is fixed.

Closing costs are sometimes also called settlement costs. These are the costs a lender charges for funding and completing your loan and are generally charged at the time of closing or settlement. They often include discount points, which are fees paid to lower your interest rate. They also vary from one lender to another, so it pays to shop around. Income, debt, and mortgage payments: These are the primary factors that effect whether you qualify for a loan.

In order to determine if you qualify for a loan, your lender will calculate two defining ratios: The first of the two ratios, the housing-to-income ratio, is calculated by dividing the monthly payment of your proposed loan by your gross monthly income.

If the resulting percentage falls within a predetermined range, the lender will then go on to calculate your debt-to-income ratio. The debt-to-income ratio is calculated by dividing your total monthly debt by your gross monthly income. Once again, if this ratio falls within prescribed limits, the lender will qualify you for the loan. Rates, terms, and APR: All mortgages have an interest rate, a term, and an annual percentage rate APR.

For example, a mortgage might be defined as a year fixed-rate loan at 7. In this example, the mortgage term is 30 years. As the borrower, you will pay back the loan in installments over the course of 30 years. An economic system in which resources are allocated through both the private and public sector. Central bank or Government decisions on the rate of interest, the money supply and the exchange rate. A committee responsible for setting the interest rate in order to meet the inflation target.

Output measured in current prices not adjusted to inflation. The difference between an economy's actual and potential real GDP. The growth in AD outstripping the growth in AS resulting in inflation.

The average of the prices of all products in an economy. The protection of domestic industries from foreign competition. The charge for borrowing money and the reward for saving money. Income after taxes have been deducted and benefits added adjusted to inflation. The time and effort spent trying to counter-act the effects of inflation. Unemployment caused by the decline of certain industries and occupations due to changes in demand and supply. A payment usually from a government to encourage production or consumption of a product.

Policies that increase AS by improving the efficiency of labour and product markets. Information shown at successive points or intervals of time. Equilibrium is the point where everybody willing to pay the market price has their demand satified, and anybody willing to produce at the market price has a buyer for the good. At any other point along either curve the market forces would drive supply and demand toward equilibrium. For instance, at a lower price, demand would outstrip supply.

Unsatisfied consumers could offer to pay more to receive goods, and the increased price is an incentive for a profit seeking producer to produce more goods, causing supply to increase. In general, market forces will cause the market to move towards the equilibrium point. A labourer who hones skills with regards to one specific task will be more effective at the given task than someone who is unskilled.

The market encourages people to develop special skill sets and trade their labour, or the products of their labour, with others for the things they need or want. Alternatively people could directly satisfy their own needs. The key to specialization is that a specialist can perform their work generally better and more quickly than a non-specialist.

A group of five specialists could all trade their respective goods and services to each other. This five specialists would be more wealthy capable of enjoying more free time, and having better quality goods and services than five equally capable people who all worked to provide for all their own needs on their own without specializing and trading with each other. This is one of the key benefits of market and trade concepts, as this interdependent network of specialists are capable of dramatically more effective action than would otherwise be possible.

A place where goods and services are exchanged. One might imagine a bustling street full of vendors and customers or a stock exchange full of people buying and selling stocks. These are physical manifestations of what we call a market, but the definition is not limited to these examples. Goods and services are exchanged at many levels. We can imagine markets at a local, national, and global scale.

We can still use those first mental images, but we should be aware that markets can span continents and cross borders. They manifest themselves in many ways. The most general rules that define the way a market acts is via supply and demand see above. Markets are also places where discussions can happen between people and organizations regarding appropriate quantities and prices for their exchange of goods. A useful definition of capital is anything that can enhance the ability to do economically useful work 1.

Economically useful essentially means anything that has value to human beings. There are many ways to produce value, so it makes sense that there are several types of capital that we can refer to. Human beings who can perform useful work. This includes physical as well as mental work and specialized skills.

Investment in improving human capital is generally through education and training. Accumulation of human capital could also mean hiring people who are useful for doing work. Financial capital is essentially just money. It refers to the ability to use money to acquire other forms of capital.

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Economics A-Z terms beginning with A. The arbitrage pricing theory says that the price of a financial asset reflects a few key risk Visit The Economist e .

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A brief introduction to some of the basic language of economics. This should be understandable even for those with nothing more than personal experience in . An extremely useful and fun resource for revising economics and learning tricky definitions. Made for OCR but applicable to all boards including IB. If you have any recommendations about more levels or better definitions etc. let me know and I .

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Scarcity the conditions that result from a society not having enough resources to produce things for wants Economics the study . This key term glossary covers the vast majority of concepts needed for students preparing for their AS (Unit 2) macro economics exam. It is suitable for all.