Council for Economic Education Glossary

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Ability-to-Pay Principle
The belief that people should be taxed according to their ability to pay, regardless of the benefits they receive. The U.S. individual income tax is based on this principle.

Absolute Advantage
The ability to produce more units of a good or service than some other producer, using the same quantity of resources.

Accounting Loss
Total explicit costs are greater than total explicit revenue which results in a loss.

Accounting Profit
Total revenue less total costs except for the opportunity cost of capital.

Adaptive Expectations
Expectations about inflation or other economic events.

Add-On Rate
A method of calculating interest on a loan, based on the assumption that the borrower holds the original principal for the entire loan period.

Adjusted Balance Method
A method of calculating finance charges by basing them on the opening balance owed after subtracting the payments made during the month.

Using advertisements (public notices, displays or presentations often based on celebrity endorsements, appeals to authority, bandwagon effects and attractive imagery) to promote the sale of goods or services.

Aggregate Demand (AD)
A schedule (or graph) that shows the value of output (real GDP) that would be demanded at different price levels.

Aggregate Supply (AS)
A schedule (or graph) that shows the value of output (real GDP) that would be produced at different price levels. In the long run, the schedule shows a constant level of real GDP at all price levels, determined by the economy's productive capacity at full employment. In the short run, the aggregate supply schedule may show different levels of real GDP as the price level changes.

Allocative Efficiency
Taking advantage of every opportunity to make some individuals better off in their own estimation while not worsening the condition of anyone else.

A sum of money paid regularly to a person, often by a parent to a child; sometimes paid in compensation for services rendered.

One of many choices or courses of action that might be taken in a given situation.

Amount Past Due
In a credit arrangement, the amount of money owed and not repaid on time.

Annual Fee
The yearly charge for having a credit card or credit account.

Annual Percentage Rate (APR)
The percentage of the principal of a loan to be paid as interest in one year. Differs from an add-on rate in that an APR is calculated on the declining balance of the loan. The Truth in Lending Act requires lenders to disclose APRs to prospective borrowers.

Annual Percentage Yield
Income earned on an investment in a year, divided by the amount of the original investment.

Annual Rate of Return
Income earned on an investment in a year, divided by the amount of the original investment.

Asian Financial Crisis
The situation that began in 1997-1998 when investors withdrew large amounts of money from several Asian countries due to fears that assets were overpriced. This led to currency devaluations and set off a panic resulting in runs on banks, plummeting stock prices, business failures and loss of jobs. Some of the countries involved were Thailand, South Korea, Indonesia and Malaysia.

Something of monetary value owned by an individual or an organization.

Beliefs or statements presupposed to be true.

Automated Teller Machine (ATM)
A machine that provides cash and performs banking services (for deposits and transfers of funds between accounts, for example) automatically when accessed by customers using plastic cards coded with personal identification numbers (PINs).

Average Daily Balance Method
A method of calculating finance charges based on the average amount owed for each day of the billing cycle.

Average Fixed Cost (AFC)
Total fixed costs divided by the amount produced.

Average Revenue (AR)
Total revenue divided by the amount produced.

Average Variable Cost (AVC)
Total variable costs divided by the quantity produced.