Council for Economic Education Glossary

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PACED Decision-Making Process
A decision-making process designed to help people solve problems in a rational, systematic way. It includes the following steps: State the Problem, List Alternatives, Identify Criteria, Evaluate Alternatives, and Make a Decision.

Paper Money
Certificates of various denominations generally recognized and accepted as a medium of exchange within a nation and elsewhere. Paper money is issued and backed by national governments or, in the case of the euro, by a group of governments.

A business with two or more owners who share the firm's profits and losses.

Passbook Savings Account
A savings account offering high liquidity but usually a low rate of interest. Deposits and withdrawals are recorded in the saver's passbook.

Payday Loan
A loan issued to a borrower who writes a post-dated check made out to a lender (usually a company specializing in payday loans and other financial services targeted to low-income customers) for the amount he or she wishes to borrow plus a fee. The lender then gives the borrower cash in the amount stated on the check, minus the fee, and holds the check until the borrower's next payday, when the lender cashes it. No credit background check is required. The cost (in fees and interest) to those who use payday loans is often high, however, when calculated as an APR.

Payment Due Date
In a credit arrangement, the date by which the minimum payment must be made.

Payroll Deduction
An amount of money automatically subtracted from an employee's gross pay for taxes, insurance, retirement benefits, etc.

Pegged Exchange Rate
An exchange rate that is fixed within a certain range or against a major currency or basket of currencies.

Pension Fund
An account established by a business to fund retirement benefits for its workers. Pension funds invest in stocks, bonds, mutual funds and real estate.

Per Capita Gross Domestic Product (GDP)
The total market value of all final goods and services produced in an economy in a given year divided by the population.

Perfect Competition
A market structure in which a large number of relatively small firms produce and sell identical products and in which there are no significant barriers to entry into or exit from the industry. Firms in perfect competition are price takers and in the long run will earn only normal profits.

Perfectly Elastic Demand
A situation in which even the smallest change in price will cause consumers to change their consumption by a huge amount. Buyers will purchase as much of a product or resource as is available at a constant price.

Perfectly Elastic Supply
A situation in which the smallest change in price would lead to an infinite change in quantity supplied. Sellers will make available as much of the product or resource as buyers will purchase at a constant price.

Perfectly Inelastic Demand
A situation in which there is no change in the quantity demanded as the price changes.

Perfectly Inelastic Supply
A situation in which supply will not change regardless of the change in price or the length of time allowed for change.

Periodic Expense
An expenditure that occurs occasionally and for which people budget money.

Periodic Income
Money received but not earned on a regular schedule--for example, from occasional baby-sitting jobs, summer jobs and gifts from relatives.

Personal Distribution of Income
A classification of the income received by individuals or families; shows the number of people in various income categories, ranging from those receiving the highest level of income to those receiving the lowest.

Personal Resources
The time, money and skills that a person has.

PIN (Personal Identification Number)
A confidential code used to access private financial information or to make transactions (at an ATM, for example).

Planned Economic System
An economic system where the questions of what to produce, how to produce and for whom to produce are answered by means of a central plan rather than by markets. In the former Soviet Union, a State Planning Committee (Gosplan) oversaw planning for the production and distribution of most goods and services.

Planned Spending
Thoughtful, deliberate spending, reflecting a consumer's judgment that the benefits to be obtained warrant the costs to be paid.

A person's or an institution's collection of savings and investments.

Positive Externality
A beneficial or positive side effect that results when the production or consumption of a good or service affects the welfare of people who are not the parties directly involved in a market exchange. Sometimes referred to as "third-party benefit" or "spillover benefit," it is a benefit obtained without compensation by third parties from the production or consumption of other parties.

Potential Gross Domestic Product (GDP)
The real GDP an economy would produce if its labor and other resources were fully employed.

The state of being poor, variously defined. Sometimes defined relatively--by reference, for example, to the average household income in a nation or region. Sometimes defined absolutely--by reference, for example, to the income needed to provide for adequate food, housing and clothing in a nation or region.

The fee paid for insurance protection.

Previous Balance
In a credit arrangement, last month's balance.

The amount of money that people pay when they buy a good or service; the amount they receive when they sell a good or service.

Price Ceiling
A legally established maximum price that may be charged for a good or service.

Price Discrimination
Charging different customers different prices for the same good or service.

Price Elasticity of Demand
The responsiveness of the quantity demanded of a good or service to changes in its price. The price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price.

Price Elasticity of Supply
The responsiveness of the quantity supplied of a good or service to changes in its price. The price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price.

Price Floor
A legally established minimum price that may be charged for a good or service.

Price Leadership
An arrangement in an oligopolistic industry in which one firm makes pricing decisions for the entire industry; one firm sets the price and the other firms follow.

Price Level
The weighted average of the prices of all goods and services in an economy; used to calculate inflation.

Price Stability
The absence of inflation or deflation; a broad social goal and criterion for measuring the performance of an economic system.

Price Taker
A firm that is unable to set a price that differs from the market price without losing profit; a firm in a perfectly competitive industry.

Primary Market
The market where new securities are offered for sale for the first time. Investment banks buy shares of stocks directly from corporations that issue them and sell these shares to others.

An original amount of money invested or lent.

Private Good
A good that provides benefits only to the purchaser.

Private Property
A basic institution in a market economy, private property involves the right to exclusive use, legal protection against invaders and the right to transfer property to other. Property rights are defined, enforced and limited through the process of government.

Producer Surplus
The difference between the price firms would have been willing to accept for their products and the price they actually receive.

People and firms that use resources to make goods and services.

A good or service that can be used to satisfy a want.

A process of manufacturing, growing, designing, or otherwise using productive resources to create goods or services used to to satisfy a want.

Production Possibilities Frontier
A table or graph that shows the full employment capacity of an economy in the form of possible combinations of two goods, or two bundles of goods, that could be produced with a given amount of productive resources and level of technology.

Productive Efficiency
A firm operating where it produces a given quantity and quality of goods at the lowest possible cost; also known as technical efficiency.

Productive Resources
Natural resources, human resources, capital resources and entrepreneurship used to make goods and services.

The amount of output (goods and services) produced per unit of input (productive resources) used.

Income received for entrepreneurial skills and risk taking, calculated by subtracting all of a firm's explicit and implicit costs from its total revenues.

Profit Maximization
Where MR = MC; profit is at a maximum when marginal revenue equals marginal cost.

Profit Motive
The desire to make money which motivates or causes people to work hard to produce goods and services.

Progressive Tax
A tax that take a larger percentage of income from people in higher-income groups than from people in lower-income ones; the U.S. federal income tax is an example.

Property Rights
Legal protection for the boundaries and possession of property. Assigning of property rights to individuals, collectives or governments depends on the economic system.

Property Tax
A tax on land and structures built on it. Payments go to state and/or local governments to pay for police protection, public schools, libraries, etc.

Proportional Tax
A tax that takes the same percentage of income from people in all income groups.

Public Goods
Goods, often supplied by the government, for which use by one person does not reduce the quantity of the good available for others to use, and for which consumption cannot be limited to those who pay for the good.

Public-Choice Analysis
The study of decision making as it affects the organization and operation of government and other collective organizations. Involves the application of economic principles to political science topics.

In a credit arrangement, the total amount spent during the billing cycle.

Purchasing Power
The amount of goods and services that a monetary unit of income can buy.

Pyramid Scam
An illegal scheme of selling goods. Participants are recruited by advertisements offering big profits to those who pay a fee for agency rights, that is, rights to sell goods as a representative of the pyramid company. Each recruited agent then recruits others to join, with each new participant paying a fee to join. The key is that each person is promised commissions not only on his or her sales but on the sales of other people they recruit as distributors.