Economics glossary for college students
This glossary defines the economics and finance terms that come up most in college intro courses, from supply and demand and elasticity to GDP, inflation, monetary policy, CAPM and Black-Scholes. Each entry has a one-line definition, a fuller explanation and, where there is one, a formula and a worked example.
Intro microeconomics
Supply and demand, market equilibrium, price elasticity, opportunity cost, marginal utility, marginal cost, diminishing returns, economies of scale, consumer and producer surplus, deadweight loss, price ceilings and floors, and comparative advantage.
Intro macroeconomics
GDP, inflation, CPI, deflation, stagflation, recession, unemployment, monetary and fiscal policy, the federal funds rate, quantitative easing, the money supply and fractional reserve banking.
Market structure and game theory
Perfect competition, monopoly, oligopoly, externalities, public goods, market failure, information asymmetry, moral hazard, game theory, Nash equilibrium and the efficient market hypothesis.
Intro finance
Stocks, bonds, yield, compound interest, diversification, beta, standard deviation, CAPM, the risk-free rate, options, and the Black-Scholes model.
Journey Shares, a free stock market game, runs many of these live: prices set by supply and demand, cash eroded by real CPI inflation, a bank bound by Basel capital requirements that can suffer a run and a bailout, and options priced with Black-Scholes.
Common questions
What are the most important terms in Econ 101?
Supply and demand, equilibrium, elasticity, opportunity cost, marginal analysis, and consumer and producer surplus in microeconomics; GDP, inflation, unemployment, and monetary and fiscal policy in macroeconomics.
What's the difference between microeconomics and macroeconomics?
Microeconomics studies individual choices by people and firms in single markets. Macroeconomics studies the whole economy: total output, inflation, unemployment and policy.
Key terms
- Supply and demand
- : Supply and demand is the model that explains prices: when more people want something than is available, its price rises; when more is available than people want, its price falls.
- Price elasticity of demand
- : Price elasticity of demand measures how much the quantity people buy changes when the price changes.
- Opportunity cost
- : Opportunity cost is the value of the best alternative you give up when you make a choice.
- Marginal utility
- : Marginal utility is the extra satisfaction from one more unit of something.
- Deadweight loss
- : Deadweight loss is the value lost to society when a market produces less (or more) than the efficient quantity, often because of a tax, price control or monopoly.
- GDP (gross domestic product)
- : GDP is the total market value of all final goods and services produced in a country in a period.
- Inflation
- : Inflation is the rate at which prices across the economy rise over time, so each dollar buys less.
- Monetary policy
- : Monetary policy is how a central bank manages interest rates and the money supply to keep inflation low and employment high.
- Fiscal policy
- : Fiscal policy is the government's use of spending and taxes to influence the economy.
- Nash equilibrium
- : A Nash equilibrium is a set of strategies in which no player can do better by changing their own strategy while the others keep theirs.
- Capital asset pricing model (CAPM)
- : The capital asset pricing model says an investment's expected return equals the risk-free rate plus its beta times the market's extra return over that rate.
- Black-Scholes model
- : The Black-Scholes model is a formula for the fair price of a European option using five inputs: the stock price, strike, time to expiry, risk-free interest rate and volatility.
See also
- Browse the full glossary
- How to learn to trade stocks without risking money
- Free stock market simulator: what to look for
- Real-time trading explained
- Paper trading vs real trading
- Streamer stocks: trading Destiny, Hasan Piker and other commentators
- How stock prices are set
- Teaching economics with a stock market game
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