Economics Glossary: D -, Learning Economics... Solved!

Economics Glossary: D

Deadweight loss – The total loss of surplus to an economy (producer plus consumer surplus lost) from underproduction or over production.  Typically the result of a market failure (market structure/externality) or government intervention (taxes, quotas, price ceilings/floors).

Decreasing marginal returns – When the marginal product of an additional input (typically labor) is less than the marginal product of the previous input.  Occurs in the short run because at least one other input is fixed and is the reason for the U shaped marginal cost curve.

Deficit response index (DRI) – The amount by which the government deficit will change given a $1 change in GDP (gross domestic product).

Deflation – a decrease in the overall price level.

Demand – The relationship between the quantity demanded and the price of a good everything else equal.

Demand curve – a graph that shows how much of a given good or service a household would be willing and able to buy at different prices.

Demand for labor – The relationship between the quantity of labor demanded and the real wage rate everything else equal.

Demand schedule – a table showing how much of a given good or service a household would be willing and able to buy at different prices.

Demand-pull inflation – Inflation that is initiated by an increase in aggregate demand.  For example, a rightward shift in the AD curve will cause an inflationary gap.

Depreciation – the amount an asset’s value falls in a given time period.  Accounting depreciation is a rate of depreciation set by the government or regulatory body.  Economic depreciation is the change in the market value of an asset from one year to the next.

Depreciation of a currency – The fall in value of one currency relative to another currency.

Depression – a very long and deep recession.  In modern history there has only been one depression recorded, the great depression which lasted from the 1930s until the end of World War 2.

Deregulation – The process of removing regulation in a firm or industry.  Typically deregulation involves removing regulations of quantities, entry and other  possible rules tied to the firm or industry.

Descriptive economics – The compilation of data that describe facts about the world.

Desired level of inventories (or optimal level of inventories)  -- The level of inventory at which the cost in lost sales from lowering inventories is equal to the gain in interest revenue and lower storage costs.

Diminishing returns – When each additional hour of labor employed produces a smaller additional amount of GDP.  Typically associated with the production function and occurs whenever the exponent on labor is less than 1.

Direct relationship – A relationship between two variables that move in the same direction.  Example: the law of supply states that as price goes up, quantity supplied will go up.

Discount rate – The interest rate that banks pay to the Federal Reserve to borrow money.

Discouraged-worker effect – The decline in the measured unemployment rate that results when people who want to work but can’t find jobs become discourages and quite looking for a job.  When this happens they drop out of the labor force and then are not counted in the calculation of the unemployment rate.

Discretionary fiscal policy – Changes in taxes or government spending that are deliberate changes in government policy.

Diseconomies of scale – Occurs when a firm increase its plant size and labor employed by the same percentage  but its output increases by a smaller percentage.  Also, its average total cost increases.   
 Diseconomies of scale occur on the right side of the long run average total cost curve where the LRATC curve is upward sloping.

Disposable income (or after tax income) – The total income minus taxes (Y-T).  Sometimes seen as Yd.

Disposable personal income (or after tax income)  -- Personal income minus income taxes.  This is the amount that households are able to save or spend.

Dividends – The part of a firm’s profits that are paid out to each of its shareholders in a given time period, mostly likely quarterly or annually.

Dow Jones Industrial Average – The index based on the stock prices of 30 actively traded large companies.  DIJA is the oldest and most widely followed index to gauge the stock market’s performance.

Dumping – A firm’s or industry’s sale of products to the rest of the world at prices below their own cost of production.  Typically done to reduce inventory levels of perishable goods.

Duopoly – A market with only two firms.  Commonly associated with oligopolies.

Durable goods – Goods that last a relatively long time.  Durable goods include cars, ovens, refrigerators and other appliances.

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