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

Economics Glossary: P

Part time for economic reasons – People with a job who work less than 35 hours per week but are looking for full time work, but cannot find it because of the current economic situation.

Part-time workers – People who generally work less than 35 hours per week.

Payoff matrix – A table that shows the possible payoffs for each player for every combination of actions possible by the players.

PCE price index – an average of the current prices of the goods and services included in the consumption expenditure component of GDP as a percentage of base year prices.

Per-capita output growth – The growth rate of output per person in a given economy.

Perfect competition – A market where there are many firms and each sell an identical product.  There are also many buyers and sellers, and no barriers to entry.  Buyers and sellers have perfect information.

Perfect price discrimination – Price discrimination that extracts the entire amount of consumer surplus from consumers by charging the exact price that each consumer is willing to pay.

Perfect substitutes – Products that can be used to satisfy the same want or desire, sometimes referred to as identical products. 

Perfectly elastic demand – When the quantity demanded changes by a very large percentage in response to a very small percentage change in price (shown as a horizontal demand curve).

Perfectly elastic supply – When the quantity supplied changes by a very large percentage in response to a very small percentage change in price (shown as a horizontal supply curve).

Perfectly inelastic demand – When the percentage change in quantity demanded is zero for any percentage change in the price (shown as a vertical demand curve).

Perfectly inelastic supply – When the percentage change in quantity supplied is zero for any percentage change in the price (shown as a vertical supply curve). 

Permanent income – The average level of a person’s expected future income stream over their lifetime.

Personal consumption expenditures (C) – Expenditures by consumers on goods and services in an economy.

Personal distribution of income – How income is distributed among households.

Personal income – The total income for all households in an economy.

Personal saving – The amount of disposable income that is left after total spending within a given time frame.

Personal savings rate – The percentage of disposable income that is saved by consumers.  If the 
personal savings rate is high, consumers are spending less while a high savings rate means that consumers are spending more (high consumer confidence).

Phillips curve – A curve that shows the relationship between the inflation rate and the unemployment rate.  Generally it is used to show the trade off (the negative relationship) between the two.  This means we can either have low unemployment with high inflation, or low inflation with high unemployment.

Planned aggregate expenditure (AE) – The total amount that the economy plans to spend within a given time period.  It is equal to the amount of consumption plus planned investment: AE = C + I.

Planned investment (I) – Additions to capital stocks and inventory that are planned by all firms.

Plant-and-equipment investment – The purchases by firms of machines, buildings, and factories within a given time period.

Policy mix – The combination of monetary and fiscal policies that are being used at a given moment.

Positive economics – An approach to economics that attempts to understand the behavior of firms and households without making ethical judgments.  It describes what is and how it works.

Positive externality – A production or consumption activity that provides a benefit to a third party not involved in the activity.

Positive relationship – A relationship between two variables, where a decrease in one variable leads to a decrease in the other, while an increase in one variable leads to an increase in the other.  This is demonstrated by an upward sloping curve on a graph.

Potential output, potential GDP – The level of aggregate output that can be sustained in the long run without resulting in any inflation.  When all factors of production are fully employed.

Price cap – A government regulation that places an upper limit on the market price for a particular product.

Price ceiling – A maximum price that sellers may charge for a good or service which is usually set by the government.

Price elasticity of demand – A measure of the responsiveness of the quantity demanded of a good to a change in its price.  Percent change in quantity demanded/percent change in price.

Price elasticity of supply – A measure of the responsiveness of the quantity supplied of a good to a change in its price.  Percent change in quantity supplied/percent change in price.

Price feedback effect – The process for how a domestic price increase in one country can feed back upon itself through the export and import prices.  This means that an increase in the price level in one country can lead to price increases in other countries.  This can then lead to even more price increase in the first country.

Price floor – A minimum price set for a good or service, usually by the government.  Exchange below this price is not permitted.

Price gouging – The practice of selling an important item for a much higher than normal price.  Typically this practice occurs following a natural disaster, or in isolated areas (ie. Food at Disney land, gas in the middle of nowhere, etc.).

Price rationing – The process for how the market system allocates goods and services to customers when the quantity demanded exceeds the quantity supplied.

Price support – A price floor in an agricultural market maintained by a government guarantee to buy any surplus output that is produced at the price floor price.

Price taker – A firm that cannot influence the price of a good or service that it manufactures. 

Price-discriminating monopoly – A monopoly that sells different products for different prices that are not related to the changes in cost.

Prisoners’ dilemma – A game theory set up between two prisoners that shows why it is hard to cooperate even though it is in the best interest of the group to do so.

Producer price indexes (PPIs) – These indexes measure the prices that producers receive for all of the products at every stage in the production process.

Producer surplus – The difference between the market price and the full cost of producing the good or service.  Can also be thought of as profit.

Product differentiation – Making a product that is slightly different from the products produced by other companies.

Product markets, output markets – The markets where goods and services are exchanged.

Production – The process that transforms resources (land , labor, capital, and entrepreneurship) into goods and services desired by consumers.

Production efficiency – A situation where the economy is producing  along its PPF, and is getting the most output it possible can from its resources.

Production function – The relationship between the maxim mum amount of real GDP that can be produced as a quantity of labor and all other factors of production.

Production possibilities frontier (PPF) – The boundary between the combinations of goods and services that can be produced and the combinations that cannot be produced given available resources, time, and technology.  A graph that shows all the possible combinations of goods and services that can be produced if society’s resources are used efficiently (productive efficiency).

Productivity growth – The growth rate of output per worker over time.

Productivity of an input – The amount of an output that gets produced per unit of an input.

Productivity, labor productivity – The amount of output per unit of labor input (usually one worker hour).

Profit – The difference between revenues and costs for a firm.

Property rights – Legally established titles to the ownership, use and disposal of goods and services and factors of production.  These titles are legal enforceable in courts.

Proprietors’ income – The income of unincorporated businesses.

Protection – The practice of shielding a certain sector of the economy from foreign competitors.  Also see, import substitution, or infant industry.

Public provision – The production of a good or service by a public entity which receives the majority of its revenue from the government.

Purchasing power parity theory – A theory of international exchange that states that exchange rates are set so that the price of similar goods in different countries are nearly the same, assume minimal transport and transactions costs.

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