No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Appendix A Definition Index 473 Average (fixed, variable, or total) costs: the average (fixed, variable, or total) cost of one unit of output. It is calculated by dividing the fixed, variable, or total costs by the quantity produced: AFC = FC/Q, AVC = VC/Q, and ATC = TC/Q. (Chapter 7—Short Run Costs) B Balance of trade: the difference between the amount of goods and services we export and the goods and services we import. (Chapter 15—Balance of Payments) Barriers to entry: obstacles that prevent new potential entrants from competing in a given market. (Chapter 8—Monopoly Defined) Bartering: exchange of one good for another directly, without using money (the medium of exchange). (Chapter 11—The Origin of Money: The Most Marketable Commodity) Beta: a measure of risk based on the variability of an individual stock’s return relative that of the overall stock market. (Chapter 16—Valuing the Future—Concepts in Capital and Finance) Broken window fallacy: an error in reasoning that assumes because a harm will be repaired, and the repair stimulates the economy, the harm is beneficial to the economy. The error is in the failure to identify how the resources would have been used alternatively. (Chapter 1—Uncertainty vs. Risk) Business cycle: the tendency of market economies to experience boom periods followed by bust periods. (Chapter 12—Federal Reserve Policy) C Capital account: a measure of foreign investment in a country; typically the capital account roughly balances the current account. (Chapter 15—Balance of Payments) Capital gain: An investment incurs a capital gain if the sales price of the investment exceeds the purchase price. (Chapter 16—Valuing the Future—Concepts in Capital and Finance) Capital goods: goods used for the production of end-use (or 1st Order) consumer goods. (Chapter 16—Valuing the Future—Concepts in Capital and Finance) Cardinal utility: This can best be measured in some sort of units, and the relative magnitude of the units matter as a basis of comparison. For example, if we had a basket of goods with a “cardinal utility” of 5, it would be valued half as much as a basket of goods with a “cardinal utility” of 10. With ordinal utility, we can only say the second basket is preferred to the first; but we can’t say how much it is preferred. (Chapter 2— Utility)