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

Appendix A Definition Index 481 Limited liability: An individual investor’s liability is limited to the amount of his or her investment should the corporation go bankrupt. (Chapter 16—Valuing the Future—Concepts in Capital and Finance) Logrolling: the practice of trading votes in a legislature (e.g., voting for a project that is not of benefit to your constituents) in return for a promise by other politicians to vote for your favored legislation subsequently. (Chapter 14—Government Failure) Luxury: a normal good for which demand increases greatly as income rises. (Chapter 3—A Deeper Dive into Concepts for Demand) M M1: a “narrow” form of money, consisting of highly liquid (easily converted to cash) instruments. M1 includes government base money as well as money created by the banks’ multiple deposit expansion. M1 = MB + Checkable Deposits + Other Checkable Deposits (interest bearing) + Traveler’s Checks. (Chapter 12—Mmm-M&Ms (M1, M2, M3)/Mmm-Monetary Aggregates) M2: a “broader” form of money, including all the components of M1 but adding small savings accounts that are easily converted to narrower money. M2 = M1 + Savings Deposits + Small Time Deposits (<$100k Certificates of Deposit) + Retail Money Market Funds. (Chapter 12—Mmm-M&Ms (M1, M2, M3)/Mmm-Monetary Aggregates) Macroeconomics: the study of the economy as a whole, where all individuals’ and firms’ decisions are aggregated as if the economy can be analyzed as a single entity. (Chapter 1—Micro & Macro Economics) Malinvestment: investment that is made not because of consumer preferences but because of government manipulation of markets (usually interest rates). (Chapter 16— Valuing the Future—Concepts in Capital and Finance) Marginal: the additional unit being considered. (Chapter 2—How Markets Allocate Scarce Resources) Marginal cost: the cost to produce the next unit of output. (Chapter 7—Short Run Costs) Marginal product: the additional output produced by adding an additional resource input, holding all other resource inputs fixed. (Chapter 4—Supply and Costs/Supply Curves) Marginal product of capital (MPK): the incremental (additional) output created by adding one unit of capital to the production process while keeping all other factors fixed. (Chapter 7—Structure of Production: Stages of Capital/Production Function)