Economics, 3rd Edition

price elasticity of supply 

a measure of how much the 

quantity supplied of a good responds to a change in the price 

of that good, computed as the percentage change in quantity 

supplied divided by the percentage change in price

price floor 

a legal minimum on the price at which a good can be 

sold

price level 

an average of prices of all goods and services in an 

economy as measured by the CPI or the GDP deflator

principal 

a person for whom another person, called the agent, is 

performing some act

prisoners’ dilemma 

a particular ‘game’ between two captured 

prisoners that illustrates why cooperation is difficult to maintain 

even when it is mutually beneficial

private goods 

goods that are both excludable and rival

private saving 

the income that households have left after 

paying for taxes and consumption

private sector 

that part of the economy where business activity 

is owned, financed and controlled by private individuals

privatization 

the transfer of publicly owned assets to private 

sector ownership

procyclical 

a variable that is above trend when GDP is above 

trend

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GLOSSARY  811