Economics, 3rd Edition

law of supply and demand 

the claim that the price of any 

good adjusts to bring the quantity supplied and the quantity 

demanded for that good into balance

leading indicator 

an indicator which can be used to foretell 

future changes in economic activity

liberalism 

the political philosophy according to which the 

government should choose policies deemed to be just, as 

evaluated by an impartial observer behind a ‘veil of ignorance’

libertarianism 

the political philosophy according to which 

the government should punish crimes and enforce voluntary 

agreements but not redistribute income

life cycle 

the regular pattern of income variation over a person’s 

life

liquidity 

the ease with which an asset can be converted into the 

economy’s medium of exchange

logrolling 

the agreement between politicians to exchange 

support on an issue

Lorenz curve 

the relationship between the cumulative 

percentage of households and the cumulative percentage of 

income

lump-sum tax 

a tax that is the same amount for every person

macroeconomics 

the study of economy-wide phenomena, 

including inflation, unemployment and economic growth