James d. Gwartney

principal: The amount of funds borrowed. The borrower will pay interest on this amount. 
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private investment: The flow of private-sector expenditures on durable assets (fixed
investment) plus the addition to inventories (inventory investment) during a period. These
expenditures enhance our ability to provide consumer benefits in the future. 
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private property rights: Property rights that are exclusively held by an owner, or group of
owners, and which can be transferred to others at the owner’s discretion. 
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productive function (of government): Government provision of (1) a legal and monetary
environment for the smooth operation of markets; and (2) a few goods that are difficult to
provide through markets. 
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productive resources: The inputs used to make goods and services (i.e., natural resources,

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human resources and capital goods). 
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productivity: The average output produced per worker during a specific time period, usually
measured as output per hour worked. 
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profit: Revenues that exceed the cost of production. The cost includes the opportunity cost of
all resources involved in the production process, including those owned by the firm. Profit
results only when the value of the good or service produced is greater than the cost of the
resources required for its production. 
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protective function (of government): A system of rules and laws that protect individuals and
their property from damages associated with the use of force, fraud, or theft. 
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protective tariffs: A tax intended to increase prices of imports and protect a country’s
industries from foreign competition. 
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public choice: The study of decision-making as it affects the formation and operation of
collective organizations such as governments. In general, the principles and methodology of
economics are applied to political science topics. 
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public goods: Goods with the following two characteristics: (1) jointness in consumption—
provision of the good to one party simultaneously makes it available to others; and (2) non-
excludability—it is difficult or virtually impossible to exclude nonpaying customers. 
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