Economics: Chapter 2 Key Terms

Goods

Chapter 2 Page 19

Definition) A physical article that has been produced for sale or use
Sentence) Costco sells many goods.

Connections) products, items

Service

Chapter 2 Page 19

Definition) Work done by someone else for which a consumer, business, or government is willing to pay.
Sentence) I work in customer service.

Connections) assistance, work

Factors of Production

Chapter 2 Page 20

Definition) The resources used to produce goods and services; defined as land, labor, and capital.
Sentence) When starting a new business, one must take factors of production into account.

Connections) resources, inputs

Capital (Physical Capital Goods)

Chapter 2 Page 23

Definition) The tools, machines, and buildings used to produce goods and services; one of the factors of production.
Sentence) More capital can help generate more profits.

Connections) tools, equipment

Land

Chapter 2 Page 20

Definition) All the natural resources, including energy, that are used to produce goods and services; one of the factors of production.
Sentence) Land is limited.

Connections) property, resources

Labor

Chapter 2 Page 22

Definition) The time and effort people devote to producing goods and services in exchange for wages; one of the factors of production.
Sentence) I get paid to do physical labor 3 times a week.

Connections) workers, effort

Entrepreneurship

Chapter 2 Page 20

Definition) The willingness and ability to take the risks involved in starting and managing a business.
Sentence) Entrepreneurship is risky but it pays off if you are successful.

Connections) innovation, risk-taking

Opportunity Cost

Chapter 2 Page 25

Definition) The value of the next best alternative that is given up when making a choice; a measure of what you must give up to get what you want.
Sentence) The opportunity cost of buying a new phone was not buying those new shoes.

Connections) trade-off, sacrifice

Productivity

Chapter 2 Page 24

Definition) A measure of the efficiency with which goods and services are produced, stated as a ratio of output per unit of input.
Sentence) High productivity results in more revenue.

Connections) efficiency, output

Production Possibilities Frontier (PPF) or PPC(Production Possibilities Curve)

Chapter 2 Page 28

Definition) A simple model of an economy that shows all the combinations of two goods that can be produced with the resources and technology currently available, or a graph showing the combinations of two goods that can be produced with a given set of resources.
Sentence) The PPF shows us what goods can be produced.

Connections) limits, choices

Economic Efficiency

Chapter 2 Page 29

Definition) The result of using resources in a way that produces the maximum amount of goods and services.
Sentence) All companies should strive for economic efficiency.

Connections) optimization, balance

Shortage

Chapter 2 Page 19

Definition) A situation where demand for a good or service exceeds the supply available

Sentence) There is a shortage of matcha in the world right now.

Connections) lack, scarcity

Inputs

Chapter 2 Page 20

Definition) Resources used to make goods and services

Sentence) Inputs must be restocked every now and then.

Connections) materials, resources

Outputs

Chapter 2 Page 20

Definition) The goods and services produced from inputs

Sentence) It is best for companies to make outputs as quickly as possible.

Connections) results, products

Production Equation

Chapter 2 Page 20

Definition) An economic formula displaying outputs are a result from combining inputs.

Sentence) A production equation can tell us how a company makes their goods.

Connections) formula, process

Renewable resources

Chapter 2 Page 21

Definition) Natural resources that can be replenished over time

Sentence) Trees are renewable resources.

Connections) sunlight, wind

Nonrenewable resources

Chapter 2 Page 21

Definition) Natural resources that can be replenished over time

Sentence) Fossil fuels are nonrenewable resources.

Connections) oil, coal

Human Capital

Chapter 2 Page 22

Definition) Resources that cannot be replaced once used

Sentence) Human capital is very valuable.

Connections) skills, knowledge

Financial capital

Chapter 2 Page 22

Definition) Money and assets used to invest in production

Sentence) Financial capital is essential to those who want to expand their business.

Connections) money, investment

Marginal utility

Chapter 2 Page 26

Definition) The benefit gained from consuming one more unit of a good/service

Sentence) Eating a second slice of pizza will give me some marginal utility, but not as much as the first one.

Connections) extra, satisfaction

Law of Diminishing Marginal Utility

Chapter 2 Page 27

Definition) As more of a good is consumed, the satisfaction from each unit decreases

Sentence) Pizza is really good, but if I eat too much I get sick. This can be explained by the law of diminishing marginal utility.

Connections) decrease, limit

Negative Utility

Chapter 2 Page 26

Definition) When consumption of a good/service causes dissatisfaction

Sentence) Eating too much pizza made my stomach hurt and gave me negative utility.

Connections) harm, discomfort