Economics: Key Concepts and Factors of Production

Consumer

one who makes an active choice in the purchase of a Good or Service in a world of scarcity.

Producer

one who engages in the business of manufacturing or supplying Goods & Services to the consumer in order to satisfy unlimited needs & wants.

Product Market

any market in which Goods and Services are exchanged.

Good

any tangible (can touch it) element of the product market.

Service

intangible (can't touch it) element of the product market.

Resource

anything used to produce a Good or Service.

Scarcity

condition in which our wants are greater than available resources.

Choice

decision to purchase a particular good or service in a world of scarcity.

Opportunity Cost

value of the best alternative foregone when an item/activity is chosen.

Four Factors of Production

Land, Labor, Capital, and Entrepreneurial Ability.

Land

physical land/all other natural resources (water, trees, dirt(minerals), oil).

Labor

physical and mental efforts used to produce goods and services.

Capital

machinery, technology and human skill used in production.

Entrepreneurial Ability

managerial and organizational skills used in production combined with the willingness to take risks.

Rent

payment resource owners receive for the use of land, etc.

Wages

payment resource owners receive for their labor.

Interest

payment resource owners receive for the use of their capital.

Profit

return resource owners receive for their entrepreneurial ability.

Profit Formula

Profit is the Total Revenue (TR) from sales, minus the total cost (TC) of resources employed by the entrepreneur.

Total Revenue Formula

TR= P x Q.