Unit 1 Vocabulary

Opportunity Cost

the value of the next-best alternative that must be sacrificed when a choice is made

Scarcity

the fundamental economic problem where unlimited human wants exceed the limited resources available to satisfy them

Cost-Benefit Analysis

a systematic decision-making process used to compare the total expected pros (benefits) against the total expected cons (costs) of an action to determine its viability

Marginal Analysis

the examination of the additional benefits and additional costs of an activity to determine whether one more unit of that activity should be pursued

Utility

a measure of the total satisfaction, happiness, or "usefulness" a consumer derives from consuming a good or service

Diminishing Marginal Utility

the principle that as a person consumes more of a specific good, the additional satisfaction gained from each new unit decreases

Labor

the actual activity of working — producing goods or services; occurs in time and produces value

Labor-Power

a worker’s capacity to work — their time, energy, skills, and physical ability; what is sold to employers

Wage

the price paid for labor-power, not for the full value of what labor produces

Exploitation

a situation in which workers produce more value than they receive in wages; it is structural, not moral

Commodity

a good or service produced for exchange rather than direct use; under capitalism, both products and labor-power are this

Exchange Value

the value of a commodity in the market, expressed through price

Use Value

the usefulness of a commodity — its ability to satisfy a need or want

Capital

money or assets used with the purpose of generating more money; it is not a thing, it is a process

Accumulation

the continual reinvestment of surplus to generate additional surplus; it is the driving force of capitalism

Surplus Value

the value produced by workers beyond what they receive in wages; the source of profit

Necessary Labor

the portion of the working day during which the worker produces value equal to their wage (i.e., the cost of reproducing labor-power)

Surplus Labor

the remaining portion of the working day during which the worker continues producing value that is not paid back to them

Working Day

the total length of time a worker is employed; the division of this into necessary and surplus labor is the critical analytical move

Rate of Exploitation

the ratio of surplus labor to necessary labor; measures intensity, not cruelty

Structural Inequality

inequality produced by the rules and institutions of an economic system, not individual choices

Accumulation

the reinvestment of surplus value to generate more surplus over time

Competition

the pressure that forces firms to reduce costs and extract surplus in order to survive

Alienation

the condition in which workers lose control over their labor, the products of their labor, their time, and sense of purpose

Underpayment (structural)

wages set below the value created, not because of personal failure, but because of systemic pressures

Market Failure

a situation in which markets fail to allocate resources efficiently or fairly, resulting in outcomes that harm society; it is not a glitch, it is a predictable result when prices ignore real costs or benefits

Externality

a cost or benefit of an economic activity that affects people who are not directly involved in the transaction and is not reflected in market prices

Negative Externality

a harmful side effect (e.g., pollution, health damage, congestion) imposed on third parties

Positive Externality

a beneficial side effect (e.g., education, vaccination) enjoyed by third parties

Private Cost / Private Benefit

costs or benefits borne directly by the buyer or seller

Social Cost / Social Benefit

the full costs or benefits to society, including externalities

Socialized Risk

a situation in which the costs of failure are borne by the public while profits remain private

Privatization of Profit

the capture of gains by private actors

Regulatory Capture

when regulatory agencies serve the interests of the industries they are meant to regulate

Austerity

policies focused on cutting public spending, often justified as efficiency measures, that can increase long-term social costs

Bailout

public financial support given to failing firms or sectors to prevent systemic collapse

Marginal Decision-Making

decision-making based on incremental changes (“Should we hire one more worker?”), not moral evaluation

Marginal Product of Labor (MPL)

he additional output produced by hiring one more worker

Marginal Revenue Product (MRP)

the additional revenue generated by that extra worker’s output

= Price × MPL

Marginal Cost of Labor (MCL)

the firm’s additional cost of hiring one more worker, including wages and related expenses

Labor Externality

a cost created by employment decisions that is not paid by the firm, such as injury, burnout, public healthcare costs, turnover borne by families, taxpayer subsidies, etc

Labor Market

the market in which labor is bought and sold

Labor Supply

workers offering labor in exchange for wages

Labor Demand

firms hiring labor to produce goods and servicesE

Equilibrium Wage

the wage at which labor supply equals labor demand

Wages as a Cost

the firm’s view of labor as an expense to be minimized, not a reward to be maximized