1.1 What is Economics?

Factors of production

resources that are required to produce goods and services

(land, labor, capital, enterprise)

Capital

man-made resources

Enterprise

skill of organizing the three other factors of production

Land

natural resources

Labour

human resources

Free market economy

an economic system based on supply and demand with little or no government control

Mixed economy

an economy organized with some free-market elements and some socialistic elements

Planned economy

an economic system in which industry is controlled by the government

Opportunity cost

the loss of the next best alternative when making a decision

Circular flow of income

model which shows the flow of goods, services and factors and their payments around the economy

Leakages

capital or income that escapes an economy in the circular flow of income

Injections

additions to the economy's circular flow of income

Free goods

naturally abundant with unlimited supply - no opportunity cost

Economic goods

any good or service that is scarce

Production possibilities curve

an economic model that illustrates the different combinations of two goods or services that an economy or firm can produce