Understanding Economics: Chapter 1 - Economic Perspectives

Scarcity

fundamental economic problem facing all societies that results from a combination of scarce resources and people's virtually unlimited wants

Economics

social science dealing with how people satisfy seemingly unlimited and competing needs and wants with the careful use of scarce resources

Need

basic requirement for survival, including food, clothing, and shelter

Want

something we would like to have but is not necessary for survival

Good

tangible economic product that is useful, relatively scarce, transferable to others; used to satisfy wants and needs

Durable Good

a good that lasts for at least three years when used regularly

Nondurable Good

item that wears out, is used up, or lasts for fewer than three years when used regularly

Consumer Good

good intended for final use by consumers other than businesses

Capital Good

tool, equipment, or other manufactured good used to produce other goods and services; a factor of production

Service

work or labor performed for someone; economic product that includes haircuts, home repairs, and forms of entertainment

Value

monetary worth of a good or service as determined by the market

Paradox of Value

apparent contradiction between the high value of a nonessential item and the low value of an essential item

Utility

Ability or capacity of a good or service to be useful and give satisfaction to someone.

Wealth

sum of tangible economic goods that are scarce, useful, and transferable from one person to another; excludes services

Gross Domestic Product

monetary value of all final goods, services, and structures produced within a country's national borders during a one-year period

Adam Smith, The Wealth of Nations

Promoted laissez-faire, free-market economy, and supply-and-demand economics.

Factors of Production

productive resources needed to produce goods; the four factors are land, capital, labor, and entrepreneurship

Land

natural resources or "gifts of nature" not created by human effort; one of the four factors of production

Capital

the tools, equipment, machinery, and factories used in the production of goods and services; one of the four factors of production

Labor

people with all their abilities and efforts; one of the four factors of production; does not include the entrepreneur

Entrepreneurs

risk-taking individuals who introduce new products or services in search of profits; one of the four factors of production

Production Possibilities Curve

diagram representing all possible combinations of goods and/or services an economy can produce when all productive resources are fully employed

Opportunity Cost

cost of the next best alternative use of money, time, or resources when one choice is made rather than another

Trade-offs

alternative that must be given up when one choice is made rather than another

Consumerism

a social movement that was aimed at promoting the interests of consumers

Economic Growth

increase in a nation's total output of goods and services over time

Productivity

measure of the amount of output produced in a specific time period with a given amount of resources; normally refers to labor, but can apply to all factors of production

Human Capital

sum of people's skills, abilities, health, and motivation

Division of Labor

division of work into a number of separate tasks to be performed by different workers

Specialization

assignment of tasks to the workers, factories, regions, or nations that can perform them more efficiently

Economic Interdependence

mutual dependence of the economic activities of one person, company, region, or nation on those of another person, company, region, or nation

Market

meeting place or mechanism allowing buyers and sellers of an economic product to come together; may be local, regional, national, or global

Factor Markets

markets in which productive resources are bought and sold

Product Markets

market in which goods and services are bought and sold

Economic Model

simplified version of a complex concept or behavior expressed in the form of a graph, figure, equation, or diagram

Cost-Benefit Analysis

comparing of the cost of an action to its benefits

Free Enterprise Economy

market economy in which privately owned businesses have the freedom to operate for a profit with limited government intervention

Standard of Living

quality of life based on ownership of necessities and luxuries that make life easier