Economics Key Terms - Unit 1 "What is economics?"

Scarcity

The condition in which available resources are limited, but human wants are unlimited.

Opportunity Cost

The value of the next best alternative that is foregone when a choice is made.

Factors of Production

The resources used to produce goods and services: land, labour, capital, and entrepreneurship.

Land

Natural resources used in production (e.g. water, minerals, forests).

Labour

Human effort (both physical and mental) used in the production of goods and services.

Capital

Man-made resources used to produce other goods and services (e.g. machines, tools).

Entrepreneurship

The ability to organize the other factors of production and take on the risks of production.

Positive Statement

A factual, objective statement that can be tested or proven true or false.

Normative Statement

A subjective, opinion-based statement that involves a value judgment and cannot be tested.

Production Possibility Curve (PPC)

A diagram showing the maximum combinations of goods/services that can be produced using existing resources efficiently.

Economic Growth

An increase in the quantity of goods and services produced in an economy over time (outward shift of the PPC).

Underutilization

When resources are not used efficiently, shown by a point inside the PPC.

Trade-off

A situation where choosing more of one thing means giving up something else.

Economic System

A system that defines how a society decides what to produce, how to produce, and for whom to produce.

Free Market Economy

An economic system in which resource allocation is determined by the forces of demand and supply with minimal government intervention.

Planned Economy (Command Economy)

An economic system where the government makes most or all economic decisions.

Mixed Economy

An economic system that combines elements of both market and planned economies.

Sustainability

The ability to meet current needs without compromising the ability of future generations to meet their own needs.

Market Failure

When the free market fails to allocate resources efficiently, resulting in over- or under-production.