Economics Principles and Practices Chapter 1

Scarcity

The condition that results from society not having enough resources to produce all the things people would like to have

Economics

The study of how people try to satisfy what appears to be seemingly unlimited and competing wants through the careful use of relatively scarce resources

Need

A basic requirement for survival
-i.e, food, clothing, shelter

Want

A way of expressing a need
-i.e, Need: Food; Want: Pizza

Factors of production

Resources required to produce the things we would like to have; land, capital, labor, and entrepreneurs

Land

"gifts of nature"; natural resources not created by humans
-i.e, deserts, fertile fields, forests, mineral deposits, livestock, sunshine

Capital

The tools, equipment, machinery, and factories used in the production of goods and services

Financial Capital

The money used to buy the tools and equipment used in production

Labor

People with all their efforts, abilities, and skills

Entrepreneur

A risk-taker in search of profits who does something new with existing resources

Production

The process of creating goods and services

Gross Domestic Product (GDP)

The dollar value of all final goods, services, and structures produced within a country's borders in a 12-month period

Economic Products

Goods and services that are useful, relatively scarce, and transferable to others

Good

An item that is economically useful or satisfies an economic want

Consumer Good

Intended for final use by individuals

Capital Good

When manufactured goods are used to produce other goods and services

Service

Work that is performed for someone

Value

Refers to a worth that can be expressed in dollars and cents

Paradox of Value

Contradictions between necessity and value

Utility

The capacity to be useful and provide satisfaction

Wealth

The accumulation of those products that are tangible, useful, and transferable from one person to another

Market

A location or other mechanism that allows buyers and sellers to exchange a certain economic product

Factor Market

The markets where productive resources are bought and sold

Product Market

Markets where producers sell their goods and services to consumers

Economic Growth

Occurs when a nation's total output of goods increases over time

Productivity

A measure of the amount of output produced by a given amount of inputs in a specific period of time

Division of Labor

When work is arranged so that individual workers do fewer tasks than before

Specialization

When factors of production perform tasks that they can do relatively more efficiently than others

Human Capital

Sun if the skills, abilities, health and motivation of people

Economic Interdependence

We rely on others, and they rely on us, to provide the goods and services that we consume

Trade-Off

Alternative choices

Opportunity Cost

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

Production Possibilities Frontier

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

Cost-benefit Analysis

A way of thinking about a problem that compares the cost of an action to the benefits received

Free Enterprise Economy

Consumers and privately-owned businesses, rather than the government, make the majority of the WHAT, HOW, and FOR WHOM decisions

Standard of Living

The quality of life based on the possession of the necessities and luxuries that make life easier