Economics

scarcity

needs and wants are unlimited but resources are limited (this is the basic economic problem)

trade-off

having to make a decision because of scarcity

opportunity cost

what is NOT chosen in a decision

4 factors of production

land, labor, capital, and entrepreneurs

land

resources found on the earth

labor

Human effort directed toward producing goods and services

physical capital

all human-made goods that are used to produce other goods and services; tools and buildings

human capital

the skills and knowledge gained by a worker through education and experience

entrepreneurs

people who decide how to combine the other factors of production to create new goods and services

productivity

degree to which resources are used efficiently

underutilization

the condition in which economic resources are not being used to their full potential

law of diminishing return

at a point, adding more resources will decrease production

incentive

reward offered to persuade people to make certain economic decisions

fixed cost

do not change (ex. rent, mortgage, loan payment)

variable cost

changes based on production (ex. electric bills, wages, materials)

total costs

fixed + variable

cost-benefit analysis

economic model that compares the marginal costs and marginal benefits of a decision

specialization

A focus on a particular activity or area of study

division of labor

dividing up the production process between multiple workers

technological advances

The introduction of new techniques or methods that increase output per unit of input

traditional economy

economy where things are done the same as they have always been done based on agriculture (farming) and barter (trade)

command economy

An economic system in which the government controls a country's economy.

market economy

a system based on private ownership, free trade, and competition

mixed economy

an economic system combining private and public enterprise.

natural resources

resources (actual and potential) supplied by nature

3 Basic Economic Questiosn

What to produce, how to produce it, for whom to produce

free enterprise

a type of economy in which people are free to buy, sell, and produce whatever they want

invisible hand

a term coined by Adam Smith to describe the self-regulating nature of the marketplace

supply and demand

relationship between the amount of product and the desire for the product

equilibrium price

the price that balances quantity supplied and quantity demanded

shortage

a situation in which quantity demanded is greater than quantity supplied

surplus

A situation in which quantity supplied is greater than quantity demanded

competition

the struggle between organisms to survive in a habitat with limited resources

productivity

the value of a particular product compared to the amount of labor needed to make it

labor union

association of workers organized to improve wages and working conditions

business cycle

Alternating periods of economic expansion and economic recession

Gross domestic product (GDP)

the total value of all final goods and services produced in a country during one year.

Trade deficit

An imbalance in international trade in which the value of imports exceeds the value of exports.

Economic interdependence

situation in which countries rely on each other to provide goods and services

Trade surplus

when a country exports more than it imports

Fiscal policy

Government policy that attempts to manage the economy by controlling taxing and spending.

Substitute

A good that can be used in place of another good

Shift in the demand curve

Caused by change in external factors (Right = increase & Left = decrease)

disequilibrium

any price or quantity not at equilibrium

law of supply and demand

When demand goes up, supply goes down; when supply goes up, demand goes down.