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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.
Note 
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