Key Economic Terms

Unit 1

scarcity

when there are unlimited wants/needs, but limited resources so there is not enough resources to produce all there is demand for; the concept that makes economics necessary

allocate

to distribute, allot or share; in economics it's usually in relation to scarce resources and who gets what

Interdependence

the dependence of two or more people or things on each other.

economic well-being

the degree to which individuals and families have economic adequacy and security

equity

fairness, the opposite of inequity; in economics it's used similarly to equality and in connection to the distribution of income, wealth and opportunity.

efficiency

using resources in such a way as to maximize the production of goods and services and reduces waste (goal is also to use as little as possible while making as much as possible)

allocative efficiency

when the goods and services being produced mostly satisfy society's wants and needs while minimizing waste of scarce resources

social sciences

disciplines that study human society and social relationships as well as how societies are organized and function

economics

a social science that studies the choices leading to the best possible use of scarce resources in order to best satisfy unlimited human wants and needs

microeconomics

the microscope view of economics; the study of individual units of the economy such as how households and firms make decisions and how they interact in markets

macroeconomics

the telescope view of economics; the study of the economy as a whole using aggregates to get a broad understanding, including inflation, unemployment, and economic growth

consumers/households

a person who purchases goods and services for personal use, the demanders

firms/businesses

an organization that uses resources in order to produce goods and services, the suppliers

aggregates

collections of many individual units in the economy such as the total income and output, the sum of consumer and firm behaviors, total employment and overall price level, etc.

choice

the act of selecting among alternatives, an important factor in economics that is brought about by scarcity and the situation where one must choose what to produce

sustainability

the ability to maintain and preserve something (in this case, the economy and the environment) long-term; a key issue in economics

government intervention

the government becoming involved with the workings of the market in order to achieve important societal goals the economy can't on its own (such as equity, sustainability, economic well-being or efficiency) and correct other deficiencies; very controversial and debated topic

positive economics

focuses on facts and cause-and-effect relationships

normative economics

the study of what the goals of the economy should be

Ceteris Paribus

a Latin phrase that means "all other things equal"

resources

all the inputs used to produce goods and services

factors of production

another term for resources (specifically land, labor, capital, entrepreneurship)

economic growth

the amount of goods and services produced increases

sustainable development

Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

sustainable resource use

using resources so that they last a long time and preserves the environment. this is needed due to resource scarcity

the four factors of production (resources)

four broad categories of the resources we can use for production: land, labor, capital, entrepreneurship

land

all natural resources that can be used to produce goods and services (forests, minerals, water, agricultural and non-agricultural land, etc.); called 'gifts of nature'

labor (arbeid)

the manpower and mental and physical efforts used to produce goods or services (teacher, construction worker, etc.)

physical capital

the man-made factor of production such as machinery, tools, factories, buildings, etc. that allows us to produce more within the same amount of time

entrepreneurship

a set of human skills such as the ability to innovate, take business risks, seek economic opportunities and managing the other three factors of production.

capital

resources that can contribute in producing more beneficially in the future; there are multiple types of capital

human capital

skills, abilities, good health and knowledge acquired by workers that allows them to be more productive, thus increasing the economic output

financial capital

money used for investment or the investments themselves that becomes a stream of benefits in the future

financial instruments

areas of the finance world that allows you to increase your money through investments (examples: stocks, bonds, etc.)

stream of benefits

an area which provides you money for the future

opportunity cost

the value of the next best use of a scarce resource such as money or time that we sacrifice in order to obtain something else

example of opportunity cost

if you read your textbook instead of watching TV, the TV time is the opportunity cost and if you buy shoes for 100 dollars instead of books, the books are the opportunity cost

free goods

an unlimited good (any good that is not scarce) and has no opportunity cost.

economic good

a scarce and limited good that have an opportunity cost greater than zero

the three basic economic questions

three questions that scarcity makes all economies have to answer: what to produce, how to produce, for whom to produce?