Unit 1 Vocabulary Terms

economics

economics

the study of scarcity and choice

trade-off

you make a trade-off when you give up something in order to GAIN

resource or factor of production

something that is used to make something else

land

all resources that come from nature: timber, wind, petroleum

labor

the effort of workers

capital

manufactured goods used to make other goods and services

entrepreneurship

entrepreneurs organize resources for production, take risks to create new enterprises, and innovate to develop new products and production processes

scarcity

when unlimited wants exceed limits resources

opportunity cost

the value of the next best choice that you have given up in order to get an item

macroeconomics

concerned with the overall ups and downs of the economy (large scale)

household

a person or group of people that share their income

firm

any organization that produces goods or services for sale

PPC

the production possibilities curve shows the necessary trade-offs in an economy that produces only two goods

ceteris paribus

“all other things equal” means that al other relevant factors remain unchanged

efficient

there are no missed opportunities — there is no way to make some people better off without making other people worse off

economic growth

an increase in the maximum amount of goods and services an economy can produce

trade

providing goods and services to others and receiving goods and services in return

specialization

when each person focuses on the task that they are good at performing

comparative advantage

having the lowest opportunity cost among the people or countries that can produce that good or service

absolute advantage

being able to produce more of a good or service with the given amount of time and resources

terms of trade

the rate at which one good can be exchanged for another and have both parties benefit

quantity demanded

the amount of a good or service consumers are willing and able to buy at some specific price. It is shown as a single point in a demand schedule or along a demand curve.

demand curve

a graphical representation of the demand schedule. it shows the relationship between quantity demanded and price.

law of demand

states that a higher price for a good or service, all other things being equal, leads to a smaller quantity demanded of that good or service.

change in demand

a shift of the demand curve, which changes the quantity demanded at any given price

movement along the demand curve

a change in the quantity demanded of a good that is the result of a change in that good’s price

substitutes

goods that are meant to be used in place of one another. A rise in the price of one of the goods leads to an increase in demand for the other good.

complements

goods that are bought together to be used together. a rise in the price of the goods leads to a decrease in demand for the other good.

normal good

when a rise in consumer income increases the demand for the good and vice versa

inferior good

when a rise in consumer income decreases the demand for the good and vice versa

quantity supplied

the actual amount of a good or service people are willing to sell at some specific price

supply curve

the relationship between the quantity supplied and the price

law of supply

states that all other things being equal, the price and quantity supplied of a good are positively or directly related

change in supply

a shift of the supply curve, which indicates a change in the quantity supplied at any given price

movement along the supply curve

a change in the quantity supplied of a good arising from a change in the good’s price

input

a good or service that is used in the production of another good or service

tax

treated as an input cost, these are fees producers must pay to the federal government

subsidy

treated as an input cost, these are payments from the government to producers to assist in the production of certain goods or services that are deemed beneficial to society

substitutes in production

goods that producers can use the same inputs to make either one good or the other

complements in production

goods are treated as these if increased production of either good creates more of the other good

equilibrium

the point where QS = QD. This is the intersection point between the supply and demand curve.

surplus

also known as excess supply and caused by a price floor, this exists at a price above equilibrium where Qs>Qd

shortage

also known as excess demand and caused by a price ceiling, this exists at a price below equilibrium where Qd>Qs