Unit 1: Basic Economic Concepts

A comprehensive set of vocabulary flashcards covering core economic concepts from Unit 1 notes.

Factors of Production

The categories of economic resources: land, labor, capital, and entrepreneurship.

Labor

Human effort used in the production of goods and services.

Capital

Man-made resources used to produce other goods and services (e.g., machinery, buildings).

Entrepreneurship

Risk-taking and innovation to organize the other factors of production.

Capital Goods

Goods used to produce other goods and services, such as machinery and tools.

Consumer Goods

Goods produced for direct consumption by individuals.

Resource Market (Factor Market)

Market in which households sell factors of production to firms in exchange for income.

Product Market

Market in which firms sell goods and services to households.

Full Employment

A situation where all available labor resources are used efficiently, with only natural unemployment.

Natural Unemployment

Unemployment that occurs as part of the normal functioning of an economy.

Full Production

Using all resources efficiently to produce the maximum output.

Productive Efficiency

Producing goods at the lowest possible cost.

Allocative Efficiency

Producing the combination of goods most desired by society.

Economic Growth

An increase in the economy's capacity to produce goods and services.

Investment

Spending on capital goods that will increase future production.

Total Net Benefit (Gain)

Total benefits minus total costs from an economic decision.

Production Possibilities Curve (PPC)

A graph showing the maximum output combinations of two goods an economy can produce with given resources and technology.

Increasing Opportunity Cost

Producing more of one good requires giving up increasing amounts of another good.

Constant Opportunity Cost

Opportunity cost remains constant as production levels change.

Decreasing Opportunity Cost

Opportunity cost decreases as more of one good is produced.

Comparative Advantage

Ability to produce a good at a lower opportunity cost than another producer.

Absolute Advantage

Ability to produce more of a good with the same resources than another producer.

Specialization

Focusing resources on producing a limited variety of goods to increase efficiency.

Terms of Trade

The rate at which one good can be exchanged for another between two countries; indicates how much of one good you must give up to obtain a certain amount of another.

Market Economy

An economy where prices and production are determined by supply and demand with minimal government involvement.

Command Economy

An economy where the government controls resources and makes all economic decisions.

Mixed Economy

An economy that combines elements of market and command systems; private and public sectors are involved.

Microeconomics

The study of individual economic units such as households, firms, and specific markets.

Macroeconomics

The study of the economy as a whole, including inflation, unemployment, and growth.

Economic Resources

Inputs used to produce goods and services: land, labor, capital, and entrepreneurship.

Utility

The satisfaction or benefit a person receives from a good or service.

Marginal Analysis

Decision-making by comparing marginal benefits to marginal costs.

Marginal Benefit

The additional satisfaction from consuming one more unit of a good or service.

Marginal Cost

The additional cost of producing or consuming one more unit of a good or service.

Marginal Utility

The additional satisfaction obtained from consuming one more unit.

Utility-Maximizing Rule

Consumers maximize utility when the marginal utility per dollar is equal across all goods (MUx/Px = MUy/Py).

Ceteris Paribus

Latin for 'all other things equal'; holding other factors constant to isolate the effect of one variable.

Scarcity

Limited resources relative to unlimited wants, forcing choice.

Opportunity Cost

The value of the next best alternative forgone when making a decision.