Economics

Scarcity

The fundamental problem where human wants are unlimited, but resources available to satisfy them are limited.

Factors of Production

The essential resources used to produce goods and services: land, labor, capital, and entrepreneurship.

Land

All natural resources used in production that are not created by human hands (e.g., water, minerals, forests).

Labor

The human effort, time, and physical/mental skills applied to the production of goods and services.

Capital

Human-made tools, equipment, machinery, and facilities used to produce other goods and services (not money).

Entrepreneur

An individual who combines the other factors of production, takes financial risks, and innovates to create new businesses or products.

Diminishing Returns

adding more of one input (like workers) while keeping other inputs the same (like equipment or space) will eventually lead to smaller and smaller increases in output

Opportunity cost

The value of the next best alternative given up when making a choice.

Sunk cost

A cost that has already been paid and cannot be recovered, which should be ignored when making future decisions.

Marginal thinking

Evaluating choices by focusing on the extra benefits and extra costs of adding one more unit of an activity.

Marginal benefits

The additional satisfaction, value, or utility gained from consuming or producing one additional unit of something.

Marginal costs

The additional cost incurred from producing or consuming one additional unit of something.

PPF (Production Possibilities Frontier)

A curve or graph showing the maximum combination of two goods an economy can produce using its available resources and technology.

Cost-Benefit Analysis

A decision-making process that compares the total expected benefits of an action against its total expected costs to determine if it is worthwhile.