economy

economic system

The structure of methods and principles that a society uses to produce and distribute goods and services

factor payment

• The income people receive in return for supplying factors of production.

profit

• The amount of money a business receives in excess of its expenses.

safety net

• A set of government programs that protect people who face unfavorable economic conditions.

standard living

• Level of economic prosperity.

innovation

• The process of bringing new methods, products, or ideas into use.

traditional economy

• An economic system that relies on habit, custom, or ritual to decide the 3 key economic questions.

market

• Any arrangement that allows buyers and sellers to exchange things.

specialization

•  The concentration of the productive efforts of individuals and businesses on a limited number of activities.

free market economy

• An economic system in which decisions of the 3 key economic questions are based on voluntary exchange in markets.

household

• A person or group of people living in a single residence.

firm

•  An organization that uses resources to produce a product or service, which it then sells.

factor market

• The arena of exchange in which firms purchase the factors of production from households.

product market

• The arena of exchange in which households purchase goods and services from firms.

self interest

•  An individual’s own personal gain.

incentive

• The hope of reward or fear of penalty that encourages a person to behave in a certain way.

competition

• The struggle among producers for the dollars of consumers.

invisible hand

• A term coined by Adam Smith to describe the self-regulating nature of the marketplace.

consumer sovereignty

• The power of consumers to decide what gets produced.

mixed economy

•  A market-based economic system in which the government is involved to some extent.

entrepreneur

Person who decides how to combine resources to make a good or service

economics

The study of how people satisfy their needs/wants by making choices

shortage

when goods are not availiable

scarcity

when consumer demand is higher than what the supplier is willing to make at a price

three factors of production

land, labor, capital

factor market

the factors of production

product market

the goods

traditional economy

relies on habit, tradition, oldest type of economy

command economy

government controlled economy

free market economy

government has laizzes faire for the economy, dictated by consumers

infrastructure

•  The basic facilities that are necessary for a society to function and grow.

poverty threshold

An income level below that which is needed to support families or households.

copyright

•  A government license that grants an author exclusive rights to publish and sell creative works.

patent

• A government license that gives the inventor of a new product the exclusive right to produce and sell it.

microeconomics

• The study of the economic behavior and decision-making in small units, such as households and firms.

macroeconomics

• The study of economic behavior and decision-making in a nation’s whole economy.

welfare

government aid to the poor

public sector

• The part of the economy that involves the transactions of the government.

private sector

• The part of the economy that involves the transactions of individuals and businesses.

market failure

•  A situation in which the free market, operation on its own, does not distribute resources efficiently.

shortage

happens when consumer demand for product is greater than supply

surplus

happens when supple is greater than consumer demand

law of demand

Consumers will buy more of a good when its price is lower and less when the price is higher.

substitution effect

• When consumers react to an increase in a good’s price by consuming less of that good and more of a substitute good.

income effect

The change in consumption that results when a price increase causes real income to decline.

demographics

• The statistical characteristics of populations and population segments, especially when used to identify consumer markets.

elastic

Describes demand that is very sensitive to a change in price.

total revenue

• The total amount of money a company receives from selling goods or services.

ceteris paribus

• A Latin phrase that means “all other things held constant”.

inferior good

• A good that consumers demand less of when their incomes increase.

complements

2 goods that are bought and used together.

substitutes

• Goods that are used in place of another.

law of supply

• Producers offer more of a good as its price increases and less as its price falls.

variable

A factor that can change.

supply curve

A graph of the quantity supplied of a good at various prices.

regulation

• Government intervention in a market that affects the production of a good.

fixed cost

• A cost that does not change, no matter how much of a good is produced. 

variable cost

•  A cost that rises or falls depending on the quantity produced.

subsidy

• A government payment that supports a business or market.

excise tax

• A tax on the production or sale of a good.

total cost

• The sum of fixed costs plus variable costs.

equilibrium

• The point at which the demand for a product or service is equal to the supply of that product or service.

minimum wage

• A minimum price that an employer can pay a worker for one hour of labor.

price floor

• A minimum price for a good or service.

inventory

• The quantity of goods that a firm has on hand.

fad

• A product that is popular for a short period of time.

black market

• A market in which goods are sold illegally, without regard for government controls on price or quantity.

disequlibrium

• Any price or quantity not at equilibrium, when quantity supplied is not equal to quantity demanded in a market.

price ceiling

• A maximum price that can be legally charged for a good or service.

rent control

• A price ceiling placed on apartment rent. 

rationing

• A system of allocating scarce goods and services using criteria other than price.

monopoly

A market in which a single seller dominates.

franchise

• A contract that gives a single firm the right to sell its goods within an exclusive market.

patent

•  A license that gives the inventor of a new product the exclusive right to sell it for a specific amount of time.

deregulation

• The removal of some government controls over a market.