Economics Vocab

Cost-benefit analysis

 A method to evaluate a situation in advance by comparing the expected costs with the expected positive results. (Costs are not always money but can be the impact on people, the environment, etc.)

Incentive

 A benefit or cost that influences decision making.

Medium of exchange

A function of money that means it will be accepted as payment for goods or services.

Money

Anything that serves as a medium of exchange, a store of value, and a unit of measure

Needs

 Goods and services that an individual must have to survive, e.g., food, clothing, shelter, etc

Opportunity cost

The cost of passing up the next best alternative when making a decision

Scarcity

The basic economic situation - and unlimited wants.

limited resources

Store of value

A function of money that provides for the transfer of today's purchasing power to a future time.

Trade-off

Giving up one want in order to satisfy another.

Unit of measure

 A function of money that measures the value of goods and services

Wants

Goods and services that an individual would like to obtain; e.g., an upgraded computer, a sports car, dance training,

Deduction

An amount subtracted from gross pay or income when calculating taxable income. Deductions may be compulsory or voluntary. Social Security tax is an example of a compulsory deduction. A payroll deduction for charity or a savings plan is voluntary

Disposable income

The amount of income remaining after taxes and available for spending. This is the amount of money left after deductions (mandatory and non-mandatory) have been taken from gross pay

Earned income

Income derived through employment

Entrepreneur

One who organizes, operates, and assumes the risk in a business venture in expectation of gaining the profit

Exemption

 A direct reduction taken from taxable income for a specific reason, as allowed by the IRS

Federal Insurance Contributions Act (FICA)

The federal act under which mandatory contributions for Social Security tax and Medicare tax are deducted from paychecks

Fringe benefit

 An employee's benefit supplementing a money wage or salary. medical and dental insurance, child care, life insurance, retirement plans, paid vacation time, or sick days

Gross pay (earnings)

An individual's taxable income before any appropriated adjustments are made

Local taxes

 Deductions from a paycheck or a mandatory contribution by self-employed persons and businesses to finance local (city or county) government

Net pay

The amount of pay received after all deductions (compulsory and voluntary) have been subtracted from the gross amount. For a business, same as net profit

State taxes

A mandatory contribution to finance state government, deducted from paychecks or paid directly by self-employed persons. Some states do not tax individual incomes, including: Alaska, Florida, Nevada, South Dakota, Washington, and Wyoming

Human capital investment

The investment in a person's education, training, or skills development

Median income

The midpoint in the range of incomes, half of the earners above it and half below