economic terms

CONOMICS

The study of how people make choices to satisfy their unlimited wants using limited resources.

SCARCITY

The basic economic problem that resources are limited but people’s wants are unlimited.

OPPORTUNITY COST

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

GOOD

A physical item that satisfies a want or need.

SERVICE

Work done for someone that provides value but is not a physical product.

UTILITY

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

FACTORS OF PRODUCTION

The resources used to produce goods and services.

Land

Natural resources used in production.

Labor

Human work and effort.

Capital

Tools, machines, and buildings used to make goods and services.

Entrepreneurship

The ability to organize resources and take the risk of starting a business.

WANT

Something you would like but don’t need to survive.

NEED

Something necessary for survival or basic well-being.

RESOURCE

Anything used to produce goods and services.

SHORTAGE

When people want to buy more of a product than is available.

TRADE-OFF

Giving up one thing to get something else.

MONEY AND TIME

Two limited resources people must decide how to use.

DURABLE GOOD

A product that lasts a long time.

NON-DURABLE GOOD

A product that is used up quickly.

SPECIALIZATION

Focusing on producing one product or performing one job very well.

DIVISION OF LABOR

Splitting a job into smaller tasks so each worker focuses on one part.

ECONOMIC INTERDEPENDENCE

People, businesses, and countries relying on one another for goods and services.

COMPARATIVE ADVANTAGE

The ability to produce something at a lower opportunity cost than someone else.

ABSOLUTE ADVANTAGE

The ability to produce more of a good or service using the same amount of resources.

INVISIBLE HAND

Adam Smith’s idea that people acting in their own self-interest often help society.

PARADOX OF VALUE

Some necessities cost very little while some luxuries cost a lot.

THREE ECONOMIC QUESTIONS

What should be produced, how should they be produced, for whom should they be produced?

TRADITIONAL ECONOMY

An economy based on customs and traditions.

COMMAND ECONOMY

An economy where the government controls production and distribution.

FREE MARKET ECONOMY

An economy where individuals and businesses make most economic decisions.

MIXED ECONOMY

An economy that combines free markets with government involvement.

PROS OF CAPITALISM

Encourages innovation, gives consumers more choices, competition lowers prices, rewards hard work and entrepreneurship.

CONS OF CAPITALISM

Income inequality, businesses can become monopolies, pollution without regulations, some people may struggle financially.

CONSUMER

A person who buys or uses goods and services.

PRODUCER

A person or business that makes goods or provides services.

MARKET

Any place where buyers and sellers exchange goods and services.

PRICE

The amount paid for a good or service.

PROFIT

Money left after subtracting all costs from revenue.

REVENUE

The total money a business earns from sales before expenses.

PRODUCTIVITY

The amount of goods or services produced in a certain amount of time.

INCENTIVE

Something that motivates people to make a choice.

SUPPLY

The amount of a product producers are willing to sell.

DEMAND

The amount of a product consumers are willing and able to buy.

LAW OF DEMAND

As prices go up, people usually buy less. As prices go down, people usually buy more.

LAW OF SUPPLY

As prices go up, producers usually make more.

EQUILIBRIUM

The point where supply equals demand.

SURPLUS

When more of a product is available than people want to buy.

COMPETITION

Businesses trying to attract customers by offering better prices or products.

MONOPOLY

A market where one company controls almost all sales.

HUMAN CAPITAL

The knowledge, education, training, and skills people have.

INVESTMENT

Spending money now to earn more money or benefits later.

SAVINGS

Money set aside for future use.

GDP (Gross Domestic Product)

The total value of all final goods and services produced in a country in one year.

INFLATION

A general rise in prices over time, reducing purchasing power.

DEFLATION

A general decrease in prices over time.

RECESSION

A period when the economy slows down and businesses produce less.

UNEMPLOYMENT

People who are willing and able to work but cannot find a job.

IMPORTS

Goods and services bought from another country.

EXPORTS

Goods and services sold to another country.

TARIFF

A tax placed on imported goods.

ADAM SMITH

Father of Economics, believed free markets and competition create wealth, guided by the Invisible Hand.

KARL MARX

Believed capitalism benefits business owners more than workers and should be replaced with collective ownership.

DAVID RICARDO

Known for Comparative Advantage, believed countries should specialize and trade to increase total production.

JOHN MAYNARD KEYNES

Believed during recessions, governments should spend more money to stimulate the economy.

MILTON FRIEDMAN

Believed free markets work best with limited government intervention and a stable money supply.