Economics Vocabulary

need

something that is necessary for survival

want

an item that we desire but that is not essential to survival

economics

the study of how people seek to satisfy their needs and wants by making choices

goods

physical objects such as clothes or shoes

services

actions or activities that one person performs for another

scarcity

limited quantities of resources to meet unlimited wants

shortage

a situation in which a good or service is unavailable

factors of production

land, labor, and capitol; the three groups of resources that are used to make all goods and services

land

natural resources that are used to make goods and services

labor

the effort that people devote to a task for which they are paid

capital

any human made resource that is used to create other goods and services

physical capital

all human made goods that are used to produce other goods and services, tools and buildings

human capital

the skills and knowledge gained by a worker through education or experience

entrepreneur

ambitious leader that combines land, labor and capital to create and market new goods and services

trade-off

an alternative that we sacrifice when we make a decision

guns or butter

a phrase that refers to the trade offs that nations face when choosing whether to produce more or less military or consumer goods

opportunity cost

the most desirable alternative given up as a result of a decision

thinking at the margin

deciding whether to do or use one additional unit of some source

production possibilities graph

a graph that shows alternative ways to use an economys resources

production possibilities frontier

the line on a production possibilities graph that shows the maximum possible output

efficiency

using resources in such a way as to maximize production of goods and services

underutilization

using fewer resources than an economy is capable of using

cost

to an economist, a cost is the alternative that is given up as a result of a decision

law of increasing cost

as we shift factors of production from one good or service to another, the cost of producing the second item increases

financial capital

the money required to run a company

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 iin excess of its expenses

safety net

a set of government programs that protect people who face unfavorable economic conditions

standard of 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 three 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 on the three 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 individuals own personal gain

incentive

the hope of reward or fear of penalty that encourages a certain behavior

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 market-place

consumer sovereignty

the power of the consumers to decide what gets produced

centrally-planned economy

economic system where the government makes all the decisions on the three key economic questions

command economy

another name for the centrally-planned economy

socialism

a range of economic and political systems based on belief that wealth should be evenly distributed throughout a society

communism

a political system where the government owns and controls all resources and means of production and makes all the economic decisions

authoritarian

describes a form of government that limits individual freedoms and requires string obedience from its citizens

laissez-faire

the doctrine that government should not intervene in the market place

private property

property that is owned by individuals or companies, not by government or people as a whole

mixed economy

a market based economic system where the government is involved to an extent

economic transition

a period of change where a nation moves from one economic system to another

privatization

the process of selling businesses or services operated by the government to individual investors, and then allowing them to compete in the market place

free enterprise system

an economic system characterized by private or corporate ownership of capital good