Basic Economic Concepts

Scarcity

A situation in which unlimited wants exceed the limited resources available to fulfill those wants.

Economics

study of how people and societies use limited resources to satisfy unlimited wants.

Goods

Objects, such as food, clothing, and furniture that can be bought.

Services

Actions or activities that one person performs for another.

Consumer

A person who buys and uses goods and services.

Producer

a maker of goods or a provider of services.

Resources

the inputs used by a society to produce outputs.

Factors of Production

Land, labor, capital and entrepreneurship; the four groups of resources that are used to make all goods and services

Land

Any natural resource provided by nature and used in the production process

Labor

the mental and physical efforts of human beings in the production process

Capital

Man made creations that are used to make goods or services. Tools, equipment, factories

Opportunity Cost

Cost of the next best alternative use of money, time, or resources when one choice is made rather than another

TINSTAAFL

Acronym for THERE IS NO SUCH THING AS A FREE LUNCH; means that there is always a cost for a product, even if it is not evident.

Trade-off

alternatives that must be given up when one is chosen over another

Production Possibility Curve

graph showing the maximum combinations of goods and services that can be produced from a fixed amount of resources in a given period of time

Three Basic Economic Questions

What to produce? How to produce? For whom to produce?

Incentives

A reward or penalty that encourages or discourages behavior.

Marginal Thinking

Requires decision-makers to evaluate whether the benefit of one more unit of something is greater than its cost

Market Economy

An economic system in which people choose freely what to buy and sell

Efficiency

A measure of how well or how productively resources are used to achieve a goal

Economic Growth

steady growth in the productive capacity of the economy (and so a growth of national income)

Marginal Benefit

the additional benefit to a consumer from consuming one more unit of a good or service

Competition

A situation that occurs when there are many buyers and sellers acting independently,

businesses attempt to gain consumers and sales.

The Invisible Hand

The combined forces of self-interest and competition working within the free market, guiding resources to where they do the most good for society.

Circular Flow Model

a diagram that shows the circular movement of money, resources, and goods and services among households and producers in an economy

Market

The process of freely exchanging goods and services between buyers and sellers...can be in cyberspace, local, regional, national, or global