Economic Concepts

Nonprofits

entities that are focused on the good of their clients rather than distribution of profits to owners and managers

Communism

A political theory and economic system in which all property is publicly owned and each person works and is paid according to their abilities and needs.

Example

Vietnam

Scarcity

In Economics, the fact that there are not enough resources to fulfill all human needs and desires

Less Developed Countries (LDCs) / Developing Countries

countries that have not undergone industrialization; often lower income and face structural obstacles to development

Example

Panama

Microeconomics

the study of individuals and their economic decisions

Government

institution to provide citizens with basic services

Example

The United States government

Mixed Economy

a market economy with varying levels of government intervention

Means of Production

The non-human resources used to produce goods in an economy

Example

tools

Command Economy

government controls the economy, determining what should be produced and how much should be produced. This type of economy is most closely associated with communism.

Cost

amount of money paid or the value of other consideration given to acquire an asset, incur a liability, or produce revenue

Cost-Benefit Analysis

systematic approach used to evaluate the potential benefits and costs of a proposed project, investment, or decision, aiming to determine whether the benefits outweigh the costs and justify the undertaking

Perceived Value

how desirable a product is to the consumer

Macroeconomics

the design and function of the economy as a whole

More Developed Countries (MDCs) / Developed Countries

countries that have completed the transition to market economies and then mixed economies

Example

United States

Supply

the quantity of a good produced at a given time in an economy

Opportunity Cost

the cost of the next best opportunity a person gives up when they make an economic choice

Example

When choosing to study instead of going out with friends, the opportunity cost is missing out on social time.

Disequilibrium (of a Market)

when either the quantity supplied or the quantity desired exceeds the other

Traditional Economy

An economy where goods are produced mainly for consumption by one's own family and traded or bartered in only the most basic ways

Example

a community mostly practicing subsistence farming

Factors of Production

The determinants of when and where economic activity can and most likely will occur: land, labor, capital, and entrepreneurship

Factor Market

a market in which the factors of production are bought and sold

Example

The labor market

Economies of Scale

a reduction in the price of per-unit production resulting from producing more at once

Example

Buying raw materials in bulk at a discount, thereby decreasing the per-unit cost

Circular Flow

Movement in an economy of good, services, and money from consumers to producers and back again

Profit Maximization

the ability to generate the highest possible profit, which is the goal of producing goods and services in the market

Demand

the quantity of a good that consumers desire to purchase at a given time in an economy

Equilibrium (of a Market)

when the quantity supplied is equal to the quantity demanded

Specialization of Labor / Division of Labor

A tendency for groups to focus and work on (specialize) wherever they can make the best product at the highest revenue (comparative advantage) and use trade to acquire other products

Households

the smallest of the four sectors of the economy, but collectively the most influential; they seek the well-being of their members

Business

producers of goods and services in the market, whose goal is profit maximization

Surplus

when the quantity supplied is greater than the quantity desired

Competition (Economics)

companies will strive for a greater share of the market by producing higher quality and more cheaply priced goods

Example

Apple and Microsoft competing over laptop share

Tax

contribution to federal or state funds required for individuals or businesses

Example

income tax

Law of Demand

as the price of a good increases, the less quantity of the good will be demanded

Example

If the price of a loaf of bread increased to $10, people would buy less bread.

Deficit

when the quantity demanded exceeds the quantity supplied

Law of Supply

as the price of a good increases, a greater quantity of the good will be supplied

Example

If gum increases from $1 a piece to $10 a piece, then more suppliers would supply gum.

Market Economy

An economic system where decisions about production, consumption and investment are guided by the price of goods and services, which are determined by the laws of supply and demand.

Example

Capitalism