resources
anything that is used to produce goods or services
scarcity
the condition in which our wants are greater than the resources available to satisfy them.
opportunity cost
the most highly valued opportunity or alternative forfeited when a choice is made
production possibilities frontier (PPF)
a graphic representation of all possible combinations of two goods that an economy can produce
marginal (in economics)
additional
incentive
something that encourages or motivates a person to take action
tangible
able to be felt by touch
goods
anything that satisfies a person's wants or brings satisfaction (tangible products)
utility
the quality of bringing satisfaction or happiness
services
tasks that people pay others to perform for them
land
all the natural resources found in nature
labor
the physical and mental talents that people contribute to the production of goods and services
capital
produced goods that can be used as resources for further production
economic system
the way in which a society decides what goods to produce, how to produce them, and for whom goods will be produced
free enterprise
an economic system in which individuals (not government) own most, if not all, the resources and control their use. Government plays only a small part in the economy
socialism
an economic system in which the government controls and may own many of the resources
traditional economy
an economic system in which the answers to the three economic questions are based on customs, traditions, and cultural beliefs
globalization
a phenomenon in which economic agents in any given part of the world are affected by events elsewhere in the world; the growing integration of the national economies of the world to the degree that we may be witnessing the emergence and operation of a single worldwide economy
offshoring
the term used to describe work done for a company by persons other than the original company's employees in a country other than the one in which the company is located
private property
any good that is owned by an individual or business
public property
any good that is owned by the government
circular flow of economic activity
the economic relationship between different economic groups (businesses, the government, and households) in an economy
ethics
the principles of conduct such as right and wrong, morality and immorality, good and bad
entrepreneur
a person who has a special talent for searching out and taking advantage of new business opportunities
contract
an agreement between two or more people to do something
private good
a good of which one person's consumption takes away from another person's consumption
excludable public good
a public good that individuals can be prohibited from consuming
nonexcludable public good
a public good that individuals cannot be prohibited from consuming
free rider
a person who receives the benefits of a good without paying for it
market
any place where goods are bought and sold
demand
the willingness and ability of buyers to purchase different quantities of a good at different prices during specific time periods
law of demand
a law stating that as price increases, the quantity demanded decreases, and as price decreases, quantity demanded increases
quantity demanded
the number of units purchased at a specific price
demand schedule
the numerical representation of the law of demand
normal good
when income rises, demand rises, and vice versa
inferior good
when income rises, demand falls, and vice versa
substitute
a similar good; with substitutes, the price of one and the demand for the other move in the same direction
complement
a good that is consumed with another good; with complements, the price of one and the demand of the other move in opposite directions
elasticity of demand
the relationship between the percentage change in quantity demanded and the percentage change in price
elastic demand
the type of demand that exists when the % change in Qd is greater than the % change in price
inelastic demand
the type of demand that exists when the % change in Qd is less than the % change in price
unit-elastic demand
the type of demand that exists when the % change in Qd is the same as the % change in price
supply
the willingness and ability of sellers to produce and offer to sell different quantities of a good at different prices during a specific time period.
law of supply
a law stating that as the price of a good increases, the quantity supplied of the good increases, and as the price of a good decreases, the quantity supplied of the good decreases.
direct relationship
a relationship between two factors in which the factors move in the same direction
quantity supplied
the number of units of a good produced and offered for sale at a specific price
supply schedule
a numerical chart illustrating the law of supply
supply curve
a graph that shows the amount of a good sellers are willing and able to sell at various prices
technology
the body of skills and knowledge concerning the use of resources in production
subsidy
a financial payment made by the government for certain actions
quota
a legal limit on the number of units of a foreign-produce good (import) that can enter a country.
rationing device
a means for deciding who gets what portion of the available goods and resources
capitalism
an economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state
command economy
an economy in which production, investment, prices, and incomes are determined centrally by a government.
Adam Smith
believed that self-interest causes people to work hard and take risks, which benefit society.
Karl Marx
believed all value in produced goods comes from labor, and that capitalists exploit laborers
Total revenue
price of a good x number of units sold
loss
the amount of money by which total cost exceeds total revenue
negative externality
the harm, cost, or inconvenience suffered by a third party because of actions by others
per-unit cost
the average cost of a good
surplus
the condition in which the quantity supplied of a good is greater than the quantity demanded of a good (only occur above equilibrium price)
shortage
the condition in which the quantity demanded of a good is greater than the quantity supplied (only occur below equilibrium price)
equilibrium
in a market, the point at which the quantity of a good that buyers are willing and able to buy is equal to the quantity that sellers are willing and able to produce and offer for sale
price floor
A legal minimum on the price at which a good can be sold
price ceiling
a legislated price (set lower than the equilibrium price) above which buyers and sellers cannot legally buy and sell a good
Sole Proprietorship
a business that is owned by one individual who makes all business decisions, receives all the profits or incurs all the losses of the firm, and is legally responsible for the debts of the firm.
partnership
a business owned by two or more co-owners, called partners, who share profits and are legally responsible for debts
corporation
a legal entity that can conduct business in its own name in the same way that an individual does
franchisee
the person or group who buys a franchise.
profit
the amount of money left over after all the costs of production have been paid; exists when total revenue is greater than total cost.
fixed cost
a cost, or expense, that is the same no matter how many units of a good are produced
marginal cost
the cost of producing an additional unit of a good; the change in total cost that results from producing one additional unit of output
marginal revenue
the revenue from selling an additional unit of a good; the change in total revenue that results from selling an additional unit of output
average total cost
the total cost divided by the quantity of the output
total cost
the sum of fixed costs plus variable costs
diminishing marginal returns
if additional units of one resource are added to another resource in fixed supply, eventually the additional output will decrease.
variable cost
a cost, or expense, that changes with the number of units of a good produced
unlimited liability
a condition in which the sole proprietor is responsible for all the losses of the firm.
market structures
the setting in which a seller finds itself. they are defined by their characteristics.
perfectly competitive
a market structure characterized by (1) many buyers and sellers, (2) all firms selling identical goods, (3) all relevant information about buying and selling activities available to buyers and sellers, and (4) easy entry into and out of the market
natural monopoly
a firm with such a low average total cost that only it can survive in the market.
public franchise
a right granted to a firm by the government that permits the firm to provide a particular good or service and excludes all others from doing so.
price discrimination
the practice by which a seller charges different prices (to different buyers) for the product it sells when the price differences do not reflect cost differences
oligopolistic market
a market structure characterized by (1) few sellers, (2) the production and sale of identical or slightly differentiated products, and (3) significant barriers for entry.
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