Economics - Chapter 2 Vocabulary

Goods

Physical articles that have been produced for sale or use. Three examples are food, clothing, and cars.

Services

Work done by someone else for which a consumer, business. or government is willing to pay. Three examples are teaching, gardening, and childcare.

Factors of production

The resources used to produce good and services. Economists define these resources as land, labor, and capital.

Entrepreneurship

The willingness and ability to take the risks involved in starting and managing a business.

Capital

The tools, machines, and buildings used to produce goods and services.

Productivity

A measure of the efficiency with which goods and services are produced. Productivity is often stated as the quantity produced per person per hour.

Opportunity cost

The value of the next best alternative that is given up when making a choice. This is the measure of what you must give up to get what you most want.

Production possibilities frontier (PPF)

A simple model of an economy that shows all the combinations of two goods that can be produced with the resources and technology currently available.

Shortage

A lack of something that is desired, a condition that occurs when there is less of a good or service available than people want at the current price.

Inputs

Scarce resources that go into the process.

Outputs

Goods and services produced using these resources.

Production equation

land + labor + capital = goods and services

Entrepreneurs

Assemble the other inputs to create new goods and services.

Land

Means all of these "gifts of nature" that are used to produce goods and services including such familiar natural resources as air, soil, minerals, water, forests, plants, animals, birds, and fish.

Perpetual resources

Widely available resources and in no danger of being used up such as sunlight and wind.

Renewable resources

Resources that, with careful planning, can be replaced as they are used including forests, fresh water, and fish.

Nonrenewable resources

Fossil fuels like oil, coal, and natural gas, where once they are used, they are gone forever.

Labor

The time and effort people devote to produce goods and services in exchange for wages.

Human capital

The knowledge and skill that people gain from education, on-the-job training, and other experiences.

Correlation

Or relationship, between a country's level of human capital and its standard of living.

Financial capital

Money invested in stocks, bonds, real estate, or businesses to produce future wealth.

Physical capital/capital goods

Concrete productive resources like tools, machines, and factory buildings that money can buy.

Utility

The satisfaction or pleasure one gains from consuming a product or service or from taking an action.

Marginal utility

The extra satisfaction or pleasure you will get from an increase of one additional unity of a good or service.

Negative utility

By making you feel sick.

Law of diminishing marginal utility

According to this law, as the quantity of a good consumed increases, the marginal utility of each additional unit decreases.

Production possibilities curve

Represents the best that this economy can do with its current factors of production.

Economy efficiency

The result of using resources in a way that produces the maximum amount of goods and services.