Chapter 1 Key Terms

Scarcity

The condition that results from society not having enough resources to produce all the things people would like to have

Economics

Study of how people try to satisfy what appears to be seemingly unlimited and competing wants through the careful use of relatively scarce resources

Need

Basic requirement for survival and includes food, clothing and shelter

Want

A way of expressing a need

Factors of production

Resources required to produce the things we would like to have, are land, capital, labor and entrepreneurs

Land

Natural resources not created by humans

Capital

The tools, equipment, machinery and factories used in the production of goods and services

Financial Capital

The money used to buy the tools and equipment used in production

Labor

People with all their efforts, abilities and skills

Entrepreneurs

Risk-taker in search of profits who does something new with existing resources

Production

Process of creating goods and services

Gross Domestic Product (GDP)

The dollar value of all final goods and services and structures produced within a country's borders in a 12 month period

Economic Products

Goods and services that are useful, relatively scarce, and transferable to others

Consumer Good

Intended for final use by individuals

Capital Goods

Manufactured goods are used to produce other goods and services

Service

Work that is performed for someone

Value

Refers to a worth that can be expressed in dollars and cents

Paradox of value

Situation where some necessities, such as water, have little monetary value, whereas some non-necessities, such as diamonds have a much higher value

Utility

Capacity to be useful and provide satisfaction

Wealth

The accumulation of those products that are tangible, scarce, useful and transferable from one person to another

Market

Location or other mechanism that allows buyers and sellers to exchange a certain economic product

Factor Markets

Markets where productive resources are bought and sold

Product Markets

Markets where producers sell their gods and services to customers

Economic Growth

A nation's total output of goods and services increases over time

Productivity

A measure of the amount of output produces by a give amount of inputs in a specific period of time

Division of Labor

When work is arranged so that individual workers do fewer tasks than before

Specialization

Factors of production perform tasks that they can do relatively more efficiently than others

Human Capital

Sum of the skills, abilites, health, and motivation of people

Economic Interdependence

We rely on others, and others rely on us, to provide the goods and service that we consume

Trade-Offs

Alternative choices, whenever they make an economic decision

Opportunity Cost

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

Production Responsibilites Frontier

A diagram representing various combinations of goods and/or services an economy can produce when all productive resources are fully employed

Cost-Benefit Analysis

A way of thinking about a problem that compares the costs of an action to the benefits received

Free Enterprise Economy

Consumers and privately owned businesses, rather than the government make the majority of the WHAT, HOW and WHOM decisions

Standard of Living

The quality of life based on the possession of the necessities and luxuries that make life easier