Economizing Problem
The choices necessitated because society's economic wants for goods and services are unlimited but the resources available to satisfy these wants are limited (scarce).
Economic Resources
The land, labor, capital, and entrepreneurial ability that are used in the production of goods and services; productive agents; factors of production.
Land
Natural resources ("free gifts of nature") that are used to make goods and service.
Capital
Human-made resources (buildings, machinery, and equipment) used to produce goods or services; goods that do not directly satisfy human wants; also called capital goods.
Investment
Spending for the production and accumulation of capital and additions to inventories.
Labor
People's physical and mental talents and efforts that are used to help produce goods and services.
Entrepreneurial Ability
The human resource that combines the other resources to produce a product, makes non-routine decisions, innovates, and bears risks.
Factors of Production
Economic resources: land, capital, labor, and entrepreneurial ability.
Full Employment
(1) The use of all available resources to produce want satisfying goods and services; (2) the situation in which the unemployment rate is equal to the full-employment unemployment rate and there is frictional and structural employment but there is no cycl
Full Production
Employment of available resources so that the maximum amount of (or total value of) goods and services is produced; occurs when both productive efficiency and allocative efficiency are realized.
Productive Efficiency
The production of a good in the least costly way; occurs when production takes place at the output at which average total cost is a minimum and marginal product per dollar's worth of input is the same for all inputs.
Allocative Efficiency
The apportionment of resources among firms and industries to obtain the production of the products most wanted by society (consumers); the output of each product at which its marginal cost and price or marginal benefit are equal.
Consumer Goods
products and services that satisfy human wants directly.
Capital Goods
Goods that do not directly satisfy human wants; Products that satisfy human wants indirectly by making possible more efficient production of consumer goods.
Production Possibilities Table
Lists the different combinations of two products that can be produced with a specific set of resources (full employment and productive efficiency).
Production Possibilities curve
a curve showing the different combinations of two goods or services that can be produced in a full-employment, full-production economy where the available supplies of resources and technology are fixed.
Opportunity Cost
the amount of other products that must be forgone or sacrificed to produce a unit of a product.
Law of Increasing Opportunity Costs
The principle that as the production of a good increases, the opportunity cost of producing an additional unit rises.
Economic Growth
(1) An outward shift in the production possibilities curve that results from an increase in resource supplies or quality or an improvement in technology; (2) an increase of real output (gross domestic product) or real output per capita.
Economic System
system that sets rules for how people decide what goods and services to produce and how they are exchanged; the system of production and distribution and consumption; way of producing the things its people want and need.
Market System
All the product and resource markets of a market economy and the relationships among them; a method that allows the prices determined in those markets to allocate the economy's scarce resources and to communicate and coordinate the decisions made by consu
Capitalism
An economic system in which property resources are privately owned and markets and prices are used to divert and coordinate economic activities; an economic system based on private property and free enterprise; an economic system based on private ownershi
Command System
A method of organizing an economy in which property resources are publicly owned and government uses central economic planning to direct and coordinate economic activities; command economy; communism.
Resource Market
A market in which households sell and firms buy resources or the services of resources.
Product Market
A market in which products are sold by firms and bought by households.
Circular Flow Model
The flow of resources from households to firms and of products from firms to households. These flows are accompanied by reverse flows of money from firms to households and from households to firms.