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") used to produce goods and services.
capital
Human-made resources (buildings, machinery, and equipment) used to produce goods and 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 nonroutine decision, 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 servies; (2) the situation in which the unemployment rate is equal to the full-employment unemployment rate and there if frictional and structural but no cyclical unemployment (an
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 productions 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
(see capital).
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 and 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 (gross domestic product) or real output per capita.
economic system
a particular set of institutional arrangements and a coordinating mechanism for solving the economizing problem; a method of organizing an economy, of which the market system and the command system are the two general types.
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 direct and coordinate economic activities.
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.
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 household. The flows are accompanied by reverse flows of money from firms to households and from households to firms.