wants
desires that can be satisfied by consuming a good or a service
needs
things that are necessary for survival
scarcity
exists when there are not enough resoources to satisfy human wants
economics
the study of how individuals and societie satisfy their unlimited wants with limited resources
goods
objects, such as food, clothing, and furniture, that can be bought
services
work that one person does for another
consumer
a person who buys or uses goods or services
producer
a maker of goods or a provider of services
factors of production
the resources needed to produce goods and services
land
refers to all natural resources used to produce goods and services
capital
all of the resources made and used by people to produce goods and services
entrepreneurship
involves the vision, skills, and risk-taking needed to create and run businesses
incentives
methods used to encourage people to take certain actions
utility
the benefit or satisfaction received from using a good or service
economize
to make decisions according to the best combination of costs and benefits
trade-off
the alternative people give up when they make choices
cost-benefit analysis
an approach that weighs the benefits of an action against its costs
marginal cost
the cost of using one more unit of a good or service
marginal benefit
the additional satisfaction from using one more unit of a product
economic model
a simplified representation of economic forces
production possibities curve
a graph used by economists to show the impact of scarcity on an economy
efficiency
involves producing the maximum amount of goods and services possible
underutilization
producing fewer goods and services than possible
law of increasing opportunity costs
states that as production switches from one product to another, increasing amounts of resources are needed to increase the production of the second product
statistics
information in numerical form
microeconomics
the study of individuals, families, and businesses in an economy
macroeconomics
the study of the ecodomy as a whole and is concerned with large-scale economic activity
positive economics
studies economic behavior as it is
normative economics
involves judgments of what economic behavior should be
economic system
the way a society uses resources to satisfy its people's wants
traditional economy
an economic system in which people produce and distribute goods according to customs handed down from generation to generation
command economy
an economic system in which the government makes al economic decisions
market economy
an economic system in which individual choice and voluntary exchange direct economic decisions
central planned economy
a system in which central government officials make all economic decisions
socialism
an economic system in which the government owns some or all of the factors of production
communism
an economic system in which the government owns all the factors of production and there is little or no political freedom
authoritarian
systems that require absolute obedience to those in power
private property rights
the rights of individuals and groups to own businesses and resources
market
any place where people buy and sell goods and services
laissez faire
the principle that the government should not interfere in the marketplace
capitalism
an economic system that is based on private ownership of the facts of production
voluntary exchange
a trade in which both traders believ that what they are getting is worth more than what they are giving up
profit
a financial gain that a seller makes from a business transaction
competition
involves all the actions sellers, acting independently, do to get buyers to purchase their products
consumer sovereighnty
the idea that consumers have the ultimate control over what is produced because they are free to buy what they want and to reject what they don't want
specialization
a situation in which people concentrate their efforts in the activities that they do best
circular flow model
a tool that economists use to understand how market economies operate
product market
the market where goods and services are bought and sold
factor market
the market for the facts of production-land, labor, capital, and entrepreneurship
mixed economy
an economy that has elements of traditional, command, and market systems
nationalize
to change from private ownership to government or public ownership to private ownership
global economy
refers to all the economic interactions that cross international boundaries