Need
something like air, food, or shelter that is necessary for survival
Want
an item that we desire but is not essential to survival
Economics
the study of how people seek to satisfy their needs and wants by making choices
Goods
physical objects such as clothes or shoes
Services
actions or activities one person performs for another
Scarcity
limited quantities of resources to meet unlimited wants
Shortage
a situation in which a good or service is unavailable, or a situation in which the quantity demanded is greater than the quantity supplied, also known as excess demand
Factors of production
land, labor, and capital; the three groups of resources that are used to make all goods and services
Land
natural resources that are used to make goods and services
Labor
the effort that people devote to a task for which they are paid
Capital
any human-made resource that is used to create other goods and services
Physical capital
all human-made goods that are used to produce other goods and services; tools and buildings
Human capital
the knowledge and skills a worker gains through education and experience
Entrepreneur
ambitious leader who combines land, labor, and capital to create and market new goods or services
Trade-off
an alternative we sacrifice when we make a decision
Guns or butter
a phrase that refers to the trade-off that nations face when choosing whether to produce more or less military or consumer goods
Opportunity cost
the most desirable alternative given up as the result of a decision
Thinking at the margin
deciding whether to do or use one additional unit of some resource
Production possibilities curve
a curve that shows alternative ways to use an economy's resources
Production possibilities frontier
the line on a production possibilities graph that shows the maximum possible output for a specific economy
Efficiency
using resources in such a way as to maximize the production of goods and services
Underutilization
using fewer resources than an economy is capable of using
Cost
an alternative that is given up as the result of a decision
Law of increasing costs
as we shift factors of production from making one good or service to another, the cost of producing the second items increases.