Need
something necessary for survival
Want
an item we desire, but do not need to survive
Economics
the study of how people seek to satisfy needs and wants by making choices
Goods
physical objects provided to consumers
Services
actions that one performs for a consumer
Scarcity
implies limited quantities of resources to meet unlimited wants
Shortage
when producers cannot offer goods or services at current prices
Factors of Production
land, labor, and capital
Land
all natural resources
Labor
all of the effort which people devote to a task for which they are paid
Capital
human-made resources used in production
Physical Capital
human-made objects used in the production of others
Human Capital
knowledge and skills a worker gains through education and experience
Entrepreneurs
leaders who combine factors of production to create new goods and services
Trade-off / Cost
alternatives we give up when we choose one course of action over another
Guns or Butter
a phrase economists use to express the idea that a nation that produces more military goods cannot produce as many consumer goods, and vice versa
Opportunity Cost
the most desireable alternative given up as the result of a decision
Thinking At the Margin
deciding how much more or less to do
Production Possibilities Curve
a graph that shows alternative ways to use an economy's resources
Production Possibilities Frontier
the line that shows combinations of the production of different goods on a production possibilities curve
Efficiency
using resources to maximize production
Underutilization
using fewer resources than the economy is capable of using
Cost / Trade-off
alternative we give up when making a decision
Law of Increasing Costs
As production switches from one item to another, more resources are necessary to increase the production of the second item, and the opportunity cost increases.
Economic System
method used by a society to produce and distribute goods and services
Factor Payments
the income people receive for supplying factors of production - land, labor, capital, or entrepreneurship
Patriotism
the love of one's country that inspires them to serve it
Safety Net
set of government programs that protect people experiencing unfavorable economic conditions
Standard of Living
level of economic prosperity
Traditional Economy
* relies on habit, custom, and ritual to decide what to produce, how to produce it, and to whom to distribute it
* revolves around the family
* usualy communities that tend to stay relatively small and close, working to support entire groups
* few mechani
* Market Economy
* Free Markets
* Capitalism
an economic system in which economic decisions are made by individuals and are based on exchange (trade)
* Centrally Planned Economy
* Command Economy
an economic system in which the central government decides how to answer economic questions
Mixed Economy
market-based economic systems in which government plays a limited role
Market
an arrangement that allows buyers and sellers to exchange things
Specialization
the concentration of the productive efforts of individuals and firms on a limited number of activities
Household
person or group of people living in the same residence
Firm
business; organization that uses resources to produce a product, which it then sells
Factor Market
firms purchase factors of production from households
Profit
the financial gain made in a transaction
Product Market
goods and services are purchased from firms by households
Self-interest
the desire for personal gain which serves as an incentive
Incentive
the hope of reward or the fear of punishment that encourages a person to behave in a certain way
Competition
* struggle among producers for the dollars of consumers
* rivalry among sellers to attract customers while lowering costs
Consumer Sovereignty
consumers decide what gets produced by providing firms with incentives to meet their demands
Laissez Faire
doctrine that the government generally should not intervene in the marketplace
Private Property
the property that is owned by individuals or companies, not by the government or the people as a whole
Free Enterprise
an economic system characterized by private or corporate ownership of capital goods
Continuum
a range with no clear divisions
Transition
a period of change in which an economy moves away from central planning toward a market-based system
Privatized
when state firms are sold to individuals
Profit Motive
force that encourages people and organizations to improve their material well-being
Invisible Hand
Competition causes more production and moderates firms' quests for higher prices. Thus, consumers get the products they want at prices that closely reflect the cost of producing them. All of this happens without central planning. Coined by Adam Smith.
Open Opportunity
the concept that everyone can compete in the marketplace
Legal Equality
the same legal rights are given to everyone, and that allows everyone to compete in the economic marketplace
Private Property Rights
the concept that people have the right and priviledge to control their possessions as they wish
Free Contract
this right allows people to decide what agreements they want to enter into
Voluntary Exchange
this right allows people to decide what and when they want to buy and sell, rather than forcing them to buy or sell particular items at specific prices and times
Interest Group
a private organization that tries to persuade public officials to act or vote according to the interests of the group's members
Public Disclosure Laws
laws requiring companies to provide their consumers important information about their products
Public Interest
concerns of the public as a whole
Macroeconomics
study of the behavior and decision making of entire economies; examines major trends for the economy as a whole
Microeconomics
study of the economic behavior and decision making of small units, such as individuals, families, households, and businesses
Gross Domestic Product (GDP)
total value of all final goods and services proudced in an economy
Business Cycle
* period of macroeconomic expansion followed by a period of contraction, or decline
* major fluctuations over any period of time
Work Ethic
commitment to the value of work and purposeful activity
Technology
process used to produce a good or service
Public Good
shared good or service for which it would be impractical to make consumers pay individually and to exclude nonpayers
ex: dams, roads, bridges
Public Sector
the part of the economy that involves the transactions of the government
Private Sector
the part of the economy that involves transactions of individuals and businesses
Free Rider
someone who would not choose to pay for a certain good or service, but would get the benefits of it anyway if it were provided as a public good
Market Failure
a situation in which the market, on its own, does not distribute resources efficiently
Externality
an economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume
Positive Externality
cause the benefit of a good to be gained by someone who did not purchase it
ex. a neighbor plants a garden, and you can enjoy the better view and higher property value even though you did not contribute to the garden
ex. a tourist can use a public road wi
Negative Externality
cause part of the cost of producing a good or service to be paid for by someone other than the producer
ex. a community spending money to clean up pollution caused by a local factory
Poverty Threshold
an income level below that which is needed to support families or households
Welfare
government aid to the poor
Cash Transfers
direct payments of money to poor, disabled, and retired citizens
ex: Social Security, Workers' Compensation, Unemployment Insurance
In-Kind Benefits
goods and services provided for free or at greatly reduced prices
ex: food giveaways, food stamps, subsidized housing