Book: Economics - Principles in Action
Section: Chapters 1-3
Terms : Hide Images
| 601866794 | need | something like air, food, or shelter that is necessary for survival; ex. drinking water or "basic" medical | |
| 601866795 | want | an item that we desire but that is not essential to survival; ex. jewelry or massage | |
| 601866796 | economics | the study of how people seek to satisfy their needs and wants by making choices; "the study of choice"; importance = to predict trends in the future for the majority of the people | |
| 601866797 | goods | physical objects such as clothes or shoes; created by the producer | |
| 601866798 | services | actions or activities that one person performs for another; created by the producer | |
| 601866799 | scarcity | limited quantities of resources to meet unlimited wants; more than one use; the problem which economics addresses; unlike shortage, this always exists because goods and services are a limited quantity | |
| 601866800 | shortage | a situation in which a good or service is unavailable; unlike scarcity, this may be short term or long term | |
| 601866801 | factors of production | three groups of resources that are used to make all goods and services; land, labor, and capital; controlled by the consumer | |
| 601866802 | land | natural resources that are used to make goods and services; ex. water, oil, wind, timber | |
| 601866803 | labor | the effort that people devote to a task for which they are paid | |
| 601866804 | capital | any human-made resource that is used to create other goods and services | |
| 601866805 | physical capital (capital goods) | all human-made goods that are used to produce other goods and services; ex. tools, machines, buildings | |
| 601866806 | human capital | the skills and knowledge gained by a worker through education and experience | |
| 601866807 | entrepreneur | an ambitious leader who combines the factors of production to create and market new goods and services (for profit) | |
| 601866808 | trade-off | alternatives that we sacrifice whenever a decision is made; "A or B" | |
| 601866809 | 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 | |
| 601866810 | opportunity cost | the most desirable alternative given up as a result of a decision; "choosing is refusing"; the choice you chose not to do | |
| 601866811 | thinking at the margin (marginal analysis) | deciding whether to do or use one additional unit of some resource; comparing similar alternatives; "little more, little less" | |
| 601866812 | alternatives grid (decision making grid) | weighs the costs and benefits of a certain alternative; the more benefits, the more favorable the alternative is | |
| 601866813 | cost vs. benefit | negative or positive consequence | |
| 601866814 | production possibilities curve | a graph that shows alternative ways to use an economy's resources; measures productivity; axes show categories of goods and services; ex. watermelons vs. shoes | |
| 601866815 | production possibilities frontier | the line on the production possibilities graph that shows the maximum possible output; all the resources are used to produce a maximum combination of the two goods/services | |
| 601866816 | efficiency | using resources in such a way as to maximize the production of goods and services; illustrated by production possibilities frontier | |
| 601866817 | growth | when the entire production possibilities curve "shifts to the right"; production capacity increases -> more workers, new inventions | |
| 601866818 | underutilization | using fewer resources than an economy is capable of using; a point inside the production possibilities frontier line | |
| 601866819 | law of increasing costs | law that states that as we shift factors of production from making one good or service to another, the cost of producing the second item increases | |
| 601866820 | economic system | the method used by a society to produce and distribute goods and services; ex. free market, centrally planned, mixed | |
| 601866821 | factor payments | the income people receive for supplying factors of production | |
| 601866822 | safety net | government programs that protect people experiencing unfavorable economic conditions such as injury or layoffs; an aspect of economic security and predictability | |
| 601866823 | standard of living | level of economic prosperity; the result of increased economic innovation and growth | |
| 601866824 | traditional economy | the economic system that relies on habit, custom, or ritual, to decide questions of production and consumption of goods and services; results in little innovation or change; revolves around the family/community | |
| 601866825 | market economy | the economic system in which decisions on production and consumption of goods and services are based on voluntary exchange in markets; also known as free market or capitalism | |
| 601866826 | centrally planned economy | the economic system in which the central government makes all decisions on the production and consumption of goods and services; also known as command economy or communism | |
| 601866827 | mixed economy | the economic system that is market-based with limited government involvement | |
| 601866828 | economic efficiency | making the most of resources | |
| 601866829 | economic freedom | freedom from government intervention in the production and distribution of goods and services | |
| 601866830 | economic security (and predictability) | assurance that goods and services will be available, payments will be made on time, and a safety net will protect individuals in times of economic disaster | |
| 601866831 | economic equity | fair distribution of wealth | |
| 601866832 | economic growth (and innovation) | innovation leads to economic growth, and economic growth leads to a higher standard of living | |
| 601866833 | market | an arrangement that allows buyers and sellers to exchange things (what we have for what we want); exist because no one is self-sufficient | |
| 601866834 | specialization | the concentration of the productive efforts of individuals and firms on a limited number of activities; having more human capital in one area than another; results in increased productivity | |
| 601866835 | household | a person or group of people living in the same residence | |
| 601866836 | firm | an organization that uses resources to produce a product, which it then sells; handles "inputs" and "outputs"; also known as a business | |
| 601866837 | factor market | the market in which firms purchase the factors of production from households | |
| 601866838 | profit | the financial gain made in a transaction; the incentive for a firm/business | |
| 601866839 | product market | the market in which households purchase the goods and services that firms produce | |
| 601866840 | self-interest | one's own personal gain; the motivating force in the free market | |
| 601866841 | incentive | an expectation that encourages people to behave in a certain way; often support instant gratification; monetary and nonmonetary (ex. gifts) | |
| 601866842 | competition | the struggle among producers for the dollars of consumers; results in more production and moderates firms' quests for higher prices | |
| 601866843 | invisible hand | term economists use to describe the self-regulating nature of the marketplace | |
| 601866844 | consumer sovereignty | the power of consumers to decide what gets produced | |
| 601866845 | socialism | a social and political philosophy based on the belief that democratic means should be used to evenly distribute wealth throughout a society; only can come about after a violent revolution | |
| 601866846 | communism | a political system characterized by a centrally planned economy with all economic and political power resting in the hands of the central government; authoritarian rule; also known as command economy or centrally planned economy | |
| 601866847 | authoritarian | requiring strict obedience to an authority, such as a dictator | |
| 601866848 | collective | large farm leased from the state to groups of peasant farmers; workers are guaranteed employment and income -> little incentive to produce more/better crops | |
| 601866849 | heavy industry | industry that requires a large capital investment and that produces items used in other industries; ex. steel | |
| 601866850 | laissez faire | the doctrine that states the government generally should not intervene in the marketplace; "hands off"; left to its own devices, the free market system would provide the greatest benefit for consumers and raise the standard of living | |
| 601866851 | limited government | a government that creates laws protecting property rights and enforcing contracts | |
| 601866852 | private property | property owned by individuals or companies, not by the government or the people as a whole; "just compensation" is protected by the government; individuals own their own factors of production | |
| 601866853 | free enterprise | an economic system characterized by private or corporate ownership of capital goods; investments that are determined by private decision rather than by state control; and determined in a free market | |
| 601866854 | continuum | a range with no clear division; the spectrum of capitalism and communism | |
| 601866855 | transition | a period of change in which an economy moves away from a centrally planned economy toward a market-based system; ex. China | |
| 601866856 | privatize | to sell state-run firms to individuals | |
| 601866857 | public ownership | the government owns all for all people | |
| 601866858 | economic planning | innovations/direction of the economy | |
| 601866859 | allocation by command | the government distributes goods and services to individuals; all have an equal share | |
| 601866860 | public good | a shared good or service for which it would be impractical to make consumers pay individually and to exclude nonpayers; any number of consumers can use them without reducing the benefits to a single consumer; "something we need and makes life better, that the free market won't provide"; ex. roads, dams, lighthouses, autopsies | |
| 601866861 | profit motive | the force that encourages people and organizations to improve their material well-being; money motivates individuals to work hard | |
| 601866862 | open opportunity | the concept that everyone can compete in the marketplace; economic mobility up or down, gain or lose money | |
| 601866863 | private property rights | the concept that people have the right and privilege to control their possessions as they wish | |
| 601866864 | free contract | the concept that people may decide what agreements they want to enter into | |
| 601866865 | voluntary exchange | the concept that people may decide what and when they want to buy and sell; rather than being forced to buy or sell at particular times or at specific prices | |
| 601866866 | competition | the rivalry among sellers to attract customers while lowering costs; a result of economic rights; provides customers with the choice of a larger variety of goods at reasonable prices | |
| 601866867 | interest group | a private organization that tries to persuade public officials to act or vote according to group members' interests | |
| 601866868 | public disclosure laws | laws requiring companies to provide full information about their products; allows consumers to evaluate aspects of products before purchasing | |
| 601866869 | public interest | the concerns of the public as a whole | |
| 601866870 | macroeconomics | the study of the behavior and decision making of entire economies; the study of major trends for the economy as a whole | |
| 601866871 | microeconomics | the study of the economic behavior and decision making of small units, such as individuals, families, and businesses | |
| 601866872 | gross domestic product (GDP) | the total value of all final goods and services produced in a particular economy; used to predict business cycles | |
| 601866873 | business cycle | a period of macroeconomic expansion followed by a period of contraction, or decline; result of individuals and businesses acting on their own self-interest | |
| 601866874 | work ethic | a commitment to the value of work and purposeful activity; increases productivity and shifts production possibilities frontier outward | |
| 601866875 | technology | the process used to produce a good or service; improvements allow an economy to produce more output for the same or a smaller quantity of inputs (resources); help us to build "more-better-faster" | |
| 601866876 | public sector | the part of the economy that involves the transactions of the economy; finances public goods | |
| 601866877 | private sector | the part of the economy that involves the transactions of individuals and businesses | |
| 601866878 | free rider | someone who would not choose to pay for a certain good or service, but who would get the benefits of it anyway if it were provided as a public good | |
| 601866879 | market failure | a situation in which the market does not distribute resources efficiently | |
| 601866880 | externality | the 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 or negative | |
| 601866881 | poverty threshold | an income level below that which is needed to support families or households | |
| 601866882 | welfare | government aid to the poor | |
| 601866883 | cash transfers | direct payments of money to eligible poor disabled, or retired people; ex. Temporary Assistance for Needy Families, Social Security, unemployment insurance, worker's compensation | |
| 601866884 | in-kind benefits | goods and services provided for free or at greatly reduced prices; ex. food stamps and legal aid |
