Economic Terms

There are some basic economic terms that we need to be aware of before we can learn about the economy.

Wants Things we desire to have

Goods Physical products tangible

Services Activities people do for us for payment intangible

What is needed to produce goods and services Resources What is needed to produce goods and services

Factors of Production Capital Entrepreneurship Labor --Human resources Land -- Natural resources video

Scarcity The result of an inability to satisfy all of everyone’s wants EVERYTHING IS SCARCE scarcity

Choices We can’t have everything we want Therefore, we must choose what we get Scarcity choices

Trade-offs Giving up some of one thing in order to get more of another

Opportunity Cost The best alternative given up when making a decision video

Economics Studies how people choose to use scarce resources to satisfy their wants

Incentive Something that encourages or motivates a person toward an action

Economizing Every choice involves an incentive, or benefit offered to encourage a certain action Choice is also influenced by utility, the benefit or satisfaction gained from the choice Every choice has a cost We economize by choosing the best mix of costs and benefits

Production Possibility Curve video

Increasing Production video

Marginal Thinking The use of marginal cost and marginal benefit in decision making We stop doing something when the cost outweighs the benefit

Max’s Decision Making Grid A decision-making grid helps you to see what you lose when you make choices. Max’s decision-making grid shows the costs and the benefits of hours spent studying versus time spent socializing.

Choice Benefit Opportunity Cost One hour of extra study D in Economics One hour with friends Two hours of extra study C in Economics Two hours with friends Three hours of extra study B in Economics Three hours with friends Four hours of extra study B+ in Economics Four hours with friends Five hours of extra study A- in Economics Five hours with friends Six hours of extra study A in Economics Six hours with friends

Unintended Effects Taking action to solve one problem results in something unrelated to occur. Example: raising the price on a pair of shoes to earn more money and ending up selling fewer shoes and actually losing money

Microeconomics Studies the individual or a single business in the economy

Macroeconomics Studies the economy as a whole

Global Economy Economic actions taken anywhere in the world may affect an individual’s standard of living

Market Whenever and wherever people voluntarily make exchanges with one another

Exchanging Giving one thing for another (e.g. $ for food)

Rationing Device A means for deciding who gets what portion of the available goods and services

Competition Scarcity Competition. If there were enough resources we wouldn’t need to compete. People compete to get more of the rationing device

Economic Questions What goods will be produced? How will the goods be produced? For whom will the goods be produced?

Types of Economies Traditional – economic questions answered by tradition Command/ socialism – economic questions answered by the government Free enterprise/ market/ capitalism – economic questions answered by business owners

Differences between capitalism and socialism Resources Owned by private individuals Owned by the government Government’s role in the economy Small role Large role Economic plans None Written by government decision makers Income distribution Government pays little attention to equality or inequality of income distribution Government pays much greater attention; may redistribute income Controlling prices May fluctuate – government doesn’t control Government controls prices to varying degrees

Mixed Economies N. Korea France China US Command/Socialist Market/ Capitalism