Unit 1 - Vocabulary

Economics The study of production, distribution, and consumption of goods and services with a society. It is the study of how people (individuals and groups) make choices and decisions with limited resources to satisfy wants, needs, and desires.

Allocate To Distribute

Capital Tools, machines, knowledge, etc. used to produce goods and services Human Capital - The skills and knowledge gained by a worker through education and experience Physical Capital - Man-made factors of production such as machinery, factories, roads, etc.

Command economy An economic system in which the government makes all economic decisions.

Competition A rivalry between two or more businesses trying to sell products to the same customer or market

Consumer A person who purchases goods and services for personal use

Consumer sovereignty the power of consumers to decide what gets produced

Division of labor Division of work into a number of separate tasks to be performed by different workers

Entrepreneur A person who organizes, manages, and takes on the risks of a business.

Factors of Production All the economic resources necessary to produce a society's goods and services.

Good An physical item that people buy.

Government deregulation The deletion, abandonment, or relaxation of various laws, rules, and regulations that affect business and industry.

Government regulation the act of controlling business behavior through a set of rules or laws

Incentive A reason or reward that motivates people to behave in predictable ways

Income redistribution Governments methods of moving incomes from rich people to poor people (taxes and benefits)

Input Anything (including a resource) used to produce a good or service

Labor Human effort directed toward producing goods and services

Land All natural resources

Marginal Additional

Marginal Benefit The additional benefit to a consumer from consuming one more unit of a good or service

Marginal Cost The additional economic cost of the producing the next unit of good or services

Market economy An economic system in which people choose freely what to buy and sell

Market failure A situation in which the market does not distribute resources efficiently

Mixed economy market-based economy system with limited government involvement.

Opportunity Cost The best alternative that we forgo, or give up, when we make a choice or decision. There is only one opportunity cost.

Output The result of an activity.

Paradox of Value The situation where some necessities, such as water, have little monetary value compared to non-necessities, such as diamonds.

Producer a person who makes products or provides services that are used by other people.

Production Possibilities Curve A diagram representing various combinations of goods and services an economy can produce.

Productivity a measure of the amount of output based on the amount of inputs used

Rational Decision Making When the marginal benefits equal or outweigh the marginal costs. MB > MC

Scarcity the condition of not being able to have all the goods and services one wants. The fundamental economic problem.

Service Actions or activities that one person performs for another

Specialization In production a system in which each worker performs a single part of an entire process

3 Economic questions What to produce? How to produce? For whom to produce?

Trade-off All alternatives that must be given up when one choice is made over another

Utility Benefits or customer value received by users of the product usefulness

Voluntary Exchange A trade in which the parties involved anticipate that the benefits will outweigh the costs Non-fraudulent – everyone has “perfect” information