Economics Handbook Definitions

An economic system must answer these three basic question: 1. What to produce? (What kinds of goods and services should be produced? 2. How to produce? (What productive resources are used to produce goods and services?) 3. For whom to produce? (Who gets to have the goods and services?)

Types of Economic Systems :

Command Economic System: Command Econ. System: Government decides what goods will be produced, how they will be produced and how they will be distributed ex. Communist countries like Cuba, North Korea, China

Market Economic System: Market Econ. System: Also called Free Enterprise-allows business owners to compete in market with little government control. The owner decides everything about their business ( capitalism )

Traditional Economic. System: Traditional Econ. System: Econ. System in which Social roles and culture determines how goods are made, sold, and bought ex. Amazon Rain Forest Tribes

Mixed Econ. System: Mixed Econ. System: Econ. System that has features of traditional, command, and market ex. USA, Canada, European countries-most countries are mixed

Every economy is Mixed and somewhere on the continuum. Market Command Mixed   **Think of the above three like a line. Command and Market are the ends/the extremes. Mixed economic systems might lean more toward Market and some might lean more toward Command depending on the country.

  Trade-Related words:

International Trade: trade between nations/exchange of goods and services between countries

Exports: goods and services traded with or sold to other countries

Imports: goods brought into country from another country through trade or sale

Trade Barrier: any law or practice a government uses to limit free trade between countries. Can also be a physical feature like a mountain

Government created trade barriers.

Tariff: a tax or fee charged for goods or services brought into a state or country from another state or country

Embargo: trade barrier in which the government places restrictions on imports and exports of certain goods. Often back by military force

Quotas: limit on the amount of a product that may be imported during a given period of time

Economic Productive Resources:

Capital Goods: Resources such as factories, machines, and tools that people use to make other goods

Human Capital: workers with greater knowledge and skills are more productive.

Natural Resources: Raw materials that are used to support life and make goods.

Entrepreneur: someone who brings together labor, land and capital goods to produce goods and services.

Other Key Economic Terms

Supply and Demand: economic concept that states the price of a good rises or falls depending on how many people want it (demand) and how much of the good is available (supply)

Scarcity: word used to describe conflict between people’s desires and limited amount of resources

Gross Domestic Product “GDP”: Total USA Paycheck>total value of the goods and services produced in a country during a given period of time.

Economic Growth: increase in value of all goods and services a country makes from one year to another; GDP goes up from year to year if there is growth. Economic decline is when the GDP decreases.

Currency: money in any form that is accepted as a medium of exchange, but especially paper money.

Currency Exchange: a place or situation where money from different countries is bought and sold for a price

Investment: use of income today in a way that allows growth in the future. The best investment in human capital is always education!!! Other good examples of investment are training and technology.

Literacy Rate: the percentage of people who can read in a certain country.

Standard of Living: the level at which someone is able to take care of themselves and provide for themselves, items like healthcare, clean water, shelter, education, living expenses and luxury items possibly.