Economics Vocabulary (Chapters 1 & 2)

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Question Answer
needair, food, or shelter that is necessary for survival
wantan item that we desire but that is not essential to survival
economicsthe study of how people seek to satisfy their needs and wants by making choices
goodsphysical objects such as shoes and shirts
servicesactions or activities that one person performs for another
scarcityimplies limited quantities of resources to meet unlimited wants
shortageoccurs when producers will not or cannot offer goods or services at the current prices


Question Answer
factors of productionfactor resources; land, labor, and capital
landall natural resources used to produce goods and services
laborthe effort that a person devotes to a task
capitalany human-made resource that is used to produce other goods and services
physical capitalhuman-made objects used to create other goods and services
human capitalthe knowledge and skills a worker gains through education and experience
entrepreneurambitious leaders who decide how to combine land, labor, and capital resources to create new goods and services


Question Answer
trade-offthe alternative that we give up whenever we choose one course of action over another
guns or buttera country that decides to produce more military goods has fewer resources to devote to consumer goods and vice versa
opportunity costthe most desirable alternative given up as the result of a decision
thinking at the marginwhen you decide how much more or less to do
production possibilities graphshows alternative ways to use an economy's resources
production possibilities frontiershows combinations of the production of two products
efficiencyusing resources in such a way as to maximize the production or output of goods and services
underutilizationusing fewer resources than the economy is capable of using
costthe alternative we give up when we choose one option over the other
law of increasing costsas production switches from one item to another, more and more resources are necessary to increase production of the second item


Question Answer
economic systemthe method used by a society to produce and distribute goods and services
factor paymentsthe income people receive for supplying factors of production - land, labor, capital, or entrepreneurship
safety netset of government programs that protect people experiencing unfavorable economic conditions
standard of livinglevel of economic prosperity
traditional economyrelies on habit, custom, or ritual to decide what to produce, how to produce it, and to whom to distribute it
market economyeconomic decisions are made by individuals and are based on exchange, or trade
centrally planned economythe central government alone decides how to answer all three key economic questions
mixed economya combination of traditional, market, and centrally planned economies


Question Answer
marketan arrangement that allows buyers and sellers to exchange things
specializationthe concentration of the productive efforts of individuals and firms on a limited number of activities
householda person or group of people living in the same residence
firman organization that uses resources to produce a product, which it then sells
factor marketfirms purchase factors of production from households
profitthe financial gain made in a transaction
product market :the market in which households purchase the goods and services that firms produce
Question Answer
self-interestthe buyer and seller's personal gains
incentivethe hope of reward or the fear of punishment that encourages a person to behave in a certain way
competitionthe struggle among producers for the dollars of consumers
invisible handconsumers get the products they want at prices that closely reflect the cost of producing them
consumer sovereigntyconsumers decide what gets produced


Question Answer
socialisma social and political philosophy based on the belief that democratic means should be used to distribute wealth evenly throughout a society
communismgo fuck your self
authoritariancommunist governments; exact strict obedience from their citizens and do not allow individuals freedom of judgement and action
collectivelarge farm leased from the state to a group of peasant farmers
heavy industryrequires a large capital investment to produce items used in other industries (chemical, steel, heavy machinery manufacturing)
laissez fairethe doctrine that government generally should not intervene in the marketplace
free enterpriseinvestments are determined in a free market by private decision rather than by state control
continuuma range with no clear divisions
transitiona period of change in which an economy moves away from central planning toward a market-based system
privatizesold to individuals