Chapter 2 Economic Systems and Factors of Production Vocabulary

Market Economy

economic decisions are made in the market place. Can also be called a free market, private enterprise, or capitalism.

Competition

encourages businesses to offer higher quality products at lower prices to attract customers.

Opportunity cost

if we decide to use our resources (i.e. money) on one thing, we lose the opportunity to use it on something else at the moment in time.

Non-Renewable Resources

limited or less likely renewable (i.e. coal, iron, oil)

Economic Systems

methods societies use to distribute resources (essentially different ways to answer the three basic economic questions)

Socialism

moderate command economy. Very few private enterprises may exist.

Labor Resources

people needed to make the goods or services Skill / Unskilled Physical / Intellectual

Natural Resources

raw materials from nature used to produce goods.

Supply

the amount of goods or services producers will provide at various prices.

Price

the amount of money given or asked for when goods and services are bought or sold.

Demand

the amount or quantity of goods and services that consumers are willing to buy at various prices.

Profit Motive

the desire to make a profit, and profit is the reward for taking a risk with your business.

Equilibrium Price

the point at which the quantity demanded and the quantity supplied meet. This is the best case scenario for a market economy.

Economics

the study of how individuals and groups of individuals strive to satisfy their wants and needs by making choices. (The study of how and why people make choices).

Capital Resources

things used to make goods and services (Equipment, buildings, materials, supplies)

Scarcity

Lack of resources. Limited resources for satisfying unlimited wants and needs.

Basic Economic Questions

Questions societies must answer to best use their resources to meet the wants and needs of it's citizens / inhabitants. (Who? What? How?)

Command Economy

a central authority (i.e. government) makes the key economic questions. The government dictates what will be produced, how it will be produced, and who will get the goods. It owns and controls all the resources. This is the opposite of a market economy. Highly skilled workers may earn the same as low-skilled workers.

Factors of production

all the economic resources needed to produce a society's goods and services.

Renewable Resources

can be readily reproduced (i.e water, cattle, wheat, etc)

Mixed Economy

contains both private and public enterprises. few nations have either a pure command or pure market economy.

Entrepreneurial Resources

used by people who recognize opportunities and start businesses (These best respond to society's changing wants and needs) i.e. The idea to start a business

Marketplace

where buyers and sellers meet to exchange goods and services.