Foundations of Economics Vocabulary

Human Capital

The sum of people's skills, abilities, health and motivation

Mixed System

An economic system that includes both private ownership of property and government control (or regulation) of some services and industries

Income Distribution

how the nation's total income is distributed among its population

Productive Resources

include Natural resources, human resources, capital resources and entrepreneurship

Economic Growth

steady growth in the productive capacity of the economy (and so a growth of national income)

Property rights

the ability of an individual to own and exercise control over scarce resources

Voluntary Exchange

the act of buyers and sellers freely and willingly engaging in market transactions

Profit Motive

the driving force that encourages individuals and organizations to improve their material well-being

Human Capital

the skills and knowledge gained by a worker through education and experience

Private Property Rights

Allowing individuals to own and control their possessions as they wish

Adam Smith

(1723-1790) Scottish philosophe who formulated laws that governed the economy to benefit human society

Production Possibilities Curve

A graph that describes the maximum amount of one good that can be produced for every possible level of production of the other good.

Efficiency

A measure of how well or how productively resources are used

Entrepreneur

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

Tradeoffs

Alternatives that one must give up when one is chosen over another

Capitalism

An economic system based on private ownership of capital

Scarcity

Basic condition that exists when unlimited wants exceed limited productive resources.

Opportunity Cost

Cost of the next best alternative use of money, time, or resources when one choice is made rather than another

Traditional System

Decisions are based on customs and religious beliefs handed down from generation to generation

Laissez Faire

Idea that government should play as small a role as possible in economic affairs

Factors of Production

Land, labor, and capital; the three groups of resources that are used to make all goods and services

Land/Natural Resource

Not created by human effort. One of the four factors of production

Labor

People with all their efforts, abilities, and skills

Market System

Private individuals and firms control all resources and the price and quantity of all goods are determined by the interaction of suppply and demand

Standard of Living

Quality of life based on ownership of necessities and luxuries that make life easier.

Marginal Benefit

The additional satisfaction or utility that a person receives from consuming an additional unit of a good or service

Productivity

The degree to which resources are being used efficiently to produce goods and services

Command System

The government controls all markets determining what to produce, how to produce, and for whom to produce

Incentives

What motivates you to behave in a certain way, while preferences are your needs, wants and desires. Economic incentives provide you the motivation to pursue your preferences.

Cost-benefit analysis

a study that compares the costs and benefits to society of providing a public good

Physical Capital

all human-made goods that are used to produce other goods and services; tools and buildings