Vocabulary Economics Principles Practices

utility

(1) ability or capacity of a good or service to be useful and give satisfaction to someone

trade-off

(1) alternative that must be given up when one is chosen rather than another

paradox of value

(1) apparent contradiction between the high value of nonessentials and low value of essentials

specialization

(1) assignment of tasks so that each worker performs fewer functions more frequently; same as division of labor

need

(1) basic requirement for survival; includes food, clothing, and/or shelter

opportunity cost

(1) cost of the next best alternative use of money, time, or resources when one choice is made rather than another

productivity

(1) degree to which productive resources are used efficiently; normally refers to labor, but can apply to all factors of production

production possibilities frontier

(1) diagram representing maximum combinations of goods and/or services an economy can produce when all productive resources are fully employed

division of labor

(1) division of work into a number of separate tasks to be performed by different workers; same as specialization

economic interdependence

(1) economic activities in one part of the country or world affect what happens elsewhere

scarcity

(1) fundamental economic problem facing all societies that results from a combination of scarce resources and people's virtually unlimited wants

consumer good

(1) good intended for final use by consumers rather than businesses

economic product

(1) good or service that is useful, relatively scarce, and needs of its people

free enterprise economy

(1) market economy in which privately owned businesses have the freedom to operate for a profit with limited government intervention; same as private enterprise economy

product market

(1) market where goods and services are offered for sale

factor market

(1) market where productive resources are bought and sold

market

(1) meeting place or mechanism allowing buyers and sellers of an economic product to come together; may be local, regional, national, or global

financial capital

(1) money used to buy the tools and equipment used in production

land

(1) natural resources or "gifts of nature" not created by human effort; one of four factors of production

labor

(1) people with all their abilities and efforts; one of four factors of production, does not include the entrepreneur

production

(1) process of creating goods and services with the combined use of land, capital, labor, and entrepreneurship

factors of production

(1) productive resources that make up the four categories of land, capital, labor, and entrepreneurship

entrepreneur

(1) risk-taking individual in search of profits; one of four factors of production

economics

(1) social science dealing with the study of how people satisfy seemingly unlimited and competing wants with the careful use of scarce resources

human capital

(1) sum of peoples' skills, abilities, health, and motivation

wealth

(1) sum of tangible economic goods that are scarce, useful, and transferable from one person to another; excludes services

economic growth

(1) sustained period during which a nation's total output of goods and services increases

good

(1) tangible economic product that is useful, relatively scarce, transerfable to others; used to satisfy wants and needs

capital good

(1) tool, equipment, or other manufactured good used to produce other goods and services; a factor of production

capital

(1) tools, equipment and factories used in the production of goods and services; one of four factors of production

want

(1) way of expressing or communicating a need; a broader classification than needs

service

(1) work or labor performed for someone; economic product that includes haircuts, home repairs, forms of entertainment

value

(1) worth of a good or service as determined by the market

gross domestic product (GDP)

(1, 13) dollar value of final goods, services, and structures produced within a country's national borders during a one-year period

standard of living

(1, 13) quality of life based on ownership of necessities and luxuries that make life easier

cost-benefit analysis

(1, 20) way of thinking that compares the cost of an action to its benefits

voluntary exchange

(2) act of buyers and sellers freely and willingly engaging in market transactions; characteristic of capitalism and free enterprise

profit motive

(2) driving force that encourages people and organizations to improve their material well-being; characteristic of capitalism and free enterprise

command economy

(2) economic system characterized by a central authority that makes most of the major economic descisions

market economy

(2) economic system in which supply, demand, and the price system help people make decisions and allocate resources; same as free enterprise economy

traditional economy

(2) economic system in which the allocation of scarce resources and other economic activity is the result of ritual, habit, or custom

free enterprise

(2) economy in which competition is allowed to flourish with a minimum of government interference; term used to describe the American economy

profit

(2) extent to which persons or organizations are better off at the end of a period than they were at the beginning; usually measured in dollars

social security

(2) federal program of disability and retirement benefits that covers most working people

private property rights

(2) fundamental feature of capitalism, which allows individuals to own and control their possessions as they wish; includes both tangible and intangible property

fixed income

(2) income that does not increase even though prices go up

economic system

(2) organized way a society provides for the wants and needs of its people

consumer sovereignty

(2) role of consumer as ruler of the market when determining the types of goods and services produced

inflation

(2, 13) rise in the general level of prices

capitalism

(2, 18) economic system in which private citizens own and use the factors of production in order to generate profits

modified private enterprise economy

(2, 20) free enterprise market economy where people carry on their economic affairs freely, but are subject to some government intervention and regulation

principal

(3) amount borrowed when getting a loan or issuing a bond

Better Business Bureau

(3) business-sponsored nonprofit organization providing information on local companies to consumers

stock

(3) certificate of ownership in a corporation; common or preferred stock

dividend

(3) check paid to stockholders, usually quarterly, representing portion of corporate profits

vertical merger

(3) combination of firms involved in different steps of manufacturing or marketing

merger

(3) combination of two or more business enterprises to form a single firm

horizontal merger

(3) combination of two or more firms producing the same kind of product

public utilities

(3) company providing essential services such as water and electricity to consumers, usually subject to some government regulations

multinational

(3) corporation producing and selling without regard to national boundaries and whose business activities are located in several different countries

bankruptcy

(3) court-granted permission to an indivdual or business to cease or delay payment on some or all debts for a limited amount of time

nonprofit organization

(3) economic institution that operates like a business but does not seek financial gain; schools, churches, community service organizations

double taxation

(3) feature of taxation that allows stockholders' dividends to be taxed both as corporate profit and as personal income

conglomerate

(3) firm with four or more businesses making unrelated products, with no single business responsible for a majority of its sales

corporation

(3) form of a business organization recognized by law as a separate legal entity with all the rights and responsibilities of an individual, including the right to buy and sell property, enter into legal contracts, sue and be sued

limited partnership

(3) form of partnership where one or more partners are not active in the daily running of the business, and whose liability for the partnership's debt is restricted to the amount invested in the business

bond

(3) formal contract to repay borrowed money and interest on the borrowed money at regular future intervals

depreciation

(3) gradual wear on capital goods during production

net income

(3) measure of business profits determined by subtracting all expenses, including taxes, from revenues

cooperative

(3) nonprofit association performing some kind of economic activity for the benefit of its members

chamber of commerce

(3) nonprofit organization of local businesses whose purpose is to promote their interestes

professional association

(3) nonprofit organization of professional or specialized workers seeking to improve working conditions, skill levels, and public perceptions of its profession

labor union

(3) organization that works for its members' interests concerning pay, working hours, health coverage, fringe benefits, other job related matters

interest

(3) payment made for the use of borrowed money; usually paid at periodic intervals for long-term bonds or loans

stockholder

(3) person who buys or sells securities for investors

collective bargaining

(3) process of negotiation between union and management representatives over pay, benefits, and job-related matters

income statement

(3) report showing a business's sales, expenses, and profits for a certain period, usually three months or a year

unlimited liability

(3) requirement that an owner is personally and fully responsible for all losses and debts of a business; applies to proprietorship, general partnerships

limited life

(3) situation in which a firm legally ceases to exist when an owner dies, quits, or a new owner is added; applies to sole proprietorships and partnerships

inventory

(3) stock of goods held in reserve; includes finished goods waiting to be sold and raw materials to be used in production

cash flow

(3) total amount of new funds the business generates from operations; broadest measure of profits for a firm, includes both net income and non-cash charges

partnership

(3) unincorporated business owned and operated by two or more people who share the profits and have unlimited liability for the debts and obligations of the firm; same as general partnership

charter

(3) written government approval to establish a corporation; includes company name, address, purpose of business, number of shares of stock, and other features of the business

credit union

(3, 11) nonprofit service cooperative that accepts deposits, makes loans, and provides other financial services

microeconomics

(4) branch of economic theory that deals with behavior and decision making by small units such as individuals and firms

demand

(4) combination of desire, ability, and willingness to buy a product

substitutes

(4) competing products that can be used in place of one another; products related in such a way that an increase in the price of one increases the demand for the other

change in demand

(4) consumers demand different amounts at every price, causing the demand curve to shift to the left or the right

diminishing marginal utility

(4) decreasing satisfaction or usefulness as additional units of a product are acquired

market demand curve

(4) demand curve that shows the quantity demanded by everyone who is interested in purchasing a product

demand curve

(4) graph showing the quantity demanded at each and ever possible price that might prevail in the market at a given time

demand schedule

(4) listing showing the quantity demanded at all possible prices that might prevail in the market at a given time

demand elasticity

(4) measure of responsiveness relating change in quantity demanded (dependable variable) to a change in price (independent variable)

change in quantity demanded

(4) movement along the demand curve showing that a different quantity is purchased in response to a change in price

complements

(4) products that increase the value of other products; products related in such a way that an increase in the price of one reduces the demand for both

law of demand

(4) rule stating that more will be demanded at lower prices and less at higher prices; inverse relationship between price and quantity demanded

marginal utility

(4) satisfaction or usefulness obtained from acquiring one more unit of a product

income effect

(4) that portion of a change in quantity demanded caused by a change in a consumer's real income when the price of a product changes

substitution effect

(4) that portion of a change in quantity demanded due to a change in the relative price of the product

elastic

(4) type of elasticity where the percentage change in the independent variable (usually price) causes a more than proportionate change in the dependent variable (usually quantity demanded or supplied)