Chapters 1-3: Basic Economic Concepts
voluntary exchange
act of buyers and sellers freely and willingly engaging in market transactions; a characteristic of capitalism and free enterprise
factor of production
also called "resource", productive resources needed to produce goods; the four factors are land, capital, labor, and entrepreneurship
need
basic requirement for survival, including food, clothing, and shelter
opportunity cost
cost of the next best alternative use of money, time, or resources, when one choice is made rather than another
profit
difference between the revenue from sales and the full opportunity cost of resources involved in producing the sales
profit motive
driving force that encourages people and organizations to improve their material well-being; characteristic of capitalism and free enterprise
communism
economic and political system in which the state as a whole owns and directs factors of production; a theoretically classless society in which everyone works for the common good.
command economy
economic system characterized by a central authority that makes most of the major economic decisions
socialism
economic system in which government owns some factors of production and has a role in deciding what and how goods are produced
capitalism
economic system in which private citizens own and use the factors of production in order to generate profits
traditional economy
economic system in which the allocation of scarce resources and other economic activity is the result of ritual, habit, or custom
mixed free enterprise economy
economic system that has some combination of traditional, command, and market economies;
mixed economies
economic system that has some combination of traditional, command, and market economies; also see modified free enterprise economy
Medicare
federal health insurance program for senior citizens, regardless of income
Social Security
federal program of disability and retirement benefits that covers most working people
scarcity
fundamental economic problem of meeting people's virtually unlimited needs and wants with scarce resources
private property rights
fundamental feature of capitalism, which allows individuals to own and control their possessions as they wish; includes both tangible and intangible property
consumer good
good intended for final use by consumers other than businesses
fixed income
income that does not increase over time
minimum wage
lowest legal wage that can be paid to most workers
free enterprise economy
market economy in which privately owned businesses have the freedom to operate for a profit with limited government intervention
factor market
market in which productive resources are bought and sold
market
meeting place or mechanism through which buyers and sellers of an economic product to come together; may be local, regional, national, or global
land
natural resources or "gifts of nature" not created by human effort; one of the four factors of production
population density
number of people per square mile of land area
economic system
organized way a society provides for the wants and needs of its people
labor
people with all their abilities and efforts; one of the four factors of production; does not include the entrepreneur
entrepreneurs
risk-taking individuals who introduce new products or services in search of profits; one of the four factors of production
consumer sovereignty
role of consumer as ruler of the market in determining the types of goods and services produced
economics
social science dealing with how people satisfy seemingly unlimited and competing needs and wants with the careful use of scarce resources
want
something we would like to have but is not necessary for survival
inflation
sustained rise in the general level of prices of goods and services
good
tangible economic product that is useful, transferable to others, and used to satisfy wants and needs
competition
the struggle among sellers to attract consumers
capital good
tool, equipment, or other manufactured good used to produce other goods and services; a factor of production
capital
tools, equipment, and factories used in the production of goods and services; one of the four factors of production; does not include the entrepreneur