Chapter 18 - What Is Economics?

Market Economy

A system in which individuals own the factors of production and make economic decisions through free interaction.

Capitalism

A system in which private citizens own most, if not all, of the means of production and decide how to use them within legislated limits.

Wants

Things that we would like to have, such as entertainment, vacations, and items that make life comfortable and enjoyable.

Scarcity

Not having enough resources to produce all of the things we would like to have.

Rational Choice

Choosing the alternative that has the greatest value from among comparable-quality products.

Cost-Benefit Analysis

Economic model that compares the marginal costs and marginal benefits of a decision.

Needs

Requirements for survival, such as food, clothing, and shelter.

Economic Model

Simplified representation of the real world that economists develop to describe how the economy behaves and is expected to perform in the future.

Marginal Benefit

The additional or extra benefit associated with an action.

Marginal Cost

The additional or extra opportunity cost associated with an action.

Trade-Off

The alternative you face if you decide to do one thing rather than another.

Opportunity Cost

The cost of the next best alternative use of time and money when choosing to do one thing rather than another.

Economics

The study of how individuals and nations make choices about ways to use scarce resources to fulfill their needs and wants.

Free Enterprise

Economic system in which individuals and businesses are allowed to compete for profit with a minimum of government interference.

Incentive

A reward offered to try to persuade people to take certain economic actions.