Economics Vocabulary #1

Labor (human capital)

The quantity and quality of human effort available to produce goods and services.

Opportunity cost

The second-best alternative (or the value of that alternative) that must be given up when scarce resources are used for one purpose instead of another.

Economics

The study of how people make choices in an effort to meet unlimited wants and needs with limited resources.

Market failures

The systematic overproduction or underproduction of some goods and services that occurs when producers or consumers do not have to bear the full costs of transactions they undertake.

Redistribution of income

The transfer of income (in cash or in kind) through government taxation, spending and assistance programs targeted at particular income groups, and programs designed to provide training to workers or to encourage private investments in education or other kinds of human capital.

Voluntary exchange

Trading goods and services with other people because both parties expect to benefit from the trade.

Command economy

An economy in which most economic issues of production and distribution are resolved through central planning and control. Government answers the three basic economic questions.

Market economy

An economy that relies on a system of interdependent market prices to allocate goods, services, and productive resources and to coordinate the diverse plans of consumers and producers, all of them pursuing their own self-interest. Often called capitalism. Producers and consumers answer the three basic economic questions.

Economic growth

An increase in real output as measured by real GDP or per capita real GDP.

Consumer sovereignty

the situation in an economy where the desires and needs of consumers control the output of producers.

Land (natural)

"Gifts of nature" that can be used to produce goods and services.

Property rights

A basic institution in a market economy. It involves the right to exclusive use, legal protection against invaders and the right to transfer property to other.

Entrepreneurship

A characteristic of people who assume the risk of organizing productive resources to produce goods and services

Economic efficiency

A situation in which no one in a society can be made better off without making someone else worse off.

Specialization

A situation in which people produce a narrower range of goods and services than they consume.

Production possibilities curve (frontier)

A table or graph that shows the full employment capacity of an economy in the form of possible combinations of two goods, or two bundles of goods, that could be produced with a given amount of productive resources and level of technology.

Competition

Attempts by two or more individuals or organizations to acquire the same goods, services, or productive and financial resources.

Externalities

Economic side-effects or third-party effects.

Public goods and services

Goods and services, often supplied by the government, for which use by one person does not reduce the quantity of the good available for others to use, and for which consumption cannot be limited to those who pay for the good.

Capital (capital goods)

Man made tools used to produce other goods and services.

Factors of production

Productive resources used to produce the goods and services people want; Land, labor, capital and entrepreneurship.

Economic security

Protection against economic risks, such as unemployment, accidents on the job, business failures or natural disasters, over which people have little or no control.

Economic stability

The absence of excessive fluctuations in the economy.

Allocation

The action or process of distributing scarce resources

Marginal benefits

The additional gain from consuming or producing one more unit of a good or service.

Productivity

The amount of output (goods and services) produced per unit of input (productive resources) used.

Economic equity

The application of our concepts of what is "fair" or "unfair" and what is "right" or "wrong" to an economic policy.

Scarcity

The condition that exists because human wants exceed the capacity of available resources to satisfy those wants.

Profit motive

The desire to make money which motivates or causes people to work hard to produce goods and services.

Economic freedom

The freedoms of the marketplace--the freedom of consumers to decide how they wish to allocate their spending among various goods and services.

Marginal costs

The increase in a producer's total cost when it increases its output by one unit.

Standard of living

The level of subsistence of a nation, social class or individual with reference to the adequacy of necessities and comforts of daily life.

Government regulation

a law that controls the way a business can operate.

Mixed economy

an economic system combining private and public enterprise. Both government and producers and consumers answer the three basic economic questions.