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