Econ Vocab 1-4

Durable Goods

A category of consumer goods, durables are products that do not have to be purchased frequently. Some examples of durables are appliances, home and office furnishings, lawn and garden equipment, consumer electronics, toy makers, small tool manufacturers, sporting goods, photographic equipment, and jewelry

Economic Interdependence

A characteristic of a society or macroeconomy with a high degree of division of labor, where people depend on other people to produce most of the goods and services required to sustain life and living.

Goods

A commodity, or a physical, tangible item that satisfies some human want or need, or something that people find useful or desirable and make an effort to acquire it. Goods that are scarce (are in limited supply in relation to demand) are called economic goods, whereas those whose supply is unlimited and that require neither payment nor effort to acquire, (such as air) are called free goods.'

Production Possibilities Frontier

A curve depicting all maximum output possibilities for two or more goods given a set of inputs (resources, labor, etc.). The PPF assumes that all inputs are used efficiently. A graph that describes the maximum amount of one good that can be produced for every possible level of production of the other good

Profit

A financial benefit that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs and taxes needed to sustain the activity. Any profit that is gained goes to the business's owners, who may or may not decide to spend it on the business. Money that remains after a business has paid for the expenses of running the business.

Nondurable Goods

A good which is immediately used by a consumer or which has an expected lifespan of three years or less. Examples of non-durable goods include food and clothing. . also called soft good.

Human Capital

A measure of the economic value of an employee's skill set. This measure builds on the basic production input of labor measure where all labor is thought to be equal. The concept of human capital recognizes that not all labor is equal and that the quality of employees can be improved by investing in them. The education, experience and abilities of an employee have an economic value for employers and for the economy as a whole. The collective value of the capabilities, knowledge, skills, life experiences, and motivation of an organizational workforce.

Specialization

A method of production where a business or area focuses on the production of a limited scope of products or services in order to gain greater degrees of productive efficiency within the entire system of businesses or areas. Many countries specialize in producing the goods and services that are native to their part of the world. This specialization is the basis of global trade as few countries produce enough goods to be completely self-sufficient. Goods and services are produced in better quality, quantity and speed when people focus on producing a few things instead of making everything they want by themselves.

Normative Economics

A perspective on economics that incorporates subjectivity within its analyses. It is the study or presentation of "what ought to be" rather than what actually is. Normative economics deals heavily in value judgments and theoretical scenarios. An approach to economics that analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe courses of action. Also called policy economics. Deals with value judgments. These statements are a matter of opinion and cannot be proven by reference to facts.

Incentive

A positive or negative environmental stimulus that motivates behavior.

Cost Benefit Analysis

A process by which business decisions are analyzed. The benefits of a given situation or business-related action are summed and then the costs associated with taking that action are subtracted. Some consultants or analysts also build the model to put a dollar value on intangible items, such as the benefits and costs associated with living in a certain town. Most analysts will also factor opportunity cost into such equations.

Nonrenewable Resources

A resource of economic value that cannot be readily replaced by natural means on a level equal to its consumption. Most fossil fuels, such as oil, natural gas and coal are considered nonrenewable resources in that their use is not sustainable because their formation takes billions of years.

Shortage

A situation where demand for a product or service exceeds the available supply. Possible causes of a shortage include miscalculation of demand by a company producing a good or service

Constant Opportunity Cost

A steady potential price to a business that occurs when a company does not take advantage of a feasible chance to earn profits. An example of a constant opportunity cost would be if funds and resources were allocated to one project, but could have been allocated to a second project instead. The opportunity cost would be the potential value of the second project to the company.

Renewable Resources

A substance of economic value that can be replaced or replenished in the same amount or less time as it takes to draw the supply down. Some renewable resources have essentially an endless supply, such as solar energy, wind energy and geothermal pressure, while other resources are considered renewable even though some time or effort must go into their renewal, such as wood, oxygen, leather and fish. Most precious metals are considered renewable as well; even though they are not naturally replaced, they can be recycled because they are not destroyed during their extraction and use.

Command Economy

A system where the government, rather than the free market, determines what goods should be produced, how much should be produced and the price at which the goods will be offered for sale. The command economy is a key feature of any communist society

Trade Off

A technique of reducing or forgoing one or more desirable outcomes in exchange for increasing or obtaining other desirable outcomes in order to maximize the total return or effectiveness under given circumstances. Sacrificing one good or service to purchase or produce another.

Invisible Hand

A term coined by economist Adam Smith in his 1776 book "An Inquiry into the Nature and Causes of the Wealth of Nations". Thus, the invisible hand is essentially a natural phenomenon that guides free markets and capitalism through competition for scarce resources. Turns self-directed gain into social and economic benefits for all

Economic Stability

A term used to describe the financial system of a nation that displays only minor fluctuations in output growth and exhibits a consistently low inflation rate. Economic stability is usually seen as a desirable state for a developed country that is often encouraged by the policies and actions of its central bank. Economic growth, rising national income, high employment, steadiness in the general level of prices

Allocative Efficiency

Allocative efficiency is achieved when the value consumers place on a good or service (reflected in the price they are willing to pay) equals the cost of the resources used up in production. Condition required is that price = marginal cost. When this condition is satisfied, total economic welfare is maximized. The Economy/producers produce only those types of goods and services that are more desirable in the society and also in high demand.

Productivity

An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in revenues and other GDP components such as business inventories. Is a measure of efficiency- the amount of output produced compared to the amount of input required in production.

Market Economy

An economic system in which economic decisions and the pricing of goods and services are guided solely by the aggregate interactions of a country's citizens and businesses and there is little government intervention or central planning. An economy in which decisions about production and consumption are made by individual producers and consumers.

Mixed Economy

An economic system that features characteristics of both capitalism and socialism. A mixed economic system allows a level of private economic freedom in the use of capital, but also allows for governments to interfere in economic activities in order to achieve social aims. This type of economic system is less efficient than capitalism, but more efficient than socialism. An economy in which private enterprise exists in combination with a considerable amount of government regulation and promotion.

Utility

An economic term referring to the total satisfaction received from consuming a good or service.

Factors of Production

An economic term to describe the inputs that are used in the production of goods or services in the attempt to make an economic profit. The factors of production include land, labor, capital and entrepreneurship.

Economic Growth

An increase in the capacity of an economy to produce goods and services, compared from one period of time to another. Increase in output or GDP

Money

An officially-issued legal tender generally consisting of currency and coin. Money is the circulating medium of exchange as defined by a government. Money is often synonymous with cash, including negotiable instruments such as checks. Assets that people are generally willing to accept in exchange for goods and services or for payment of debts

Traditional Economy

An underdeveloped economy in which communities use primitive tools and methods to harvest and hunt for food, often resulting in little economic growth. Traditional economies are often found in rural regions with high levels of subsistence farming. Countries that evolve their economies past the traditional level often develop into market economies or command economies. An economy in which production is based on customs and traditions and economic roles are typically passed down from one generation to the next.

Financial Capital

Borrowed sums or equity with which the firm's assets are acquired and its operations are funded. Money used to buy tools and equipment for production

Services

Intangible products such as accounting, banking, cleaning, consultancy, education, insurance, expertise, medical treatment, or transportation. No transfer of possession or ownership takes place when services are sold, and they (1) cannot be stored or transported, (2) are instantly perishable, and (3) come into existence at the time they are bought and consumed.

Division of Labor

Narrow specialization of tasks within a production process so that each worker can become a specialist in doing one thing, especially on an assembly line.

Law of Increasing Costs

The 'law of increasing costs' is an economic concept that states production costs will increase if maximum output efficiency has already been reached with fixed inputs i.e. overhead and other expenses. Once maximum efficiency of production is reached, the law of increasing costs states the cost to produce more will increase thereby lowering profit margin via increasing costs. Law that states that as we shift factors of production from making one good/service to another, the cost of producing the second item increases

Absolute Advantage

The ability of a country, individual, company or region to produce a good or service at a lower cost per unit than the cost at which any other entity produces that good or service. Entities with absolute advantages can produce a product or service using a smaller number of inputs and/or using a more efficient process than another party producing the same product or service.

Comparative Advantage

The ability of a firm or individual to produce goods and/or services at a lower opportunity cost than other firms or individuals. A comparative advantage gives a company the ability to sell goods and services at a lower price than its competitors and realize stronger sales margins

Productive Efficiency

The ability to produce a good using the fewest resources possible. Efficient production is achieved when a product is created at its lowest average total cost. Achieving as much output as possible from a given amount of inputs or resources

Marginal Benefit

The additional satisfaction or utility that a person receives from consuming an additional unit of a good or service. A person's marginal benefit is the maximum amount they are willing to pay to consume that additional unit of a good or service. In a normal situation, the marginal benefit will decrease as consumption increases.

Surplus

The amount of an asset or resource that exceeds the portion that is utilized. A surplus is used to describe many excess assets including income, profits, capital and goods. A surplus often occurs in a budget, when expenses are less than the income taken in, or in inventory when fewer supplies are used than were retained. A situation in which the quantity supplied is greater than the quantity demanded.

Scarcity

The basic economic problem that arises because people have unlimited wants but resources are limited. Because of scarcity, various economic decisions must be made to allocate resources efficiently.

Entrepreneurship

The capacity and willingness to develop, organize and manage a business venture along with any of its risks in order to make a profit. The most obvious example of entrepreneurship is the starting of new businesses. Assembling resources to produce new or improved products

Opportunity Cost

The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action.

Economic Equity

The situation in an economy in which the apportionment of resources or goods among the people is considered fair. Fair distribution of wealth/resources

Positive Economics

The study of economics based on objective analysis. Most economists today focus on positive economic analysis, which uses what is and what has been occurring in an economy as the basis for any statements about the future. An approach to economics that seeks to understand behavior and the operation of systems without making judgments. It describes what exists and how it works.

Barter

exchange (goods or services) for other goods or services without using money

Economics

the branch of knowledge concerned with the production, consumption, and transfer of wealth

Economy

the wealth and resources of a country or region, especially in terms of the production and consumption of goods and services. A system for producing and distributing goods and services to fulfill peoples' wants

Capital

wealth in the form of money or other assets owned by a person or organization or available or contributed for a particular purpose such as starting a company or investing