Basic Economic Terms
PACED
acronym to remember the steps of the decision-making process
traditional economy
economic system where all economic questions are answered the same way they always have been
market economy
economic system where individuals own all the economic resources and answer the economic questions
command economy
economic system where the government owns all the economic resources and answers the economic questions
mixed economy
economic system which combines elements of market and command economies
human resources
people who produce goods and services (type of economic resource)
consumer
people who satisfy their wants by using goods and services. Consumers are people who buy goods and services.
market price
point where supply and demand are equal
economic decision-making
process of choosing which wants will be satisfied
capital resources
products and money used to convert natural resources into products; includes tools, money and buildings
demand
quantity of a good or service that consumers are willing and able to buy
supply
quantity of a good or service that consumers are willing and able to produce
natural resources
raw materials supplied by nature with no human alterations
freedom of choice
right to make your own decisions and accept all the consequences
private property
right to own, use and dispose of things of value
entrepreneur
risk taker who uses resources in an entirely new way to create a new product or service
competition
rivalry among similar businesses to sell goods and services
how to produce
second of the three economic questions
alternatives
second step of the decision-making process; list the possible alternatives
services
something that one person does for someone else
producer
Combine productive resources to make good and provide services. Producers are people who make goods or provide services.
communism
a form of a command economy
capitalism
a synonym for market economy; private ownership of resources by individuals; also known as free enterprise or private enterprise
decide
fifth step of the decision-making process; go through with your decision - make a choice
what to produce
first of the three economic questions
define the problem
first step of the decision-making process
evaluate
fourth step of the decision-making process; select the option you think is best
tradeoff
getting a little less of one thing in order to get a little more of another. EX. You decide to buy baseball cards but end up buying candy instead.
review your decision
last step of the decision-making process; reflect on what happened to know if you made the right decision
profit
money left from sales after all expenses are paid
scarcity
not being able to have everything that you want. forces us to make choices - cause of the basic economic problem
opportunity cost
the value of the next-best alternative that you did not choose - what you may have to give up to get or purchase something else. EX. June wants to buy a soccer ball and a pair of shoes. He decides to buy the shoes, so the soccer ball is the opportunity cost.
needs
things that people must have to live - such as food
wants
things that people would like to have but could live without - such as a TV
goods
things you can see and touch
what needs and wants will be satisfied
third of the three economic questions
criteria
third step of the decision-making process; list the advantages and disadvantages of each option based on your expectations