Economics Ch.4
Economic costs
A payment that must be made to obtain and retain the services of a resource; the income a firm must provide to a resource supplier to attract the resource away from an alternative use; equal to the quantity of other products that cannot be produced when resources are instead use to make a particular product
Money
Any item that is generally acceptable to sellers in exchange for goods and services
Division of labor
The separation of the work required to produce a product into a number of different tasks that are performed by different workers; specialization of workers
"Invisible hand"
The tendency of firms and resource suppliers that seek to further their own self interest in competitive markets to also promote the interests of society
Economic profit
The total revenue of the firm less it's economic cost (which include both explicit costs and implicit cost); also called "pure profit" and "above normal profit"
Specialization
The use of the resources of an individual, the firm, a region, or nation to concentrate production on one or a smaller number of goods and services
Declining industry
An industry in which economic profits are negative (losses are incurred) and that will, therefore, decrease its output as firms leave it
Expanding industry
An industry where firms earn economic profits and for which an increase in output occurs as new firms enter the industry
Medium of exchange
Any item sellers generally excepted by is generally used to pay for a good or service; money; a convenient means of exchanging goods and services without engaging in barter
Consumer sovereignty
Determination by consumers of the types and quantities of goods and services that will be produced with the scarce resources of the economy; consumers direction of production through their dollar votes
Derived demand
The demand for a resource that depends on the demand for the product it helps to produce
Self interest
That which each firm, property owner, worker, and consumer believes is best for itself and seeks to obtain
Dollar votes
The "votes" that consumers in entrepreneurs cast for the production of consumer and capital goods, respectively, when they purchased those goods in product and resource markets
Guiding function of prices
The ability of price changes to bring about changes in the quantities of products and resources demanded and supplied
Roundabout production
The construction and use of capital to aid in the production of consumer goods
Barter
The exchange of one good or service for another good or service
Four fundamental questions
The four questions that every economy must answer: what to produce, how to produce it, how to divide the total output, and how to ensure economic flexibility
Freedom of enterprise
The freedom of firms to obtain economic resources, to use those resources to produce Products of the firms own choosing, and to sell their products and markets of their choice
Freedom of choice
The freedom of owners of property resources to employ or dispose of them as they see fit, a workers to enter any line of work for which they are qualified, and of consumers to spend their incomes in a manner that they think is appropriate
Creative destruction
The hypothesis that is that the creation of new products and production method simultaneously destroys the market power of existing monopolies
Normal profit
The payment made by a firm to obtain and retain entrepreneurial ability; the minimum income entrepreneurial ability must receive to induce it to perform entrepreneurial functions for a firm
Competition
The presence in a market of independent buyers and sellers competing with one another and the freedom of buyers and sellers to enter and leave the market
Private property
The right of private persons and firms to obtain, own, control, employee, dispose of, and bequeath land, capital, and other property
