| A | B |
|---|
| absolute advantage | Where a country is able to produce more output than other countries using the same input of factors of production. |
| allocative efficiency | The amount of production that benefits society the most. It is achieved when the marginal benefit of production equals the marginal cost. Also known as the socially optimal level of output. A society is allocatively efficient when it is choosing to make the mix of goods that best satisfy the wants of its population. |
| basic economic problem | What to produce, how to produce, and who to produce for? |
| capital | Human-made resources used to produce goods and services. The tools, machines, factories, and buildings used to produce goods and services. Includes physical capital, which ranges from hammers to industrial robots and human capital, which is the know-how or specialized skills that get combine with labor through education and training. |
| capital goods | Human-made resources used to produce goods and services. |
| ceteris paribus | All other things equal – the assumption that all other things are held equal, or constant, except those under study. Ceteris paribus allows economists to understand the relationship between economic variables. As in science, economists like to isolate one factor that mau be changing at a given time to better understand cause and effect. |
| circular flow diagram | A diagram showing the flow of payments and receipts between domestic firms and domestic households. Money passes from households to firms in return for goods and services. Money passes from firms to households in return for the factors of production provided by households. Circular flow models help visualize how spending becomes income and how market types relate to one another. Complex versions of the circular flow can include activities of government and international trade. |
| command economy | An economic system in which the government controls the factors of production and makes all decisions about their use and about the distribution of income. The government decides what to produce, how to produce, and for whom to produce. Often contrasted with market economy because these are the two basic extremes; societies can choose strategies for managing the scarcity problem that place them along the spectrum between these two extremes. |
| comparative advantage | Where a country is able to produce a good at a lower opportunity cost of resources than another country. Having comparative advantage in production of a good is the basis of the economic arguement for why specialization and trade can benefit two individuals or societies. |
| consumer goods | Products and services that satisfy human wants directly. |
| economic growth | An increase in the actual level of output of goods and services produced by an economy. |
| economic system | A particular set of institutional arrangements and a coordination mechanism for solving the basic economic problem. |
| economics | The study of how to best allocate scarce resources amongst unlimited wants. It is based on the assumption that people are rational and make rational choices. |
| economist | An individual who studies economics. |
| entrepreneur | An individual who possesses the factor of production called entrepreneurship. Entrepreneurs run firms that attempt to maximize profit. |
| entrepreneurship | The human resource that combines the other factors of production to produce goods and services. The special ability of some individuals to take risks and combine land, labor, and capital in new ways inorder to make profits by providing a good or service instead of selling their labor to an employer. |
| factors of production | The resources of society used in the process of production (land, labor, capital, entrepreneurship). |
| labor | People's physical and mental talents and efforts that are used to help produce goods and services. |
| land | Natural resources used to produce goods and services. An economist's definition of land includes land area and the minerals, oil, timber, and other useful materials that the land provides. Sometimes it is used so broadly as to be nearly synonymous with raw materials. |
| macroeconomics | The study of the behavior of the economy as a whole. |
| marginal analysis | The comparison of marginal benefits and marginal costs, usually for decision making. |
| marginal benefit | The additional benefit of consuming 1 more unit of good or service – OR – the change in total benefit when 1 more unit is consumed. |
| marginal cost | The additional cost of producing 1 more unit of output – OR – the change in total cost when 1 more unit is produced. |
| market | A forum for interactions between demanders wishing to make purchases and suppliers wishing to make sales. Markets exist wherever buyers and sellers meet to exchange goods, services, or the factors of production. |
| market economy | An economic system in which individuals own the factors of production and decide individually how to use them. It relies on individual's pursuing their own self-interest in the market. Market economies use priced to guide production decisions in a decentralized manner. Buyers ""vote"" with their spending dollars, making goods more expensive, thereby encouraging producers to make more of goods that are more desired and useful. |
| microeconomics | The study of the behavior of individual consumers, firms, and markets. |
| opportunity cost | The cost of any activity measured in terms of the best alternative activity which is forgone. It includes explicit costs (money payments made) and implicit costs (nonmonetary costs or sacrifices). |
| production possibilities curve | A diagram showing the different combinations of two goods or services that can be produced when fully using all factors of production. Also known as pruduction possibilities frontier. |
| productive efficiency | The condition that exists when the least amount of waste happens in producing as much output as possible. When society is using all its resources to produce goods and services, it is productively efficient. |
| scarcity | The state in which wants exceed the amount that available resources can produce. The fundamental problem of economics. |
| specialization | The use of the resources of an individual, a firm, a region, or a nation to concentrate production on one or a small number of goods and services (and trading them for other goods and services). Specialization is based on comparative advantage. |
| terms of trade | The rate at which people trade two goods. The ratio or ""real price"" for which one good can be purchased for units of another. |
| the invisible hand | The tendency of individual customers and firms that seek to further their own self-interests in competitive markets to also promote the interests of society. |
| trade-off | An alternative use for scarce factors of production. Trade-offs are a result of scarcity and inherently connected to the making of choices. |
| underutilization | When the factors of production are not being fully utilized to maximize production. |
| utility | The happiness a consumer obtains from the consumption of a good or service. |
