Economic Systems/Scarcity and the Science of Economics

economy/economic system
An organized way of providing for the wants and needs of people
traditional economy
An economy in which the allocation of resources and nearly all other economic activity stems from ritual, habit, or custom
command economy
An economy in which a central authority makes most of the WHAT, HOW, and FOR WHOM decisions
market economy
An economy in which people and firms act in their own best interests to answer the WHAT, HOW, and FOR WHOM questions
Social Security
A federal program of disability and retirement benefits that covers most working people
inflation
A rise in the general level of prices
fixed income
An income that does not increase even though prices go up
capitalism
A system in which private citizens own the factors of production
free enterprise
Economy in which competition is allowed to flourish with a minimum of government interference
voluntary exchange
The act of buyers and sellers freely and willingly engaging in market transactions
private property rights
The privilege that entitles people to own and control their possessions as they wish
profit
The extent to which persons or organizations are better off at the end of a period than they were at the beginnning
profit motive
The driving force that encourages people and organizations to improve their material well-being
competition
The struggle among sellers to attract consumers while lowering costs
consumer sovereignty
The role of the consumer as ruler of the market
mixed economy/modified private enterprise economy
Economy in which people carry on their economic affairs freely but are subject to some government intervention and regulation
scarcity
The condition that results from society not having enough resources to produce all the things people would like to have
economics
The study of how people try to satisfy what appears to be seemingly unlimited and competing wants through the careful use of relatively scarce resources
need
A basic requirement for survival that includes food, clothing, and shelter
want
A way of expressing a need
factors of production
Resources required to produce things people would like to have; they include land, capital, labor, and entrepreneurs
land
Natural resources not created by humans
capital
The tools, equipment, machinery, and factories used in the production of goods and services
financial capital
The money used to buy the tools and equipment used in production
labor
People with all their efforts, abilities, and skills
entrepreneur
A risk-taker in search of profits who does something new with existing resources
production
The process of creating goods and services
Gross Domestic Product (GDP)
The dollar value of all final goods, services, and structures produced within a country’s borders in a 12-month period
economic product
A good or service that is useful, relatively scarce, and transferable to others
good
An item that is economically useful or satisfies an economic want
consumer good
An item intended for final use by individuals
capital good
A manufactured item used to produce other goods and services
service
Work that is performed for someone
value
A worth that can be expressed in dollars and cents
paradox of value
The situation in which some non-necessities have a much higher value than some necessities
utility
The capacity to be useful and provide satisfaction
wealth
The accumulation of those economic products that are tangible, scarce, useful, and transferable from one person to another
market
A location or other mechanism that allows buyers and sellers to exchange a certain economic product
factor market
A market where productive resources are bought and sold
product market
A market where producers sell their goods and services to consumers
economic growth
The increase in a nation’s total output of goods and services over time
productivity
A measure of the amount of output produced by a given amount of inputs in a specific period of time
division of labor
Work arranged so that individual workers do fewer tasks than before
specialization
Situation in which a factor of production performs tasks that it can do relatively more efficiently than others
human capital
The sum of the skills, abilities, health, and motivation of people
economic interdependence
Reliance on one another to provide the goods and services that people consume
trade-offs
Alternative choices
opportunity cost
The cost of the next best alternative use of money, time, or resources when one choice is made rather than another
production possibilities frontier
A diagram representing various combinations of goods and/or services an economy can produce when all productive resources are fully employed
cost-benefit analysis
A way of thinking about a problem that compares the costs of an action to the benefits received
free enterprise economy
System in which consumers and privately owned businesses, rather than the government, make the majority of the WHAT, HOW, and FOR WHOM decisions
standard of living
The quality of life based on possessions that make life easier