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