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Unit 2

Producers and Consumers in a Market Economy

Positive Incentive A reward or other enticement that encourages a behavior (e.g., prize, wages).
Negative Incentive A penalty that discourages a behavior (e.g., library fine, parking ticket).
Consumer Sovereignty The concept that consumers rule and buyers ultimately determine which goods and services remain in production.
Comparative Advantage The ability to produce something at a lower opportunity cost than other producers face
Absolute Advantage The ability to produce something with fewer resources than other producers use
Factors of Production Resources that are categorized into natural resources, human resources, capital resources, and entrepreneurs.
Specialization The concentration of the productive efforts of individuals and firms on a limited number of activities
Entrepreneurs People who take calculated risks in order to start new businesses and develop innovative products and processes. A person who draws upon his or her skills and initiative to launch a new business venture with the aim of making a profit.
Costs An amount that must be paid or spent to buy or obtain something. The effort, loss or sacrifice necessary to achieve or obtain something. The money spent for the inputs used in producing a good or service (see cost of production).
Cost of Production Amounts paid for resources (land, labor, capital and entrepreneurship) used to produce goods and services.
Price The amount consumers pay when they buy a good or service; the amount a producer receives when they sell a good or service.
Revenue The income generated by the sale of goods and services (price × quantity).
Profit The amount remaining when all costs are subtracted from all revenues.
Productivity The amount of output (goods and services) produced per unit of input (productive resources) used.
Human Capital The health, education, experience, training, skills and values of people.
Technological Changes Improvements in a firm's ability to produce due to improved processes, methods and machines.
Gross Domestic Product The market value of all final goods and services produced in a country in a calendar year.
Gross Domestic Product per capita The market value of all final goods and services produced in a country in a calendar year divided by the total population.
Standard of Living The level of subsistence of a nation, social class or individual with reference to the adequacy of necessities and comforts of daily life.
Factor Market Markets for inputs used in the production process are called factor markets. These markets are where the factors of production (natural resources, labor, capital, and entrepreneurship) are bought and sold.
Created by: joyellec



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