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JA Chp. 1-5

QuestionAnswer
Adam Smith The father of economics. Wrote “Wealth of Nations” which promoted “the invisible hand” theory.
Barter An exchange of goods and services without using money.
Benefits The gains that result when a choice is made.
Buying power The quantity of goods and services a person can buy with a given amount of money.
Capital The buildings, tools, and machines people create and use to produce final goods and services.
ceteris paribus Latin for “all else being equal”; a fundamental assumption in many economic models
Command economy An economic system in which the government holds most property rights.
Complementary goods Products that often are used together.
Consumption The process of using a product or service.
Costs The losses that result when a choice is made.
Demand Quantities of a particular good or service consumers are willing and able to buy at different prices at a particular time.
Diminishing marginal utility The point reached when an additional unit of a product consumed is less satisfying than the one before it.
Disincentive A negative or withdrawn reward.
Distribution The process of getting a product or service to consumers.
Economic equity A condition of economic fairness and impartiality.
Economic freedom A condition in which individuals and businesses have freedom of choice in employment, buying, selling, use of time, and other economically related decisions.
Economic growth A condition in which the output of goods and service in an economy increases over the period of a year.
Economic security A condition in which the basic needs of every person should be met.
Economics A social science that studies how people decide to use scarce resources to satisfy their wants.
Entrepreneurship The imagination, innovative thinking, and management skills needed to start and operate a business.
Equilibrium The price at which the amount supplied is equal to the amount demanded. Market-clearing price
Factors of production The land, labor, and capital resources used to produce goods and services.
Free enterprise The condition that allows people to freely make choices in their economic roles.
Full employment A condition in which almost all people in the labor force are able to find work.
Incentive A positive reward that results from making a choice or behaving in a certain way.
Inferior good A good for which quantity demanded falls as income increases.
Labor The physical and mental efforts people use to create goods and services.
Land Natural resources that are unaltered gifts of nature, such as soil, minerals, timber, and fresh water.
Law of demand An inverse relationship between the quantity demanded and the price of a product.
Law of supply A positive relationship between the quantity supplied and the price of the product.
Macroeconomics The study of the economy as a whole.
Marginal The extra or additional costs or benefits of a decision.
Marginal cost The additional cost of increasing one unit of production.
Market An arrangement that allows buyers and sellers to make exchanges.
Market competition Rivalry among businesses for resources and customers.
Market demand The total of all individual demands in a given market at a particular time.
Market economy An economy that relies on voluntary trade as the primary means of organizing and coordinating production.
Market supply The total of all individual suppliers’ products in a market at a particular time.
Market-clearing price The price at which the amount supplied is equal to the amount demanded. Equilibrium
Microeconomics The study of individual consumers and businesses.
Mixed economy An economic system that blends voluntary exchange, government command, and traditional elements of economic choice-making.
Money Anything that is generally accepted as payment for goods and services.
Normal good A good for which the consumer’s demand increases as income increases.
Opportunity cost The highest valued alternative given up as a result of making a choice.
Price ceiling A price set below equilibrium by the government
Price effect The inclination of people to buy less of something at higher prices than they would buy at lower prices.
Price elasticity of demand A measure of the impact of the price effect.
Price floor A price set above equilibrium by the government
Price stability An economic condition in which prices of goods, services, and resources do not fluctuate significantly, either up or down, in a short period of time.
Price system An arrangement that uses monetary prices as messages to facilitate exchanges between buyers and sellers.
Private property Resources and products owned by individuals or businesses.
Production A process that combines economic resources so the result is a good or service that is available for sale.
Profit A positive difference between total sales and total costs.
Public property Resources and products owned by government.
Rationing Distributing or allocating a product by a price system.
Scarcity An inequality that exists between wants and the resources available to satisfy them.
Shortage The difference between the amount supplied and the amount demanded when the asking price is less than a market-clearing price.
Specialization A process in which businesses and people focus on producing one or a few parts of an entire product.
Substitute A good or service that can replace another good or service.
Supply Quantities of a good or service that producers are willing and able to sell at different prices at a particular time.
Surplus The difference between the amount supplied and the amount demanded when the asking price is greater than a market-clearing price.
Trade Exchanging something for something else.
Traditional economy An economic system in which people rely on traditions or customs to make what, how, and for whom choices.
Utility The usefulness or satisfaction that consumers get from consuming goods and services.
Created by: pinetreeacademy
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