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Fundamental Terms

Armuchee Fundamental Economic Terms

Limited quantities of resources to meet unlimited wants Scarcity
The most desirable alternative given up as the result of a decision. Opportunity cost
All of the alternatives we give up when we make a decision. Trade-offs
Natural resources that are used to make goods and services. Land
The effort that people devote to a task for which they are paid. Labor
Any human made resource that is used to create other goods or services. Capital
An individual who combines land, labor, and capital in order to produce a good or service. Entrepreneurship
The benefit gained from producing one more unit of a good. Marginal benefit
The cost of producing one more unit of a good. Marginal cost
Visually shows the alternative ways to use an economy’s resources. Production possibilities curve
The concentration of the productive efforts of individuals and firms on a limited number of activities. Specialization
When people decide what and when they want to buy and sell. Voluntary exchange
System in which the central government makes all decisions on productions and consumption of goods. Command economy
System in which decisions on the production and consumption of goods and services are based on voluntary exchange. Market economy
System that combines free market ideas with government involvement. Mixed economy
Owned by individuals or companies, not the government. Private property
The force that encourages people or organizations to improve their material well being. Profit motive
The power of the people to decide what gets produced. Consumer sovereignty
Rivalry of sellers to attract customers while lowering costs. Competition
Government intervention in a market that impacts the production of a good or service. Government regulation
Removal of government controls in the market place. Government deregulation
The opportunity to make our own choices without government interference. Economic freedom
Helping to provide for some people through social programs (safety net). Economic security
Creating a society that is just and fair. Economic equity
Having an expanding economy that supports an increase in production, jobs, and wealth. Economic growth
Using our limited resources wisely and efficiently. Economic efficiency
Creating a society that avoids extreme ups and downs in the standard of living. Economic stability
Shared good or service for which it would be impractical to make consumers pay individually and exclude non-payers. Public goods
How a nation’s total income is distributed among its population. Income redistribution
Value of output produced. Productivity
Level of economic prosperity. Standard of living
The factors of production that go into producing a final good or service. Inputs
The final good or service that is produced. Outputs
The trade-off that nations face when choosing whether to produce more or less military or consumer goods. Guns & Butter
Something that is necessary for survival (air, food shelter). Need
Goods and services that we desire but are not necessary to our survival. Want
The resources that are used to make all goods and services. Factors of production
All manufactured resources used to produce other goods and services (i.e. buildings, manufacturing equipment). Physical Capital
Accumulated training and education of workers. Human Capital
The use of goods and services for personal satisfaction Consumption
The ability to produce a good or service at a lower opportunity cost Comparative Advantage
The ability to produce more of a good or service than another. Absolute Advantage
Assigning different workers different tasks to produce a good or service Division of Labor
Must know what you are getting (not tricked or deceived) Non-fraudulent
When a market does not distribute resources efficiently. Market Failure
Unintended side effect of doing business either positive or negative. Externality
Created by: Armuchee
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