Key Term Definitions/Videos Explanations
Economics: The study of how individuals and societies seek to satisfy their needs and wants.
Needs: Products that are essential.
Universal Needs: Products that are essential for everyone.
Nonuniversal needs: Products that are essential to groups or individuals.
Wants: Non-essential products that individuals and/or societies desire.
Basic Ecnomic Truth: There are not enough resources to satisfy everyone's wants and some people do not even get their needs.
Rational Self Interest: In making choices, people will choose the alternative that has the greatest net benefit.
Macroeconomics: The study of economics relevant to complete economic systems.
Microeconomics: The study of economics relevant to individuals, families, and businesses.
Scarcity: Limited quantities of resources to meet unlimited needs and/or wants because they are rare.
Shortage: When the excess demand/ scarcity is the result of low prices.
Products: The goods and services produced by businesses.
Goods: Physical items such as a desk, a chair, a pencil, or a pen.
Services: Actions that individuals perform for others such as the dentist that cleans your teeth, the teacher that educates you
Standard of Living: How well a society satisfies its need and wants.
Gross Domestic Product "GDP": The value of all the goods and services produced by a nation.
Per-Capita "GDP": The value of all the goods and services produced by a nation divided by its population.
Market: A place where a transaction takes place between a buyer and a seller.
Self-interests: Doing something for one's own personal gain. Seeking rewards while avoiding punishments.
Incentives: An expectation that encourages or motivates people to behave a certain way.
Free Transactions: A transaction between two or more parties that is not coerced. Each parties having the right to say no. The motivation being increased satisfaction for all parties.
Quotas: Limitations on imported goods.
Tariffs: Taxes on imported goods.
Globalization: Increasing economic interdependency and relationships of various systems and societies.
Trade deficit: The net excess value of imports in comparison to exports. (How much more we import than we export.)
Trade offs: All the possible choices and options that you have when making a choice.
Opportunity Cost: The next best alternative or next most satisfying choice sacrificed when a choice is made?
Guns or Butter: The choice that the government makes between allocating scarce resources to satisfying either the military or the non-military needs and wants of our society (nation).
Probability: Something that has a reasonable chance of happening/occurring.
Possibility: Something that while highly unlikely could conceivably happen/occur. For example: Mr. Lopez dating Shakira.
Household: One or more people living together
Business: The producer of goods and/or services.
Profit: The net gain or satisfaction that results from a transaction, not always financial.
Institutions: Organizations primarily government that determine the economic system and incentives that control behavior. (Also includes culture, religions, morality, superstitions.)
Positive incentive: The expectation of a reward or profit that encourages or motivates people to behave a certain way
Negative incentive: The expectation of a punishment or cost that encourages or motivates people to behave a certain way
Sunk costs: Costs that have already been incurred.
Factors of Production: The three types of resources , land , labor, and capital that are used to produce all goods and services.
Land: Natural resources that are used to produce goods and services.
Labor: The efforts of people devoted to a task for which they are compensated.
Capital: Human made resources that are used to produce goods or services.
Human Capital: The knowledge and skills gained by experience or from education.
Physical Capital: Human made goods that are used to produce goods and services.
Factor market: Market where businesses purchase factors of production from households.
Product market: Market where households purchase products (goods and services) from businesses.
Factor Payments: The monies received by the households for selling their factors of production in the factor market. Examples: Rent, salaries, wages, interests, and dividends
Land: Land and natural resources.
Labor: The physical efforts of individuals.
Capital: Man-made goods and/or knowledge and skills.
Human capital: Knowledge and skills acquired from education or experience.
Physical goods: Man made products
Economic System: The method used by a society in seeking to satisfy its needs and wants.
Intermediaries: Third parties that facilitate transactions in a market.
Specialization: The concentration of the productive efforts of individuals and/or businesses on a limited number of tasks.
Thinking at the Margin: Making decisions in increments or units. For example, should I study another hour? Should we hire another worker?
Marginal Benefit: The benefit of an additional increment or worker. For example, what is the benefit of remaining in Iraq another day.
Marginal Cost: The cost of an additional increment or unit. For example, the cost of hiring an additional worker.
Net Marginal Benefit: The profit from additional unit or increment . (MB-MC=NMB)
Law of Diminishing Returns: The tendency that with each additional increment or unit, the marginal benefit declines. For example , I initially enjoyed listening to Cher but after hearing the song three times, I could not stand hearing it again.
Utility: The satisfaction derived from a good or service.
Production Possibilities Schedule: A table showing the different combinations of two products that can be produced.
Production Possibilities Graph: A graph illustrating the different combinations of two products that can be produced.
Law of Increasing Cost: Producing a increasing quantity of one product will result in an increasing opportunity cost of another.
Centrally Planned System: A socialist economic system that provides for the government to make the important economic decisions.
Free Market Economy: A capitalist economic system in which most economic decisions occur as a result of transactions in markets.
Mixed Market System: A capitalist economic system in which most economic decisions occur as a result of transactions in markets subject to government regulations.
Socialism: Those economic systems based upon the government making important economic decisions. These systems believe the market cannot be trusted to make decisions in the best common interests.
Public goods: Shared goods and services that can be most efficiently provided by the government.
Free Rider: Someone who would not choose to pay for a benefit that they would get anyway.
Capitalism: Economic systems where decisions are made in the marketplace and that are based upon four principles: The Rule of Law, Entrepreneurship, Private Property Rights, and the Free Transaction.
Consumer Sovereignty: The idea that the consumer in a free or mixed economic system determines which goods and services are produced by voting with their money.
Invisible Hand: The self regulating nature of the free market.
Inferior goods: Goods we would not purchase if we had more money.
Normal goods: Goods that we would purchase if we had more money.
Marking Clearing Price: The price at which both the buyer and seller are most satisfied and transactions occur most efficiently.
Rule of Law: The principle that all are equally subject to the law.
Private Property: Property that belongs to individuals and/or businesses.
Socialism: Economic systems that are based upon having the government "participate" in many economic decisions seeking the common good.
Marginal Benefit and Marginal Cost
Normal versus Inferior Products
Understanding Fiscal Policy
Fiscal Policy: Actions taken by the government with regards to the economy: Examples: Increase or decrease taxes and/or tax credits and increase or decrease government spending.
Monetary Policy: Actions taken by the Federal Reserve Bank ("The FED") with regards to the economy. Examples: Increase or decrease interest rates, increase or decrease the money supply.
Federal Reserve Bank ("the FED"): The Central Bank of the United States, the bank of the government and the bank for banks.
Inflation: A general increase in prices.
Deflation: A general decrease in prices.
Entrepreneur: A person who takes a risk to start a business hoping to make a profit.
Free Rider or Free loader: Someone who would not choose to pay for a good or service but would get the benefits of it anyway.
Externality: An economic side effect of a good or service that generates cost or benefits to another third person.
Positive externality: The positive benefit generated to another person by the production of a good or service.
Negative externality: The negative cost generated to another person by the production of a good or service.
Cartel: A group of businesses producing the same good or service attempting to control the market price of their product.
Collusion: An agreement by a group of businesses to divide the market and/or set prices for their product.
Demand: The desire to own something and the ability to pay for it.
Law of Demand: If the price increases the quantity demanded decreases OR if the price decreases than the quantity demanded will increase.
Income or Wealth Effect: If a person feels poorer they will spend less OR if a person feels richer they will spend more.
Substitution Effect: Consumers will react to an increase in the price of a good by purchasing less of that good and more of another that can be used in place of the first good.
Substitutes: Goods that can be used in lieu or in place of each other.
Complementary Goods: Goods that are purchased to be used together.
Elasticity of Demand: A measure of how consumers will react to a change in price.
Inelastic: Demand that is not sensitive to price. (Consumers will still buy it even at the higher price)
Elastic: Demand that is sensitive to price. (If the price increases consumers will reduce the quantity demanded)
Individual Demand Schedule/Graph: A table/graph that shows the quantity that an individual (one person) will demand at various prices.
Market Demand Schedule/Graph: A table/graph that shows the quantity that a market (group of people) will demand at various prices.
Supply: The amount of products (goods and/or services) available
Law of Supply: If the price increases the quantity supplied increases OR if the price decreases the quantity supplied decreases.
Elasticity of Supply: A measure of how businesses will respond to a change in price.
Fixed costs: A cost that does not change.
Variable costs: A cost that increases or decreases depending on the level of production.
Production costs: The cost of producing a good or service.
Subsidy: A payment by the government to a business.
Excise tax: A tax of a good or service.
Individual Supply Schedule/Graph: A schedule/graph showing the quantity supplied by one business at various prices.
Market Supply schedule/Graph: A schedule/graph showing the quantity supplied by a group of businesses at various prices.
Equilibrium: When the quantity demanded is equal to the quantity supplied.
Disequilibrium: When the quantity demanded is NOT equal to the quantity supplied.
Price: The compensation given for a good or service.
Competition: Rivalry between businesses for consumers' dollars.
Price ceiling: The maximum price that can legally be charged for a good or service. Example: Rent control.
Price Floor: The minimum price that can legally be paid for a good or service. Example: Minimum wage.
Underutilization: When an economy is not producing to its full capability. On a production possibilities gtraph it is any point below the line.
Entrepreneurship: The ability to take a risk to start a business hoping to make a profit.