1. Economics

The study of how people seek to satisfy their needs and wants by making choices

2. Scarcity

Limited quantities of resources to meet unlimited wants

4. Factors of production

Land, labor, or capital; The three groups of resources that are used to make all goods and services

5. Land

Natural resources that are used to make goods and services

6. Labor

The effort that people devote to a task for which they are paid

7. Capital

Any human-made resource that is used to create other goods or services

8. Physical Capital

All human-made goods that are used to produce other goods and services; tools and buildings

9. Human Capital

The skills and knowledge gained by a worker through education and experience

10. Entrepreneur

Ambitious leader who combines land, labor, and capital to create and market new goods or services

11. Guns or Butter

A phrase that refers to the trade-off that nations face when choosing whether to produce more or less military or consumer goods

12. Production-Possibilities Curve

A curve that shows alternative ways to use an economy’s resources

13. Cost-Benefit Analysis

The process by which business decisions are analyzed to determine the “worth” of the economic decision

14. Efficiency

Using resources in such a way as to maximize the production of goods and services

15. Cost

An alternative that is given up as the result of a decision

16. Economic System

The method used by a society to produce and distribute goods and services

17. Standard of Living

Level of economic prosperity

18. Traditional Economy

Economic system that relies on habit, custom, or ritual to decide questions of production and consumption of goods and services

19. Market Economy

Economic system in which decisions on production and consumption of goods and services are based on voluntary exchange in markets

20. Centrally Planned Economy

Economic system in which the central government makes all decisions on the production and consumptions of goods and services

21. Command Economy

Economic system in which the central government makes all decisions; (Same as Centrally Planned Economy)

22. Mixed Economy

Economic system that combines the free market with limited government involvement

23. Specialization

The productive efforts of individuals and firms on a limited number of activities

24. Household

A person or group of people living in the same residence

25. Firm

An organization that uses resources to produce a product, which it then sells

28. Self-Interest

One’s own personal gain

29. Incentive

An expectation that encourages people to behave in a certain way

30. Competition

The struggle among producers for the dollars of consumers; the rivalry among sellers to attract customers while lowering costs

31. Invisible Hand

The term economists use to describe the self-regulating nature of the market place

32. Consumer Sovereignty

The power of consumers to decide what gets produced

33. Socialism

A social and political philosophy based on the belief that democratic means should be used to evenly distribute wealth throughout society

34. Communism

A political system characterized by a centrally planned economy with all economic and political power resting in the hands of the central government

35. Authoritarian

Requiring strict obedience to an authority, such as a dictator

36. Collective

A large farm leased from the state to groups of peasant farmers

37. Heavy Industry

Industry that requires a large capital investment and that produces items used in other industries

38. Laissez-Faire

The doctrine that states that government generally should not intervene in the market place

39. Free Enterprise

An economic system characterized by private or corporate ownership of capital goods; investments that are determined by private decision rather than by state control; determined in a free market

40. Privatize

To sell to individuals state-run firms which are then allowed to compete with one another in the market place

41. Private Property Rights

The concept that people have the right and privilege to control their own possessions as they wish

43. Technology

The process used to produce a good or service

44. Public Sector

The part of the economy that involves the transactions of the government

45. Private Sector

The part of the economy that involves the transactions of individuals and businesses