scarcity. shortage capital physical capital human capital

Limited quantities of resources to meet unlimited wants

Scarcity

A situation in which a good or service is unavailable

Shortage

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

and services

Capital

All human-made goods that are used to produce other goods and

services; tools and buildings

Physical capital

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

Human capital

The most disable alternative given up as the result of a

decision

Opportunity cost

Level of economic prosperity

Standard of living

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

and services

Traditional economy

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

exchange in markets

Market economy

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

and services

Centrally planned economy

Economic system in which the central authority is in command of the

economy; a centrally planned economy

Command economy

Market-based economic system with limited government

involvement

Mixed economy

The struggle among producers for the dollars of consumers

competition

Term economist use to describe the self-regulating nature of the

marketplace

Invisible hand

The power of consumers to decide what gets produced

Consumer sovereignty

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

a society

Socialism

A political system characterized by a centrally planned economy with all economic

and political power resting in the hands of the central government

communism

The doctrine that states that government generally should

not intervene in the marketplace

Laissez faire

Property owned by individuals or companies, not by the government

of the people as a whole

Private property

The desire to own something and the ability to pay for it

demand

Consumers buy more of a good when its prince decreases and less when its price increases

Law of demand

The change in consumption resulting from a change in real

income

Income effect

A good that consumers demand less of when their incomes

increase

Inferior good

Two goods that are bought and used together

complements

Goods used in place of one another

substitutes

Describes demand that is not very sensitive to a change in

price

inelastic

Describes demand that is very sensitive to a change in price

elastic

The amount of goods abailable

supply

Tendency of suppliers to offer more of a good at a higher price

Law of supply

The amount a supplier is willing and able to supply at a certain

price

Quantity supplied

A measure of the way quantity supplied reacts to a change in

price

Elasticity of supply

The change in output from hiring one additional unity of

labor

Marginal product of labor

A level of production in which the marginal product of labor increases as the number of workers increases

Increasing marginal returns

A cost that does not change, no matter how much of a good is

produced

Fixed cost

The cost of producing one more unit of a good

Marginal cost

The cost of operating a facility, such as a store or factory

Operating cost

A government payment that supports a business of market

subsidy

Government intervention in a market that affects the production of a good

regulation

The point at which quantity demanded and quantity

supplied are equal

equilibrium

When quantity demanded is more than quantity supplied

Excess demand

When quantity supplied is more than quantity demanded

Excess supply

A maximum price that can be legally charged for a good or

service

Price ceiling

A minimum price for a good or service

Price floor

A price ceiling placed on rent

Rent control

Situation in which quantity supplied is greater than quantity demanded;

also known as excess supply

surplus

Situation in which quantity demanded is greater than quantity supplied; also

known as excess demand

shortage

A sudden shortage of a good

Supply shock

A system of allocating scarce goods and services using criteria other than price

rationing

Law in a city or town that designates separate areas for

residency and for business

Zoning law

The legally bound obligation to pay debts

liability

Payment other than wages of salaries

Fringe benefit

A partnership agreement

Articles of partnership

Act ordering common ownership interests, profit and loss sharing, and

shared management responsibilities in a partnership

Uniform Partnership Act (UPA

Partnership in which partners share equally in both

responsibility and liability

General paartnership

Partnership in which only one partner is required to be a

general partner

Limited partnership

Partnership in which all partners are limited partners

Limited liability partnership (LLP)

Money and other valuables belonging to an individual or

business

assets

A legal entity owned by individual stockholders

corporation

A certificate of ownership in a corporation

stock

Corporation that issues stock to only a few people, often family

members

Closely held corporation

Corporation that sells stock on the open market

Publicly held corporation

A formal contract to repay borrowed money with interest at

fixed intervals

bond

The combination of two or more firms competing in the same market

with the same good or service

Horizontal merger

The combination of two or more firms involved in the difference stages of producing the same good or service

Vertical merger

Business combination merging more than three businesses that

make unrelated products

conglomerate

Large corporation that produces and sells its goods and services

throughout the world

Multinational corporation (MNC)