Fundamental Economics Vocabulary

ScarcityO The fact that resources are limited. O Examples of Scarcity: water, oil,

fertile soil

Factors of ProductionO Resources used to make goodsO Goods are items sold in a marketO Examples: Land, labor, capital, and

entrepreneurship

Land O Natural resources used in productionO Includes the land where a factory is

setO Examples: 1) Trees to make paper, 2)

cocoa to make chocolate bars

LaborO The contribution of human workers

to the production process. O Example: 1) Miner for the gold trade,

2) Cashier for McDonalds

CapitalO All the structures and equipment

involved in the manufacturing process.

O Examples: 1) Robots in the manufacturing of cars, 2) Plastic in the production of Coca-Cola

EntrepreneurshipO Creative, managerial, and risk-taking

capabilities that are involved in starting up and running a business.

O Examples: Steve Jobs for Apple, Bill Gates for Microsoft

Opportunity CostO The BEST option you lose when you

make a decision.O Examples: You have decide between

studying for a test and going to a party. You decide to go to the party, your opportunity cost is a good grade on a test.

Production Possibilities Curve

O A graphical measure that calculates opportunity cost.

SpecializationO A method of production where a

business focuses on the production of a specific part of production.

O Example: Country A makes tires and sells it Country C. Country B makes windows and sells it to Country C. Country C gathers these goods to make a car.

Voluntary ExchangeO Part of the economy where buyers

and sellers freely deal with each other.

Command EconomyO An economy where the government

controls all factors of production and economic decision

O Examples: Cuba, North Korea, Soviet Union

Market EconomyO An economy where consumers and

producers have control of all economic decisions.

O Examples: Hong Kong, United States before 1890

Mixed EconomyO An economy where consumers and

producers make economic decisions that follow government regulations/restrictions.

O Examples: United States, United Kingdom, France, Canada

Profit MotiveO The main incentive for entrepreneurs

to start a business is to make money.

Consumer SovereigntyO Customers having the freedom to

choose what they buy. O Example: You want shoes, you have

the choice to buy Nike, Adidas, Reebok, Timberlands, etc.

CompetitionO Rivalry between sellers for market

share.O Examples: Coke v Pepsi, Apple v

Samsung, McDonald’s v Burger King

Factor MarketO The part in the circular flow model

where resources (factors of production) are used to make goods.

Product MarketO The part in the circular flow of

economics where goods are bought and sold.

AllocationO To distribute resources such as land,

labor, capital.O Example: I need to create a book, I

get one person to write it, one person to print it, one person to publish it.

Trade-OffO Giving up something for something

else.O Example: I give you money, you give

me a phone. I give you a video game, you give me a different video game.