| Term | Definition |
|---|---|
| factors of production | The resources used to produce goods and services, including land, labor, capital, and entrepreneurship. |
| full employment | An economic condition where all available resources are being used efficiently to produce the maximum level of output. |
| production possibilities curve | A model that shows the maximum combinations of two goods or services an economy can produce with available resources and technology, illustrating trade-offs in resource allocation. |
| scarcity | The fundamental economic problem that arises because most resources are limited while human wants and needs are unlimited, forcing individuals and societies to make choices. |
| Term | Definition |
|---|---|
| command economy | An economic system in which the government or central authority makes decisions about resource allocation, production, and distribution of goods and services. |
| coordinating mechanism | The method or process by which an economic system makes decisions about resource allocation and the production and distribution of goods and services. |
| economic system | A set of institutional arrangements and coordinating mechanisms that a society uses to allocate scarce resources and distribute output. |
| institutional arrangements | The formal and informal rules, organizations, and structures that coordinate economic activity within an economic system. |
| market economy | An economic system in which resource allocation and production decisions are determined primarily by supply and demand through price mechanisms and voluntary exchange. |
| mixed economy | An economic system that combines elements of both market and command economies, with both private enterprise and government involvement in resource allocation. |
| resource allocation | The process of distributing scarce resources and determining what goods and services to produce, how to produce them, and who consumes them. |
| scarce resources | Productive inputs and materials that are limited in supply relative to the demand for them, requiring allocation decisions. |
| Term | Definition |
|---|---|
| constant opportunity costs | A situation where the opportunity cost of producing one good remains the same regardless of the quantity produced, resulting in a linear PPC. |
| decreasing opportunity costs | A situation where the opportunity cost of producing one good decreases as more of that good is produced, resulting in a bowed-in PPC. |
| economic contraction | A decrease in the economy's productive capacity, represented by an inward shift of the production possibilities curve. |
| economic growth | An increase in the economy's productive capacity, represented by an outward shift of the production possibilities curve. |
| efficiency | A market outcome where resources are allocated to maximize total surplus and no mutually beneficial trades remain unexploited. |
| factors of production | The resources used to produce goods and services, including land, labor, capital, and entrepreneurship. |
| increasing opportunity costs | A situation where the opportunity cost of producing one good increases as more of that good is produced, resulting in a bowed-out PPC. |
| inefficiency | A situation where resources are not being used optimally, resulting in production at a point inside the production possibilities curve. |
| opportunity cost | The value of the next best alternative that must be given up when making an economic choice. |
| production possibilities curve | A model that shows the maximum combinations of two goods or services an economy can produce with available resources and technology, illustrating trade-offs in resource allocation. |
| productivity | The output produced per unit of factor input, which influences a firm's decision to hire factors of production. |
| scarcity | The fundamental economic problem that arises because most resources are limited while human wants and needs are unlimited, forcing individuals and societies to make choices. |
| technology | Methods and tools used in production that can affect the efficiency and cost of producing goods, thereby influencing supply decisions. |
| trade-offs | The choices involved in selecting between competing alternatives, where gaining more of one thing requires giving up some of another. |
| underutilized resources | Resources that are not being used to their full productive capacity, represented by points inside the PPC. |
| Term | Definition |
|---|---|
| absolute advantage | A situation in which an individual, business, or country can produce more of a good or service than any other producer with the same quantity of resources. |
| comparative advantage | A situation in which an individual, business, or country can produce a good or service at a lower opportunity cost than another producer. |
| consumption possibilities | The combinations of goods and services that a consumer or economy can afford to consume given available resources and trade opportunities. |
| gains from trade | The economic benefits that result when producers specialize according to comparative advantage and engage in mutually beneficial exchange. |
| mutually beneficial trade | Exchange between parties where both parties gain from the transaction, with each party obtaining goods at a lower opportunity cost than if produced domestically. |
| opportunity cost | The value of the next best alternative that must be given up when making an economic choice. |
| production possibilities curve | A model that shows the maximum combinations of two goods or services an economy can produce with available resources and technology, illustrating trade-offs in resource allocation. |
| specialization | The concentration of productive effort on a limited number of goods or services in which a producer has comparative advantage. |
| terms of trade | The rate at which one good or service is exchanged for another in trade between producers or countries. |
| Term | Definition |
|---|---|
| explicit costs | Direct, out-of-pocket monetary payments made for resources and inputs used in production. |
| implicit costs | Opportunity costs of using resources owned by the firm that do not involve direct monetary payments, such as the cost of financial capital, compensation for risk, or an entrepreneur's time. |
| marginal benefits | The additional benefit or satisfaction gained from consuming or producing one more unit of a good. |
| marginal costs | The additional cost incurred from producing one more unit of output. |
| opportunity cost | The value of the next best alternative that must be given up when making an economic choice. |
| optimal choice | The decision that maximizes total net benefits by producing the greatest difference between total benefits and total costs. |
| rational agents | Economic decision-makers who make choices by comparing benefits and costs to maximize their satisfaction or profit. |
| total benefit | The overall satisfaction or gain received from consuming or producing a given quantity of a good or service. |
| total cost | The sum of all fixed costs and variable costs at a given level of output. |
| total economic costs | The sum of all explicit and implicit costs associated with a decision or production choice. |
| total net benefits | The difference between total benefits and total costs; represents the overall gain or loss from a decision. |
| total revenue | The total income a firm receives from selling its goods or services, calculated as price multiplied by quantity sold. |
| utility | The total satisfaction or benefit that a consumer receives from consuming goods and services. |
| Term | Definition |
|---|---|
| constraints | Limitations that restrict economic agents' choices, such as income, time, legal frameworks, or regulatory requirements. |
| consumer choice theory | A model that explains how consumers make decisions to maximize satisfaction given their constraints and preferences. |
| diminishing marginal utility | The principle that as a consumer consumes more of a good, the additional satisfaction gained from each additional unit decreases. |
| fixed costs | Costs that do not change regardless of the level of output produced, such as rent or equipment purchases. |
| limited income | The finite amount of money a consumer has available to spend on goods and services. |
| marginal analysis | A method of comparing the additional benefits of increasing an activity with the additional costs to determine optimal decision-making. |
| marginal benefits | The additional benefit or satisfaction gained from consuming or producing one more unit of a good. |
| marginal costs | The additional cost incurred from producing one more unit of output. |
| marginal utility | The additional satisfaction gained from consuming one more unit of a good or service. |
| marginal utility per dollar | The additional satisfaction gained from spending one more dollar on a good, calculated as marginal utility divided by price. |
| optimal decisions | Choices that best satisfy a consumer's goals given their constraints and available options. |
| optimal quantity | The level of consumption or production that maximizes total benefit or occurs when marginal benefit equals marginal cost. |
| rational consumer choice | A model assuming consumers make decisions systematically to maximize their satisfaction or utility. |
| sunk costs | Costs that have already been incurred in the past and cannot be recovered, which should not influence current optimal decisions. |
| total benefit | The overall satisfaction or gain received from consuming or producing a given quantity of a good or service. |
| total utility | The total satisfaction or well-being a consumer receives from consuming a combination of goods and services. |