Glossary
Capital
One of the four factors of production, which includes physical assets like machinery and buildings (physical capital) and the skills and knowledge of individuals (human capital) used in production.
Example:
A factory's automated assembly line is an example of physical capital, while the specialized training of its technicians represents human capital.
Command (Economic System)
An economic system where the government or a central authority makes all major economic decisions regarding production and distribution.
Example:
In a pure command economic system, the government might dictate exactly how many cars and how much food each factory must produce.
Economics
The social science that studies how individuals, firms, and governments make choices to allocate scarce resources to satisfy unlimited wants and needs.
Example:
The field of economics analyzes how a country decides to distribute its budget between public education and national defense.
Entrepreneurship
One of the four factors of production, representing the ability to combine land, labor, and capital to create new goods or services, often involving innovation and risk-taking.
Example:
Steve Jobs' vision and ability to organize resources to create Apple products exemplify entrepreneurship.
Labor
One of the four factors of production, referring to the human effort, skills, and abilities used to produce goods and services.
Example:
The skilled labor of software engineers is crucial for developing new applications and technologies.
Land
One of the four factors of production, encompassing all natural resources used in the production of goods and services.
Example:
The fertile land in California's Central Valley is essential for growing a significant portion of the nation's fruits and vegetables.
Macroeconomics
The branch of economics that studies the behavior and performance of an entire economy, including issues like inflation, unemployment, and economic growth.
Example:
The government implementing policies to combat high macroeconomics inflation rates nationwide is a key concern of this field.
Market (Economic System)
An economic system where economic decisions are made by individual buyers and sellers interacting freely in markets, driven by supply and demand.
Example:
The global stock exchange, where buyers and sellers freely trade shares based on perceived value, operates as a market economic system.
Microeconomics
The branch of economics that focuses on the decision-making of individual economic units, such as households, firms, and specific markets.
Example:
A local coffee shop deciding to raise its prices in response to increased bean costs is a topic studied in microeconomics.
Mixed (Economic System)
An economic system that combines elements of both market and command economies, with varying degrees of government intervention and private sector freedom.
Example:
The United States operates as a mixed economic system, featuring free markets but also government regulations, social safety nets, and public services.
Opportunity Cost
The value of the next best alternative that must be foregone when a choice is made.
Example:
If you choose to attend college full-time, the opportunity cost might be the income you could have earned from a full-time job during those years.
Production Possibilities
A concept illustrated by a table or graph (Production Possibilities Frontier/Curve) that shows the maximum combinations of two goods or services that an economy can produce with its given resources and technology.
Example:
A country's production possibilities curve might show that to produce more military equipment, it must produce fewer consumer goods, illustrating the trade-off.
Scarcity
The fundamental economic problem where unlimited human wants and needs exceed the limited resources available to satisfy them.
Example:
A student has limited time to study for three exams, forcing them to make choices about how to allocate their study hours, illustrating scarcity of time.
Trade-offs
All the alternatives that must be given up when a choice is made due to scarcity.
Example:
Deciding to spend your Saturday afternoon playing video games means you are making a trade-off by giving up other activities like going for a hike or working a part-time job.
Tradition (Economic System)
An economic system where economic decisions are primarily based on customs, beliefs, and historical practices passed down through generations.
Example:
In some remote indigenous communities, hunting and farming methods have been passed down through generations, forming the basis of their tradition economic system.