Glossary
Capital
Man-made resources (physical capital) and the skills and knowledge of workers (human capital) used to produce other goods and services.
Example:
A farmer's tractor is physical capital, while the farmer's knowledge of crop rotation is human capital.
Choices
Decisions made by individuals, firms, or societies about how to allocate scarce resources among competing uses.
Example:
Deciding whether to spend your allowance on a new video game or save it for a concert ticket is a choice driven by scarcity.
Entrepreneurship
The ability to combine the other factors of production (land, labor, and capital) to create new goods and services, take risks, and innovate.
Example:
Steve Jobs' vision and risk-taking in founding Apple exemplify entrepreneurship.
Factors of Production
The basic resources used to produce goods and services, categorized into land, labor, capital, and entrepreneurship.
Example:
A car manufacturer needs all four factors of production – steel (land), assembly line workers (labor), machinery (capital), and the vision of the CEO (entrepreneurship) – to build a car.
Human Capital
The knowledge, skills, and abilities acquired by workers through education, training, and experience, which increase their productivity.
Example:
A doctor's years of medical school and residency training contribute to their high human capital.
Labor
The human effort, skills, and abilities used in the production of goods and services.
Example:
The software engineer coding a new app or the barista making your coffee both provide labor.
Land
Natural resources used in production, including raw materials, fertile land, and mineral deposits.
Example:
The iron ore extracted from the earth to make steel for cars is an example of land as a factor of production.
Limited resources
The finite amount of productive inputs available to satisfy human wants, including natural resources, labor, and capital.
Example:
A small bakery only having two ovens and a limited supply of flour represents their limited resources.
Macroeconomics
The branch of economics that studies the economy as a whole, focusing on aggregate phenomena like inflation, unemployment, and economic growth.
Example:
When the government discusses policies to reduce the national unemployment rate, they are dealing with a macroeconomics issue.
Microeconomics
The branch of economics that studies the behavior of individual economic agents, such as households, firms, and markets.
Example:
Analyzing how a change in the price of coffee affects consumer demand for lattes is a topic in microeconomics.
Opportunity cost
The value of the next best alternative that must be forgone when a choice is made.
Example:
If you choose to binge-watch your favorite show instead of studying for your AP Micro exam, the higher grade you could have gotten is your opportunity cost.
Physical Capital
Man-made resources like tools, machinery, equipment, and buildings used in the production process.
Example:
The robotic arms on an automobile assembly line are a prime example of physical capital.
Scarcity
The fundamental economic problem where unlimited human wants exceed the limited resources available to satisfy those wants.
Example:
Even a billionaire faces scarcity of time, as they cannot do everything they want in a single day.
Trade-offs
The alternatives that must be given up when a choice is made, representing the different options available.
Example:
When a city decides to build a new park, the trade-offs might include not building a new library or not repairing existing roads.
Unlimited wants
The human desire for goods, services, and resources that can never be fully satisfied.
Example:
A gamer always wanting the newest console, more games, and better accessories illustrates unlimited wants.