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Economic Basics
| Term | Definition |
|---|---|
| Economics | The study of how goods and services are produced and consumed on both large and small scales |
| Scarcity | The human want for goods, services and resources exceed what is available. |
| Resources | The term used to collectively identify things such as labor, tools, land, and raw materials that are necessary to produce the goods and services we want. |
| Specialization of labor | Occurs when companies divide their production or service process into several set tasks. Employees repeat a single portion of the production process rather than performing multiple tasks themselves. |
| Traditional economy | A basic economic system where customs and traditions are the elements that determine the way trade and commerce are performed. |
| Command economy | The government decides what goods and services will be produced and what prices it will charge for them. The government decides what methods of production to use and sets wages for workers. |
| Market Economy | An economic system in which economic decisions and the pricing of goods and services are guided by the interactions of a country's individual citizens and businesses. |
| The invisible hand | A metaphor for the unseen forces that move the free market economy. Through individual self-interest and freedom of production and consumption, the best interest of society, as a whole, are fulfilled. |
| Mixed Economy | Protects private property and allows a level of economic freedom in the use of capital, but also allows for governments to interfere in economic activities in order to achieve social aims. |
| Opportunity Cost | The next-best alternative when a decision is made; it's what is given up. |
| Competition | A situation in which someone, or business, is trying to win something or be more successful than someone else or another business. |
| Perfect Competition | Ideal type of market structure where all producers and consumers have full and symmetric information and no transaction costs. There are a large number of producers and consumers competing with one another in this kind of environment. |
| Imperfect market | Any economic market that does not meet the rigorous standards of the hypothetical perfectly—or purely—competitive market. Pure or perfect competition is an abstract, theoretical market structure in which a series of criteria are met. |
| Labor | The amount of physical, mental, and social effort used to produce goods and services in an economy. |
| Capital | Wealth in the form of money or other assets owned by a person or organization or available or contributed for a particular purpose such as starting a company or investing. |
| Oligopoly | A small number of firms are interdependent in their pricing and output policies. The number of firms is small enough to give each firm some market power. |
| Monopoly | There is a single seller in the market. In conventional economic analysis, this is taken as the polar opposite of perfect competition. |
| Demand | The amount of some good or service consumers are willing and able to purchase at each price. This is fundamentally based on needs and wants—if you have no need or want for something, you won't buy it. |
| Law of Demand | A rise in price of a good or service almost always decreases the quantity demanded of that good or service. Conversely, a fall in price will increase the quantity demanded. |
| Demand curve | A graphical representation of the relationship between the price of a good or service and the quantity demanded for a given period of time. Price will appear on the y axis, the quantity demanded on the x axis. |
| Supply | The amount of some good or service a producer is willing to provide at each price. |
| Price | What the producer receives for selling one unit of a good or service. |
| Supply Curve | A graphic representation of the correlation between the cost of a good or service and the quantity supplied for a given period. Price will appear on the y axis, while the quantity supplied will appear on the x axis. |
| Equilibrium | When price has adjusted until quantity supplied is equal to quantity demanded. This is also the location where the demand curve and supply curve cross on a graph. |
| Intrinsic incentives | This means internally motivated. That is, a person with this wants to do something for its own sake, without an outside pressure or reward. |
| Extrinsic incentives | This means externally motivated. This would involve providing a material reward (like money) for accomplishing a task, or threatening some punishment for failure to do so. |
| Tax Incentives | An aspect of a government's taxation policy designed to encourage a particular economic activity by reducing tax payments. These can have both positive and negative impacts on an economy. |
| Financial Incentives | A monetary benefit offered to encourage behavior or actions which otherwise would not take place. This motivates actions which otherwise might not occur without the monetary benefit. |
| Subsidies | Governmental financial support used to promote both social and economic policies so that a country's businesses can produce affordable goods. Come in the form of cash, (interest-free and low-interest loans, grants, insurance, tax breaks and rent rebates). |
| Negative incentives | This is also called disincentives, which punish people financially for taking certain actions. This is a way of encouraging specific actions without making them compulsory. |
Created by:
mg999
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