Chapter 2 Economics

Front 1

economizing problem

Back 1

- The choices necessitated because society’s economic wants for goods and services are unlimited but the resources available to satisfy these wants are limited (scarce).

Front 2

economic resources

Back 2

- The land, labor, capital, and entrepreneurial ability that are used in the production of goods and services; productive agents; factors of production.

Front 3

land

Back 3

- Natural resources (“free gifts of nature”) used to produce goods and services.

Front 4

capital

Back 4

- Human-made resources (buildings, machinery, and equipment) used to produce goods and services; goods that do not directly satisfy human wants; also called capital goods.

Front 5

investment

Back 5

- Spending for the production and accumulation of capital and additions to inventories.

Front 6

labor

Back 6

- People’s physical and mental talents and efforts that are used sto help produce goods and services.

Front 7

entrepreneurial ability

Back 7

- The human resource that combines the other resources to produce a product, makes nonroutine decisions, innovates, and bears risks.

Front 8

factors of production

Back 8

- Economic resources: land, capital, labor, and entrepreneurial ability.

Front 9

full employment

Back 9

- (1) The use of all available resources to produce want-satisfying foods and services; (2) the situation in which the unemployment rate is equal to the full-employment unemployment rate and there is frictional and structural but no cyclical unemployment (and the real GDP of the economy equals potential output).

Front 10

full production

Back 10

- Employment of available resources so that the maximum amount of (or total value of) goods and services is produced; occurs when both productive efficiency and allocative efficiency are realized.

Front 11

productive efficiency

Back 11

- The production of a good in the least costly way; occurs when production takes place at the output at which average total cost is a minimum and marginal product per dollar’s worth of input is the same for all inputs.

Front 12

allocative efficiency

Back 12

- The apportionment of resources among firms and industries to obtain the production of the products most wanted by society (consumers); the output of each product at which it marginal cost and price or marginal benefit are equal.

Front 13

consumer goods

Back 13

- Products and services that satisfy human wants directly.

Front 14

capital goods

Back 14

- Human-made resources (buildings, machinery, and equipment) used to produce goods and services; goods that do not directly satisfy human wants; also called capital goods.

Front 15

production possibilities curve

Back 15

- A curve showing the different combinations of two goods or services that can be produced in a full-production economy where the available supplies of resources and technology are fixed.

Front 16

production possibilities table

Back 16

- A table showing the different combinations of two goods or services that can be produced in a full-production economy where the available supplies of resources and technology are fixed.

Front 17

opportunity cost

Back 17

- The amount of other products that must be forgone or sacrificed to produce a unit of a product.

Front 18

law of increasing opportunity costs

Back 18

- The principle that as the production of a good increases, the opportunity cost of producing an additional unit rises.

Front 19

economic growth

Back 19

- (1) An outward shift in the production possibilities curve that results from an increase in resource supplies or quality or an improvement in technology; (2) an increase of real output (grass domestic product) or real output per capita.

Front 20

economic system

Back 20

- A particular set of institutional arrangements and a coordinating mechanism for solving the economizing problem; a method of organizing an economy, of which the market system and the command system are the two general types.

Front 21

market system

Back 21

- All the product and resource markets of a market economy and the relationships among them; a method that allows the prices determined in those markets to allocate the economy’s scarce resources and to communicated and coordinated the decisions made by consumers, firms, and resource suppliers.

Front 22

capitalism

Back 22

- An economic system in which property resources are privately owned and markets and prices are used to direct and coordinate economic activities.

Front 23

command system

Back 23

- A method of organizing an economy in which property resources are publicly owned and government use central economic planning to direct and coordinate economic activities; command economy.

Front 24

resource market

Back 24

- A market in which households sell and firms buy resources or the services of resources.

Front 25

product market

Back 25

- A market in which products are sold by firms and bought by households.

Front 26

circular flow model

Back 26

- The flow of resources from households to firms and of products from firms to households. These flows are accompanied by reverse flows of money from firms to households and from households to firms.