Economic Terms

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Traditional economy

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most economic systems are made based on custom, habit, and tradition of how things were done in the past.

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Command economy

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a centralized economy in which government planning groups make most economic decisions.

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Market economy

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an economy in which most economic decisions are made by individuals or entrepreneurs. Also known as capitalism, free enterprise, or laissez-faire.

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Mixed economy

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an economy which has characteristics of all three types of economic systems.

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Voluntary trade

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both parties in a transaction see that they will be able to gain something from an exchange. It encourages specialization.

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Specialization

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countries produce and sale those products that they can produce most efficiently. Money earned allows the purchase of goods and services, which they cannot produce easily, from other countries.

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Trade barriers

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anything that slows down or prevents one country from exchanging goods with another country.

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Tariff

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a tax placed on goods when they are imported from another country.

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Quota

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sets a specific amount or number of a particular product that can be imported or acquired in a given time period.

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Embargo

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when one country announces that it will no longer trade with another country

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Human capital

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the knowledge and skills (education & training) that make it possible for workers to earn living producing goods and services.

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G.D.P. (Gross Domestic Product)

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the total value of all goods and services produced within a country in a single year.

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Per capita G.D.P.

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the amount of goods and services produced divided by the total population.

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Capital goods

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factories, machines, and technology that people use to make products to sell.

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Entrepreneurs

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creative original thinkers who are willing to take risks to create new businesses and products.

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Income

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the total of a person’s earnings that they can decide how to use.

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Savings

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after tax income minus consumption spending, or the money you have after buying things you want.

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Budget

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a spending and savings plan, based on estimated income and expenses for an individual or organization, covering a specific time.

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Credit

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the ability to borrow money.

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Financial investment

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decisions by individuals to invest money in financial assets such as bank accounts, certificates of deposit, stocks, bonds, and mutual funds.

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Real investment

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decisions by businesses to purchase equipment and physical plants and new homes by consumers.

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Investing

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refers to postponing current consumption or rewards to pursue an activity with expectations of greater benefits in the future. (savings typically become a form or investing)