| Term | Definition |
|---|
| Economics | The Social Science studying how to best allocate scarce or limited resources among unlimited wants. |
| Natural Resources | The renewable and nonrenewable gifts of nature that can be used to produce goods and service, including but not limited to landform and bodies of water. |
| Consumer Sovereignty | Describes the consumer as the "king", or ruler of the market, the one who determines what products will be produced by using "dollar votes" to determine what is and is not produced. |
| Economic Model | A simplified explanation of how the economy or part of the economy works - an abstraction of an economic reality. |
| Ceteris Paribus | The Latin phrase meaning "everything else being equal." It is used to allow economists the ability to develop one-to-one, cause-and- effect relationships. |
| Microeconomics | The branch of economics that focuses on how human behavior affects the conduct of affairs within narrowly defined units, such as individual households or business firms. |
| Macroeconomics | Looks at the economy as a whole, focusing on issues such as growth, unemployment, inflation, and business cycles |
| Positive Economics | The part of economics involving what are established facts; the analysis of facts or data to establish scientific generalizations about economic behavior |
| Normative Economics | Judgments about "what ought to be" in economic matters. |
| Invisible Hand | Phrase coined by Adam Smith to describe the process that turns self-directed gain into social and economic benefits for all. |
| Adam Smith | 1723-1790. Pioneering economic theorist. Father of economics. Explained how rational self-interest and competition, operating in a social framework which ultimately depends on adherence to moral obligations, can lead to economic well-being and prosperity. |
| Econometrics | The application of mathematics and statistics to the study of economic and financial data. |
| Circular Flow | A model that shows the flow of goods and services and the interaction among households, businesses, and government. |
| Firm | An economic unit that uses resources to produce a product which it then sells. |
| Household | An economic unit of one person or more that sells resources and buys goods and services |
| Renewable Resources | Resources that can be used and replaced over a relatively short time period; ex: trees, beans, bananas, sugar, tea |
| Non-renewable Resource | Resources that cannot be reused or replaced easily (ex. gems, iron, copper, fossil fuels) |
| Factor of Production | Any resource used in the productive process, which includes land, labor, capital, and entreprenuership. |
| Land | Natural resources - water, air, minerals, trees, forests, etc. |
| Labor | Human effort, physical or mental, used in the productive process. |
| Capital | Man made goods used in the production of other goods or services. |
| Human Capital | The knowledge and skills of labor, acquired primarly by education and training. |
| Entreprenuership | A person who assumes the risks and uncertainties of doing business. |
| Production Possibilities | Various combinations of goods than can be produced in an economy assuming economic efficiency. |
| Economic Efficiency | Maximum production of goods and services with fullest employment of an economies resources. |
| Unemployment | At least one factor of production is unused. |
| Underemployment | Using resources, but not to their greatest potential. |
| Opportunity Cost | The best or most valued alternative sacrificed in order to have something else. What is given up in order to have something else. |
| Specialization | The division of work into specialized activities or tasks, allowing people to be more productive. |
| TANSTAAFL Principle | "There ain't no such thing as a free lunch." - Every choice made involves an opportunity cost. |
| Absolute Advantage | The ability to produce using the fewest resources. |
| Comparative Advantage | The ability to product with the lowest opportunity cost. |
| Innovation | An idea that eventually becomes a new, applied technology. |
| Law of Increasing Costs | The idea that as we shift factors of production from making one good or service to another, the cost of producing the second item increases |
| Demand | A schedule showing how many units of a good or service, measured homogenously that consumers are willing and able to purchase over a series of prices in a specified time frame, ceterius paribus. |
| Quantity Demanded | How many units of a good or service consumers are willing and able to buy at one specified price. |
| Law of Demand | There is an inverse relationship between price and quantity demanded, so that as price rises (falls), quantity demanded falls (rises). |
| Determinants of Demand | Anything other than price of the current item that influences consumer buying decisions, including income, tastes and preferences, price of related items (substitutes and complements), number of consumers in the market, and expected future price. |
| Determinant of Quantity Demanded | Price of the current item being demanded. |
| Normal Goods | A good for which demand will rise (fall) as income rises (falls). Examples include steaks, new clothes, etc. |
| Inferior Goods | As good for which demand will rise (fall) as incomes falls (rises), Examples include generic products, bus tickets, etc. |
| Substitute Goods | Goods used in place of each other so that as price of the first good rises (falls), demand for the second or substitute good will also rise (fall). Examples include Coke and Pepsi, butter and margarine, etc. |
| Complement Goods | Goods used together so that as price of the first good rises (falls), demand for the second or complement good will fall (rise.) Examples include razors and razor blades, coffee and cream or sugar, etc. |
| Change in Demand | Caused by a change in a determinant of demand and shown by drawning a new demand curve. |
| Change in Quantity Demanded | Caused by a change in price of the current item and shown by movement along the existing demand curve. |
| Supply | A schedule showing how many units of a good or service, measured homogenously that producers are willing and able to offer for sale over a series of prices in a specified time frame, ceterius paribus. |
| Quantity Supplied | How many units of a good or service producers are willing and able to offer for sale at one specified price. |
| Law of Supply | There is a direct relationship between price and quantity supplied, so that as price of an item rises (falls), quantity supplied of that item will rise (fall). |
| Gut Rule of Supply | If an event makes a supplier happy (unhappy), he/she will offer more (less) of his/her product for sale. |
| Determinants of Supply | Anything other than price of the current item that influences production decisions, including cost of raw materials, cost of labor, level of technology used to produce, number of producers in the market, price of related products, and expected future price. |
| Determinant of Quantity Supplied | Price of the current item being supplied. |
| Change in Supply | Caused by a change in a determinant of supply and shown by drawning a new supply curve. |
| Change in Quantity Supplied | Caused by a change in price of the current item and shown by movement along the existing supply curve. |
| Equilibrium | The point at which quantity demanded equals quantity supplied and the maretk is cleared. All items offered for sale by producers are bought by consumers; there exists no surplus or shortage of items. |
| Demand Curve | A curve illustrating the relationship between price and quantity demanded. |
| Supply Curve | A curve illustrating the relationship between price and quantity supplied. |
| Market Demand | The sum of all individual demand in the market. |
| Market-Day Supply | A market situation in which the quantity of a good supplied is fixed, regardless of what happens to price. |
| Excess Supply | At a particular price, the situation where quantity supplied is greater than quantity demanded. |
| Excess Demand | At a particular price, the situation where quantity demanded is greater than quantity supplied. |
| Short Run | A period of insufficient time to alter all factors of production used in the productive process - at least one input is fixed (usually plant and equipment.) |
| Long Run | A period of sufficient time to alter all factors of production used in the productive process - all inputs can be changed. |
| Elasticity | A measure of response to change. |
| Price Elasticity of Demand | A measure of consumer response to a change in the price of the current item. (Ed = Price Elasticity of Demand) |
| Elastic Demand | Occurs when consumers are highly responsive to a change in price of the current item. Ed > 1 |
| Inelastic Demand | Occurs when consumers are not highly responsive to a change in price of the current item. Ed < 1 |
| Determinants of Elastic Demand | Many close substitutes, luxury item, large % of income needed to purchase, long reaction time, durable or non-perishable good. |
| Determinants of Inelastic Demand | Few or no close substitutes, necessity item, small % of income needed to buy, short reaction time, non-durable or perishable good. |
| Total Revenue | Total monies earned from the sale of an item. TR = P X Qd, where TR = Total Revenue, P = Price, and Qd = Quantity demanded at that price. |
| TR and Elastic Demand | When demand for a product is elastic, P and TR move in OPPOSITE directions. If P increases (decreases) TR will decrease (increase.) |
| TR and Inelastic Demand | When demand for a product is inelastic, P and TR move in the SAME directions. If P increases (decreases) TR will increase (decrease.) |
| TR and Unitary Elastic Demand | When demand for a product in unitary elastic, changes in P will not impact TR. |
| Income Elasticity of Demand | A measure of consumer response to a change in the consumer's income. (Ei = Income Elasticity of Demand) |
| Cross Price Elasticity of Demand | A measure of consumer response to purchases of one good when the price of another item changes. (Ecp = Cross Price Elasticity of Demand) |
| Price Elasticity of Supply | A measure of producer response to a change in the price of the current item. (Es = Price Elasticity of Supply) |
| Determinant of Price Elasticity of Supply | Time is the main determinant of price elasticity of supply. |
| Util | The unit of measurement for utility. |
| Utility | Usefulness gained from consuming a product. |
| Marginal Utility | The extra usefulness gained from consuming an extra unit of a product. |
| Total Utility | The total amount of usefulness gained from consuming a specific amount of a product. |
| Law of Diminishing Marginal Utility | The law stating that as a person consumes additional units of a good, eventually the utility gained from each additional unit of the good decreases |
| Consumer Surplus | The difference between the maximum price consumers are willing to pay and the price they actually pay. |
| Producer Surplus | The difference between the minimum price suppliers are willing to accept and the prices they actually receive. |
| Interpersonal Comparison of Utility | A comparison of marginal utility from one consumer to another consumer. |
| Budget Constraint | The combination of goods that can be purchased with a limited amount of income. |
| Price Ceiling | A maximum price set by government below the equilibrium price. By law, price is not allow to rise above the price ceiling. |
| Ration Coupon | A government issued coupon or certificate which allows the holder to purchase a specific amount of an item at or below the price ceiling. |
| Rent Control | A government set price ceiling on rent. |
| Usury Law | A law that sets an upper limit on the interest rate that can be charged on certain types of loans. |
| Price Floor | A minimum price set by government above the equilibrium price. By law, price is not allow to fall below the price floor. |
| Farm Price Supports | Government set price floors on farm products. |
| Minimum Wage Law | A federal law that specifies the lowest hourly wage rate that can be paid to workers, this law is established by Congress. |
| Sole Proprietorship | A firm owned by one person. |
| Partnership | A firm owned by two or more persons. |
| Corporation | A firm owned by its stockholders. |
| Unlimited Liability | The owner/s of the business or organization are personally liable for the firm's debts. (Greatest disadvantage of organizing as a sole proprietorship or partnership.) |
| Limited Liability | The amount the stockholder has invested in the corporation is the extent of the possible loss; personal assets are protected. (Greatest advantage of organizing as a corporation.) |
| Stock | A share of ownership in a corporation. |
| Stockholder | One who owns stock in a corporation. |
| Dividend | The part of a corporation's net income that is paid to stockholders. |
| Corporate Bond | A bond (IOU) issued by a corporation. The bond carries no claim to ownership and pays no dividends but payments to bondholders have priority over payments to stockholders; "a corporate bond is a safer investment than common stock in the same company" |
| Corporate Governance | The oversight of management decisions and company actions by Boards of Directors that are supposed to represent the interests of stockholders |
| International Corporation | A corporation whose exports are greater than its domestic trade. |
| Multinational Corporation | An organization that manufactures and markets products in many different countries and has multinational stock ownership and multinational management |
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