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private property

the right of private persons and firms to obtain, own, control, employ, dispose of, and bequeath land, capital, and other property

freedom of enterprise

the freedom of firms to obtain economic resources, to use those resources to produce products of the firm's own choosing, and to sell their products in markets of their choice

freedom of choice

the freedom of owners of property resources to employ or dispose of them as they see fit, of workers to enter any line of work for which they are qualified, and of consumers to spend their incomes in a manner that they think is appropriate


that which each firm, property owner, worker, and consumer believes is best for itself and seeks to obtain


the presence in a market of independent buyers and sellers competing with one another and the freedom of buyers and sellers to enter and leave the market

roundabout production

the construction and use of capital to aid in the production of consumer goods


the use of the resources of an individual, a firm, a region, or a nation to concentrate production on one or a small number of goods and services

division of labor

the separation of the work required to produce a product into a number of different tasks that are performed by different workers; specialization of workers

medium of exchange

any item sellers generally accept and buyers generally use to pay for a good or service; money; a convenient means of exchanging goods and services without engaging in barter


the exchange of one good or service for another good or service


any item that is generally acceptable to sellers in exchange for goods and services

economic cost

a payment that must be made to obtain and retain the services of a resource; the income a firm must provide to a resource supplier to attract the resource away from alternative use; equal to the quantity of other products that cannot be produced when resources are instead used to make a particular product

normal profit

the payment made by a firm to obtain and retain entrepreneurial ability; the minimum income entrepreneurial ability must receive to induce it to perform entrepreneurial functions for a firm

economic profit

the total revenue of a firm less its economic costs (which include both explicit costs and implicit costs); also called "pure profit" and "above-normal profit."

expanding industry

an industry whose firms earn economic profits and for which an increase in output occurs as new firms entire the industry

declining industry

an industry in which economic profits are negative (losses are incurred) and that will, therefore, decrease its output as firms leave it

consumer sovereignty

determination by consumers of the types and quantities of goods and services that will be produced with the scarce resources of the economy; consumers' direction of production through their dollar votes

dollar votes

the "votes" that consumers and entrepreneurs cast for the production of consumer and capital goods, respectively, when they purchase those goods in product and resource markets

derived demand

the demand for a resource that depends on the demand for the products it helps to produce

guiding function of prices

the ability of price changes to bring about changes int he quantities of products and resources demanded and supplied

creative destruction

the hypothesis that the creation of new products and production methods simultaneously destroys the market power of existing monopolies

invisible hand

the tendency of firms and resource suppliers that seek to further their own self-interests in competitive markets to also promote the interest of society

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