Fundamental
Economics Vocabulary
Scarcity
O The fact that resources are limited.
O Examples of Scarcity: water, oil, fertile soil
Factors of Production
O Resources used to make goods
O Goods are items sold in a market
O Examples: Land, labor, capital, and
entrepreneurship
Land
O Natural resources used in production
O Includes the land where a factory is set
O Examples: 1) Trees to make paper, 2) cocoa
to make chocolate bars
Labor
O The contribution of human workers to the
production process.
O Example: 1) Miner for the gold trade, 2)
Cashier for McDonalds
Capital
O All the structures and equipment involved in
the manufacturing process.
O Examples: 1) Robots in the manufacturing of
cars, 2) Plastic in the production of CocaCola
Entrepreneurship
O Creative, managerial, and risk-taking
capabilities that are involved in starting up
and running a business.
O Examples: Steve Jobs for Apple, Bill Gates
for Microsoft
Opportunity Cost
O The BEST option you lose when you make a
decision.
O Examples: You have decide between
studying for a test and going to a party. You
decide to go to the party, your opportunity
cost is a good grade on a test.
Production Possibilities Curve
O A graphical measure that calculates
opportunity cost.
Specialization
O A method of production where a business
focuses on the production of a specific part
of production.
O Example: Country A makes tires and sells it
Country C. Country B makes windows and
sells it to Country C. Country C gathers these
goods to make a car.
Voluntary Exchange
O Part of the economy where buyers and
sellers freely deal with each other.
Command Economy
O An economy where the government controls
all factors of production and economic
decision
O Examples: Cuba, North Korea, Soviet Union
Market Economy
O An economy where consumers and
producers have control of all economic
decisions.
O Examples: Hong Kong, United States before
1890
Mixed Economy
O An economy where consumers and
producers make economic decisions that
follow government regulations/restrictions.
O Examples: United States, United Kingdom,
France, Canada
Profit Motive
O The main incentive for entrepreneurs to
start a business is to make money.
Consumer Sovereignty
O Customers having the freedom to choose
what they buy.
O Example: You want shoes, you have the
choice to buy Nike, Adidas, Reebok,
Timberlands, etc.
Competition
O Rivalry between sellers for market share.
O Examples: Coke v Pepsi, Apple v Samsung,
McDonald’s v Burger King
Factor Market
O The part in the circular flow model where
resources (factors of production) are used to
make goods.
Product Market
O The part in the circular flow of economics
where goods are bought and sold.
Allocation
O To distribute resources such as land, labor,
capital.
O Example: I need to create a book, I get one
person to write it, one person to print it, one
person to publish it.
Trade-Off
O Giving up something for something else.
O Example: I give you money, you give me a
phone. I give you a video game, you give me
a different video game.