Chapter 2 Key Terms McConnell and Brue 14th Edition
economizing problem
The choices necessitated because society’s material wants for goods and services are unlimited but the resources available to satisfy these wants are limited.
utility
The want-satisfying power of a good or service; the satisfaction or pleasure a consumer obtains from the consumption of a good or service (or from the consumption of a collection of goods and services).
economic resources
The land labor capital and entrepreneurial ability which are used in the production of goods and services; productive agents; factors of production.
land
Natural resources (“free gifts of nature”) used to produce goods and services.
capital
Human-made resources (buildings machinery and equipment) used to produce goods and services; goods which do not directly satisfy human wants; also called capital goods.
investment
Spending for the production and accumulation of capital and additions to inventories.
labor
The physical and mental talents and efforts of people which are used to produce goods and services.
entrepreneurial ability
ro
factors of production
Economic resources: land capital labor and entrepreneurial ability.
full employment
(1) Use of all available resources to produce want-satisfying goods and services. (2) The situation when the unemployment rate is equal to the full-employment unemployment rate and there is frictional and structural but no cyclical unemployment (and the real output of the economy equals its potential real output).
full production
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.
productive efficiency
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 at which marginal product per dollar’s worth of input is the same for all inputs.
allocative efficiency
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 its marginal cost and price or marginal benefit are equal.
consumer goods
Products and services which satisfy human wants directly.
capital goods
(See Capital.)
production possibility table
A table listing the different combinations of two products that can be produced with a specific set of resources.
production possibilities curve
A curve showing the different combinations of two goods or services that can be produced in a full-employment full-production economy in which the available supplies of resources and technology are fixed.
opportunity cost
The amount of other products which must be forgone or sacrificed to produce a unit of a product.
law of increasing opportunity costs
As the production of a good increases the opportunity cost of producing an additional unit rises.
economic growth
(1) An outward shift in the production possibilities curve which results from an increase in resource quantity or quality or an improvement in technology; (2) an increase either in real output (gross domestic product) or in real output per capita.
economic system
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 economy command economy and traditional economy are three general types.
pure capitalism
An economic system in which property resources are privately owned and markets and prices are used to direct and coordinate economic activities.
market systems
All the product and resource markets of a market economy and the relationships among them; a method which allows the prices determined in these markets to allocate the economy’s scarce resources and to communicate and coordinate the decisions made by consumers firms and resource suppliers.
command economy
An economic system (method of organization) in which property resources are publicly owned and government uses central economic planning to direct and coordinate economic activities.
traditional economies
An economic system in which traditions and customs determine how the economy will use its scarce resources.
resource market
A market in which households sell and firms buy resources or the services of resources.
product market
A market in which products are sold by firms and bought by households.
circular flow model
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.