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 these 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 which they think is appropriate.
self-interest
That which each firm property owner worker and consumer believes is best for itself and seeks to obtain.
competition
The presence in a market of a large number 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.
specialization
The use of the resources of an individual a firm a region or a nation to produce one or a few goods and services.
division of labor
Dividing the work required to produce a product into a number of different tasks which are performed by different workers; specialization of workers.
medium of exchange
Items 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.
barter
The exchange of one good or service for another good or service.
money
Any item which generally is acceptable to sellers in exchange for goods and services.
Five Fundamental Questions
The 5 questions which every economy must answer: how much to produce what to produce how to produce it how to divide the total output and how to ensure economic flexibility.
economic costs
A payment which 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 an alternative use; equal to the quantity of other products which 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 which entrepreneurial ability must receive to induce it to perform entrepreneurial functions for a firm.
economic profit
The total revenue of a firm less all its economic costs; also called “pure profit” and “above normal profit.”
expanding industry
An industry whose firms earn economic profits and which experience an increase in output as new firms enter the industry.
declining industry
An industry in which economic profits are negative (losses are incurred) and which will therefore decrease its output as firms leave it.
consumer sovereignty
Determination by consumers of the types and quantities of goods and services which will be produced with the scarce resources of the economy; consumer direction of production through dollar votes.
dollar votes
The “votes” which consumers and entrepreneurs cast for the production of consumer and capital goods respectively when they purchase them in product and resource markets.
derived demand
The demand for a resource which depends on the demand for the products it can be used to produce.
guiding function of prices
The ability of price changes to bring about changes in the quantities of products and resources demanded and supplied.
“invisible hand”
The tendency of firms and resource suppliers seeking to further their own self-interests in competitive markets to also promote the interest of society as a whole.