Limited quantities of resources to meet unlimited wants
Scarcity
A situation in which a good or service is unavailable
Shortage
Any human-made resource that is used to create other goods
and services
Capital
All human-made goods that are used to produce other goods and
services; tools and buildings
Physical capital
The skills and knowledge gained by a worker through education and experience
Human capital
The most disable alternative given up as the result of a
decision
Opportunity cost
Level of economic prosperity
Standard of living
Economic system that relies on habit, custom, or ritual to decide questions of production and consumption of goods
and services
Traditional economy
Economic system in which decisions on production and consumption of goods and services are based on voluntary
exchange in markets
Market economy
Economic system in which the central government makes all decisions on the production and consumption of goods
and services
Centrally planned economy
Economic system in which the central authority is in command of the
economy; a centrally planned economy
Command economy
Market-based economic system with limited government
involvement
Mixed economy
The struggle among producers for the dollars of consumers
competition
Term economist use to describe the self-regulating nature of the
marketplace
Invisible hand
The power of consumers to decide what gets produced
Consumer sovereignty
A social and political philosophy based on the belief that democratic means should be used to evenly distribute wealth throughout
a society
Socialism
A political system characterized by a centrally planned economy with all economic
and political power resting in the hands of the central government
communism
The doctrine that states that government generally should
not intervene in the marketplace
Laissez faire
Property owned by individuals or companies, not by the government
of the people as a whole
Private property
The desire to own something and the ability to pay for it
demand
Consumers buy more of a good when its prince decreases and less when its price increases
Law of demand
The change in consumption resulting from a change in real
income
Income effect
A good that consumers demand less of when their incomes
increase
Inferior good
Two goods that are bought and used together
complements
Goods used in place of one another
substitutes
Describes demand that is not very sensitive to a change in
price
inelastic
Describes demand that is very sensitive to a change in price
elastic
The amount of goods abailable
supply
Tendency of suppliers to offer more of a good at a higher price
Law of supply
The amount a supplier is willing and able to supply at a certain
price
Quantity supplied
A measure of the way quantity supplied reacts to a change in
price
Elasticity of supply
The change in output from hiring one additional unity of
labor
Marginal product of labor
A level of production in which the marginal product of labor increases as the number of workers increases
Increasing marginal returns
A cost that does not change, no matter how much of a good is
produced
Fixed cost
The cost of producing one more unit of a good
Marginal cost
The cost of operating a facility, such as a store or factory
Operating cost
A government payment that supports a business of market
subsidy
Government intervention in a market that affects the production of a good
regulation
The point at which quantity demanded and quantity
supplied are equal
equilibrium
When quantity demanded is more than quantity supplied
Excess demand
When quantity supplied is more than quantity demanded
Excess supply
A maximum price that can be legally charged for a good or
service
Price ceiling
A minimum price for a good or service
Price floor
A price ceiling placed on rent
Rent control
Situation in which quantity supplied is greater than quantity demanded;
also known as excess supply
surplus
Situation in which quantity demanded is greater than quantity supplied; also
known as excess demand
shortage
A sudden shortage of a good
Supply shock
A system of allocating scarce goods and services using criteria other than price
rationing
Law in a city or town that designates separate areas for
residency and for business
Zoning law
The legally bound obligation to pay debts
liability
Payment other than wages of salaries
Fringe benefit
A partnership agreement
Articles of partnership
Act ordering common ownership interests, profit and loss sharing, and
shared management responsibilities in a partnership
Uniform Partnership Act (UPA
Partnership in which partners share equally in both
responsibility and liability
General paartnership
Partnership in which only one partner is required to be a
general partner
Limited partnership
Partnership in which all partners are limited partners
Limited liability partnership (LLP)
Money and other valuables belonging to an individual or
business
assets
A legal entity owned by individual stockholders
corporation
A certificate of ownership in a corporation
stock
Corporation that issues stock to only a few people, often family
members
Closely held corporation
Corporation that sells stock on the open market
Publicly held corporation
A formal contract to repay borrowed money with interest at
fixed intervals
bond
The combination of two or more firms competing in the same market
with the same good or service
Horizontal merger
The combination of two or more firms involved in the difference stages of producing the same good or service
Vertical merger
Business combination merging more than three businesses that
make unrelated products
conglomerate
Large corporation that produces and sells its goods and services
throughout the world
Multinational corporation (MNC)
