Summer Vocabulary

Question 1

Economics

Answer 1

A social science that studies the allocation of limited resources to the production of goods and services used to satisfy consumer’s unlimited wants and needs.

Question 2

Marginal Cost

Answer 2

The change in total cost (or total variable cost) resulting from a change in the quantity of output produced by a firm in the short run. Marginal cost indicates how much total cost changes for a give change in the quantity of output. Because changes in total cost are matched by changes in total variable cost in the short run (remember total fixed cost is fixed), marginal cost is the change in either total cost or total variable cost. Marginal cost, usually abbreviated MC, is found by dividing the change in total cost (or total variable cost) by the change in output.

Question 3

Marginal Benefit

Answer 3

The additional utility, or satisfaction of wants and needs, obtained from the consumption or use of an additional unit of a good. It is specified as the change in total utility divided by the change in quantity. Marginal utility (benefit) indicates what each additional unit of a good is worth to a consumer.

Question 4

Scientific method

Answer 4

A structured way of investigating and explaining the operation of the world by testing and verifying hypothesized relationships. The scientific method is a process of discovery, a method of explaining phenomena that can be better understood with an overview of theory, principles, world view, hypothesis, and verification.

Question 5

Theoretical

Answer 5

of, pertaining to, or consisting in theory; not practical

Question 6

Principles

Answer 6

a fundamental, primary, or general law or truth from which others are derived

Question 7

Generalizations

Answer 7

the act or process of inferring from facts, statistics, or the like.

Question 8

Macroeconomics

Answer 8

The branch of economics that studies the entire economy, especially such topics as aggregate production, unemployment, inflation, and business cycles. It can be thought of as the study of the economic forest, as compared to microeconomics, which is study of the economic trees.

Question 9

Microeconomics

Answer 9

The branch of economics that studies the parts of the economy, especially such topics as markets, prices, industries, demand, and supply. It can be thought of as the study of the economic trees, as compared to macroeconomics, which is study of the entire economic forest

Question 10

Aggregate

Answer 10

A common modifier for an assortment of economic terms used in the study of macroeconomics that signifies a comprehensive, often national, total value. This modifier most often surfaces in the study of the AS-AD, or “aggregate market”, model of the economy with such terms as aggregate demand and aggregate supply. For example, aggregate demand indicates the total demand for production in the macroeconomy and aggregate supply indicates the total amount of that output produced. Two other noted “aggregate” terms are aggregate expenditures and aggregate production function.

Question 11

Utility

Answer 11

The satisfaction of wants and needs obtained from the use or consumption of goods and services. The terms utility and satisfaction are, for the most part, used interchangeably in economics. Two other somewhat technical economic terms frequently used to capture this notion are welfare and well-being. Whichever term is used, the underlying concept is the same: To what extent are unlimited wants and needs fulfilled using the goods and services produced from society’s limited resources.

Question 12

Land

Answer 12

One of four basic categories of resources, or factors of production (the other three are labor, capital, and entrepreneurship). This category includes the natural resources used to produce goods and services, including the land itself; the minerals and nutrients in the ground; the water, wildlife, and vegetation on the surface; and the air above.

Question 13

Capital

Answer 13

One of the four basic categories of resources, or factors of production. It includes the manufactured (or previously produced) resources used to manufacture or produce other things. Common examples of capital are the factories, buildings, trucks, tools, machinery, and equipment used by businesses in their productive pursuits. Capital’s primary role in the economy is to improve the productivity of labor as it transforms the natural resources of land into wants-and-needs-satisfying goods.

Question 14

Investment

Answer 14

The sacrifice of current benefits or rewards to pursue an activity with expectations of greater future benefits or rewards. Investment is typically used to mean the purchase of capital by business in anticipation of the profit. By increasing the quantity or quality of resources, investment is a source of economic growth. While investment, in principle is diverse, in practice, the official government measure, as reported by the Department of Commerce, includes businesses’ purchases of capital and consumers’ purchases of new houses.

Question 15

Labor

Answer 15

One of the four basic categories of resources, or factors of production (the other three are capital, land, and entrepreneurship). Labor is the services and efforts of humans that are used for production. While labor is commonly thought of as those who work in factories, it includes all human efforts (except entrepreneurship), such as those provided by clerical workers, technicians, professionals, managers, and even company presidents.

Question 16

Employment

Answer 16

The condition in which a resource (especially labor) is actively engaged in a productive activity usually in exchange for an explicit factor payment (such as wage or salary). This general condition forms the conceptual basis for one of the three categories used by the Bureau of Labor Statistics (BLS) when classifying individual’s labor force status. Employed persons is the specific category used by the BLS classification procedure. The other two BLS categories are unemployed persons and not in the labor force.

Question 17

Entrepreneurship

Answer 17

One of the four basic categories of resources, or factors of production (the other three are labor, capital, and land). Entrepreneurship is a special sort of human effort that takes on the risk of bringing labor, capital, and land together and organizing production.

Question 18

Efficiency

Answer 18

Obtaining the most possible satisfaction from a given amount of resources. Efficiency for our economy is achieved when we can not increase our satisfaction of wants and needs by producing more of one good and less of another. This is one of the five economic goals, specifically one of the two micro goals (the other being equity).

Question 19

Consumer

Answer 19

A broad term for people when they are engaged in the use of goods and services to satisfy wants and needs. Consumers are part of the household sector.

Question 20

Market System

Question 21

Capitalism

Answer 21

A type of economy based on – (1) private ownership of most resources, goods, and other stuff (private property); (2) freedom to generally use the privately-owned resources, goods, and other stuff to get the most wages, rent, interest, and profit possible; and (3) a system of relatively competitive markets. While government establishes the legal “rules of the game” for capitalism and provides assorted public goods, like national defense, education, and infrastructure, most production, consumption, and resource allocation decisions are left up to individual businesses and consumers. The term capitalism is derived from the notion that capital goods are under private, rather than government, ownership

Question 22

Demand

Answer 22

The willingness and ability to buy a range of quantities of a good at a range of prices, during a given time period. Demand is one half of the market exchange process; the other is supply. This demand side of the market draws inspiration from the unlimited wants and needs dimension of the scarcity problem. People desire the goods and services that satisfy our wants and needs. This is the ultimate source of demand.

Question 23

Supply

Answer 23

The willingness and ability to sell a range of quantities of a good at a range of prices, during a given time period. Supply is one half of the market exchange process; the other is demand. This supply side of the market is directly connected to the limited resources dimension of the scarcity problem. Folks who have ownership and control over resources (labor, capital, land, and entrepreneurship) use them to produce the goods and services that satisfy other’s wants and needs. Ownership and control of resources is the ultimate source of supply.

Question 24

Goods

Answer 24

When used without an adjective modifier (like “final” goods or “intermediate” goods), this generically means physical, tangible products used to satisfy people’s wants and needs. This term good should be contrasted with the term services, which captures the intangible satisfaction of wants and needs. As such, you will frequently see the plural combination of these two phrases together “goods and services” to indicate the wide assortment of economic goods produced using the economy’s scarce resources.

Question 25

Surplus

Answer 25

A condition in the market in which the quantity supplied is greater than the quantity demanded at the existing price. A surplus occasionally goes by the terms excess supply and buyers' market. A surplus causes a decrease in the equilibrium price.

Question 26

Shortage

Answer 26

A condition in the market in which the quantity demanded is greater than the quantity supplied at the existing price. A shortage occasionally goes by the terms excess demand and sellers' market. A shortage causes an increase in the equilibrium price.

Question 27

Scarcity

Answer 27

A pervasive condition of human existence that exists because society has unlimited wants and needs, but limited resources used for their satisfaction. In other words, while we all want a bunch of stuff, we can't have everything that we want. In slightly different words, this scarcity problem means: (1) that there's never enough resources to produce everything that everyone would like produced; (2) that some people will have to do without some of the stuff that they want or need; (3) that doing one thing, producing one good, performing one activity, forces society to give up something else; and (4) that the same resources cannot be used to produce two different goods at the same time.

Question 28

Opportunity

Question 29

Import

Answer 29

Goods and services produced by the foreign sector and purchased by the domestic economy. In other words, imports are goods purchased from other countries.

Question 30

Export

Answer 30

The sale of goods to a foreign country. The United States, for example, sells a lot of the stuff produced within our boundaries to other countries, including wheat, beef, cars, furniture, and, well, almost every variety of product you care to name. In general, domestic producers (and their workers) are elated with the prospect of selling their goods to foreign countries--leading to more buyers, a higher price, and more profit. The higher price, however, is bad for domestic consumers. In that domestic consumers tend to have far less political clout than producers, very few criticisms of exports can be heard. On the positive side, though, exports do tend to add to the multiplicative, cumulatively reinforcing expansion of production and income

Question 31

Gross Domestic Product

Answer 31

The total market value of all goods and services produced within the political boundaries of an economy during a given period of time, usually one year. This is the government's official measure of how much output our economy produces. It's tabulated and reported by the National Income and Product Accounts maintained by the Bureau of Economic Analysis, which is part of the U. S. Department of Commerce.

Question 32

Externalities

Answer 32

A consequence of an economic activity that is experienced by unrelated third parties. An externality can be either positive or negative.

Question 33

Adam Smith

Answer 33

A Scottish professor (born 1723, died 1790) who is considered the father of modern economics for his revolutionary book, entitled *An Inquiry into the Nature and Causes of the Wealth of Nations* published in 1776.

Question 34

John Maynard Keynes

Answer 34

A British economist (born 1883, died 1946) who is most noted for his work *The General Theory of Employment, Interest, and Money,* published 1936. The *The General Theory* revolutionized economic theory of the day, forming the foundation of Keynesian economics and creating the modern study of macroeconomics. Keynes was a well-known and highly respected economist prior to publication of *The General Theory*, however, this revolutionary work guaranteed Keynes a place as one of the most influential economists of all time.