Economic Term

Definition and Example of Term

Economic Needs

and Wants

There are things that people need and want that can be satisfied by consuming goods and/or services.

Examples: Hunger, shelter, good health, entertainment and transportation are all needs and wants that can be satisfied by a good or service.

Goods and Services

Goods are things that people make or grow to satisfy wants and needs.

Services are actions that people do for each other. (A service is consumed the moment it is produced.)

Example:  Computers are goods.  The assistance provided by the tech support person on the phone is a service. 

Scarcity

Wants are unlimited. Resources are limited. Scarcity of resources forces people to prioritize wants, and to be selective in buying goods and services.

Example: Everyone wants the latest electronic technology, but few of us have the money to buy it.  We must choose carefully what we spend our money on. 

Surplus

Too much of a good or service.

Example:  After Christmas there was a surplus of holiday decorations, forcing sellers to cut prices.

Shortage

Too little of a good or service.

Example:  There is not enough oil for sale in the international markets, which means consumers have to pay more to buy gasoline and home heating oil. 

Recession

Slowing down of the economy.

Recovery

When the economy begins to bounce back from a recession and starts to improve.

Prosperity

When the economy is strong, with high employment and production.

Costs and Benefits

Costs are what a person pays for a product.  Benefits are what a person gains from the use of that product.   Consumers and governments must weigh costs and benefits in order to make good economic choices.

Example: Sharon decides to buy a mini-van.  The benefits of the extra space for strollers, diaper bags, extra clothes, and other things outweighs the added costs of gasoline, insurance and maintenance on the van.

Opportunity

Cost

The value of the best alternative given up when a choice is made. 

Examples:

·         Joanna has money to buy either a DVD or a CD. She buys the DVD. The CD is the opportunity cost.

·         Steve decides to clean the gutters on his house so his Dad will give him the cash he normally pays a company to do the gutters. However, cleaning gutters means he cannot go to the mall with his friends. The opportunity cost is hanging out with his friends.

·         To enforce the new mercury pollution ban, the Environmental Protection Agency decided not to fully fund the wildlife protection program. The opportunity cost is funding the wildlife protection plan.

Economic

System

The way a society organizes to produce, distribute, and consume goods and services. The system tries to prevent surpluses (too much of a good or service) or shortages (too little of a good or service). Also known as “the economy.”

Example: The US economic system tries to produce the right amount of automobiles without running out or having more than can be sold.

Economic Systems

Traditional

Tradition determines how a society is organized to produce, distribute, and consume goods and services.

Example: When George grows up he will be a farmer just like his dad, for that is the rule of his community in his country.

Market

Individuals and businesses make most of the major decisions about production and distribution of goods and services.

Example: Today in the United States people can own private property and decide for themselves what jobs to take, clothes to purchase, etc.

Command

A central authority makes most of the major decisions about production and distribution of goods and services.

Example: In Cuba, the government decides what to make and how to distribute most resources. The government owns most land and businesses.

Mixed

Economic decisions are made by individuals, businesses, and government. Wealth can be made or lost in the market.

Example: In the United States businesses and individuals make most decisions, but the government taxes people and businesses to provide common services such as defense and education.

Marketplace

Any place or system that allows buyers and sellers to exchange goods and services.

Example: A music store is a market for CDs. A salon is a market for hair services. Amazon.com is a market for books and all kinds of goods.

Money/Currency

Something that is used to buy and sell resources, goods, or services. 

Entrepreneur

Person who takes the risks to create a new business. 

Example:  Bill Gates spends the money and hires people to create new products – some fail, some succeed – he is the entrepreneur. 

Price

Price is what a seller and buyer agree on for an exchange – usually stated in a standard money terms.

Example: The price for a new toy is $12 – that means the producer agrees to sell it for this amount and the consumers agree to buy it at this amount.

Profit

The difference between what it costs to produce something and the price the buyer pays for it. 

Example:  The toy costs $5 to produce, but sells for $12.  The producer makes a profit of $7.

Supply

The amount of a resource, good, or service sellers are willing to sell at possible prices. Generally, higher prices force more supply.

Example: There is a limited supply of crabs which is driving prices up and driving waterman to try to catch more crabs to sell at the higher prices.

Demand

How much people want of a good or service at a certain price at a certain time. Generally, higher prices reduce demand.

Example: The high price of blue crabs has turned many people off to purchasing them this year. Maybe there will be a larger supply of crabs next year and prices will go down.

Free Enterprise/ Free Market

The system in which individuals in a market economy are free to undertake economic activities with little or no control by the government.

Monopoly

A single business with the power to control prices in a market.  This is generally considered to be good for the business and bad for consumers, because it reduces competition.

Example:  If Coca-Cola were the only soda manufacturer, they could charge $5 per can for a Coke.  This would be good for Coca-Cola, Inc., but bad for the thirsty teenager.

Competition

The struggle among producers for the dollars of consumers; the rivalry among sellers to attract customers while lowering costs. 

Example:  Because Coca-Cola has competitors such as Pepsi-Cola, both companies lower their prices in an effort to get more people to buy their products.  Neither company makes as much product, but the thirsty teenager has more choices and can spend less.

Gross Domestic Product (GDP)

The total dollar value of all final goods and services produced within the country in a year. 

Consumer Price Index (CPI)

An index determined by measuring the price of a standard group of goods.  This number is meant to represent the prices paid by the typical urban customer.  The CPI is used to measure inflation over time.

Inflation

A general rise in the prices of goods and services throughout the economy.

Entitlements

Government aid to those individuals in the most economic need. 

Examples:  Social Security, Welfare, TANFF (Temporary Assistance for Needy Families), Food Stamps, Medicare, Medicaid

Social Safety Net

The collective use of entitlements to provide support for those in economic need. 

Stocks/shares

Shares of ownership in a corporation.

Tariff

Tax on imported goods.

Trade barrier

Something that limits, controls, or prevents trade. 

Examples:  Tariffs and quotas.

Regulatory Agencies

Executive branch agencies that write regulations to enforce the laws.  These regulations impact the economic decisions made by governments, corporations, and individuals. 

Example: 

·         The Federal Trade Commission created the “Do Not Call” Registry, which is forcing telemarketers to find new ways to reach potential customers.

·        The Federal Aviation Administration hired more security screeners for the airports, forcing the airlines to increase their ticket prices  to pay for the added security.