Glossary of Terms (Click here for a document to print)

4 Key Resources - The four basic kinds of resources used to produce goods and services: land or natural resources, labor or human resources, capital, and entrepreneurship. 

Advertise � To publicly communicate about a particular good or service, usually one offered by a specific business firm.  Information about price and availability may be included. 

Asset - A useful or valuable quality, person, or thing; an advantage or resource;  the total value of everything owned by and owed to a business including buildings and equipment, accounts receivable, and other investments. 

Business � An individual, partnership, or corporation engaged in the production and/or sale of goods and services for profit.  A commercial enterprise engaged in one or more of the stages of production and distribution through which goods and services are finally sold in the market. 

Business Plan � A plan that describes a business opportunity. 

Capitol Resources � The buildings, equipment, machinery, ports, roads, dams, and other fabricated things needed to produce or provide access to goods or to provide services. 

Choice � Making a single selection among all available alternatives. 

Citizen � A native-born or naturalized person who is a member of a state, owes allegiance to it, and is entitled to reciprocal protection from it. (A naturalized citizen is a person upon whom a government has conferred the rights, privileges, and obligations of a native-born citizen.) 

Competitive Advantage - The ability to produce a good or service at a lower opportunity cost than some other producer. This is the economic basis for specialization and trade. 

Consumer � An individual who buys goods and services for personal or household use rather than for use in manufacture, processing, or resale.  The goal of the consumer is to maximize their satisfaction through the purchase of final goods and services given the constraint of their income. 

Corporation - One of the three basic forms of business organization (the other two are proprietorship and partnership). A corporation is a business established through ownership shares (termed corporate stock). A corporation is considered a distinct legal person, that can be sued, forced to pay taxes, etc., just like a human person. Unlike proprietorships and partnerships businesses, a corporation business exists separately from its owners. 

Demand � The amount of a good or a service that buyers are willing and able to purchase at various prices at a given time. 

Entrepreneurship (Management Ability) � A human resource in the form of skill or talent entailing the ability to organize economic activity by taking the risks associated with starting a new business or introducing a new good or service into the marketplace in hopes of earning a profit. 

Exchange (Trade) � The act of trading one good or service for another by barter or through the use of money.  When people trade, they give up something they value for some other thing viewed as more valuable. 

Factors of Production � (see 4 Key Resources) 

Goods � Natural or fabricated or produced material objects such as food, shoes, cars, houses, machinery, buildings, bridges. 

Human Resources (Labor) � Also called labor resources.  The mental and physical skills and abilities of people that are used to produce goods or services. 

Income � Payment in the form of wages, rent, interest, profit, transfer payments, and dividends as a return to individuals or organizations that supply their land, labor (including entrepreneurship), and savings for others to use. 

Input � The resources or factors of production used in the production of a firm's output. This term is most frequently associated with the analysis of short-run production, and is often modified by the terms fixed and variable, as in fixed input and variable input. In the short run, the quantity of a fixed input can not be changed, meaning it can not be used to expand output. In contrast, a variable input can be changed, making it THE means of expanding output in the short run. 

Interdependence � A supportive relationship between two more people, organizations, or societies.  A link between decisions and events in one part of the world or in one sector of an economy to other parts of the world or other sectors of the economy. 

Interest � The payment(s) borrowers make to lenders for use of the lender�s savings. 

Intermediate good or service - Goods and services that are used as inputs or components in the production of other goods. Intermediate goods are combined into the production of finished products, or what are termed final goods. Intermediate goods will be further processed before sold as final goods. 

Inventory � The stock of unsold goods held by a business.  For retailers, the stock consists of finished goods.  For manufacturers, the stock comprises finished goods, goods being worked on (in process), and raw materials. 

Invest � To spend money on capitol goods resources (see definition, above) used to produce other goods or services. 

Investment � The capitol resources (tools, machinery, equipment, etc.) on which money has been spent (invested) for the purpose of producing a good or service.

Labor � (see Human Resources) 

Land � (see Natural Resources) 

Market, Marketplace � Institutional arrangements that enable buyers and sellers to exchange goods and services.  These exchanges may take place at specific marketplaces or may take place through means of communication such as the telephone, a computer link. 

Market Clearing Price � The price, in any market, at which the quantity demanded equals the quantity supplied. 

Market System � An economic system in which decisions about what to produce, how to produce, and for whom to produce are determined by prices that rise of fall in markets owing to the interaction of supply and demand. 

Natural Resources (Land) � All gifts of nature that can be used to produce goods and services.  Natural resources include such things as farmland, water, fish, crude oil, mineral deposits, and climactic conditions. 

Need - This is often thought of as a physiological or biological requirement for maintaining life, such as the need for air, water, food, shelter, and sleep. Satisfaction is achieved by fulfilling needs. Physiological needs should be contrasted with psychological wants that make life more enjoyable but are not necessary to stay alive. However, when push comes to shove, and the nitty gets down to the gritty, it matters very little to markets if people need goods or want goods, so long as they are motivated to satisfy them. This motivation is what drives economic activity. 

Opportunity Cost (Costs) � The benefit that is given up when a choice must be made because resources are scarce in relation to wants.  In choosing between two alternatives there is always an opportunity cost. (To choose to spend an afternoon at a baseball game means giving up the opportunity to use the time to go swimming.) 

Output � A generic term for a tangible good or an intangible service that is the end result of the production/resource transformation process. This notion of output, which also goes by the alias product, usually surfaces in the context of analyzing the short-run production of a firm. The short-run relation between a variable input and output is of particular interest because it reveals the law of diminishing marginal returns. This law indicates that additional quantities of a variable input, when added to a fixed input, have decreasing marginal products, or marginal returns.

Partnership - One of the three basic forms of business organization (the other two are corporation and proprietorship). A partnership is a business that's owned and operated more or less equally by two or more people. The owners and the business are legally considered one and the same.

Price � The amount of money the buyer pays and the seller receives for one unit of a good or service.

Private Property � Resources and products to which individuals or groups of individuals have exclusive rights of use and disposal, including right of sales (e.g., land, goods, buildings, trucks, clothing, businesses).

Producers � Those who use productive resources (see below) to make goods or to supply services.  Producers can be individuals, proprietorships, families, partnerships, or corporations.  The goal of the producer is to maximize profit given the quality and quantity of the 4 key resources.

Production � The creation or making of goods and services.  The transformation of resources into goods and services.

Productivity � The relationship between the output of goods or services and the input of resources.

Profit � What remains from total revenues of a business after it pays all its costs of production.  Profit provides the incentive to start a business enterprise and to keep the business going. Profit = Total Revenue � Total Cost 

Profit Maximization � When the producer strategically chooses to produce one product because it provides him/her with the most total revenue at the least total cost, including opportunity cost.

Productive Resources � (see 4 Key Resources)

Revenue - (see Total Revenue)

Saving, Savings � Putting part of one�s income aside.  To save, persons must be willing to give up consumption today.  Those persons will earn interest on their savings, which will enable them to consume more in the future than they could in the present.

Scarcity � The condition that results for the existence of relatively unlimited wants and relatively limited resources available to satisfy those wants.  This condition forces people to make choices.

Services � Products that lack a physical dimension and hense cannot be stored but must be consumed as soon as they are produced.  Examples: teaching, playing music to an audience, nursing the sick, a taxi ride. 

Six Core Economic Principles � 2006 (Posted with the permission of the Michigan Council on Economic Education.)

1. People choose

We always want more than we can get and productive resources (human, natural, capital) area always limited.  Therefore, because of this major economic problem of scarcity, we usually choose the alternative that provides the most benefits with the least costs.

2. All Choices Involve Costs

The opportunity cost is the next best alternative you give up when you make a choice.  When we choose one thing, we refuse something else at the same time.

3. People Respond to Incentives in Predictable Ways

Incentives are actions, awards, or rewards that determine the choices people make.  Incentives can be positive or negative.  When incentives change, people change their behaviors in predictable ways.

4. Economic Systems Influence Individual Choices and Incentive

People cooperate and govern their actions through both written and unwritten rules that determine methods of allocating scarce resources.  These rules determine what is produced, how it is produced, and for who it is produced.  As the rules change, so do individual choices, incentives, and behavior. 

5. Voluntary Trade Creates Wealth

People specialize in the production of certain goods and services because they expect to gain from it.  People trade what they produce with other people when they think they can gain something from the exchange.  Some benefits of voluntary trade include higher standards of living and broader choices of goods and services. 

6. The Consequences of Choices Lie in the Future

Economists believe that the costs and benefits of decision making appear in the future, since it is only the future that we can influence.  Sometimes our choices can lead to unintended consequences.  

Specialization - The condition in which resources are primarily devoted to specific tasks. This is one of THE most important and most fundamental notions in the study of economics; A situation in which people produce a narrower range of goods and services than they consume. Specialization increases productivity; it also requires trade and it increases interdependence. 

Sole Proprietorship � One of the three basic forms of business organization (the other two corporation and partnership). It's a business that's owned and operated by one person. The owner and the business are legally considered one and the same. As such, the owner gets any and all profit and has what is termed unlimited liability the owner is held personally responsible for any and all of the business's debts. The owner can lose personal property over and above the amount invested in the business itself. The majority of businesses in our economy are proprietorships, but because their size is limited by the resources of a single person, they tend to be relatively small.

Substitution � Choosing to use or produce one product or service in place of another.  Substitution usually occurs when the relationship between the prices of two similar products or services change.

Supply � The amount of a good or service that sellers are willing and able to provide at all possible prices in a particular market at a given time.

Target Market - The specific group of individuals who have been selected as the most likely potential buyers for products, ideas, or services. The company develops a marketing mix to satisfy this group of buyers. This group has been selected, after a process of determining similar buying habits, attitudes, and other demographics, to be the best for purchasing the company�s product.

Taxes � Compulsory payments to local, state, and federal governments by citizens and businesses.

Total Costs � All cost for the productions of a product.

Total Revenue - All money generated after the sale of a product.  Total Revenue = Price of Product x Quantity Sold of Product.

Unlimited Wants and Needs - A characteristic of people such that they are never totally satisfied with the quantity and variety of goods and services. This is one half of the fundamental problem of scarcity that has plagued humanity since the beginning of time. The other half of the scarcity problem is limited resources. Unlimited wants and needs essentially means that people never get "enough"--that there's always something else that they would want or need.

Wages � Payments for using the services of labor

Wants � Goods and services that people would like to purchase; This is often thought of as a psychological desire which makes life just a little more enjoyable, but which is not physiological necessary to life. You need oxygen, but you want a hot fudge sundae. Satisfaction is achieved by fulfilling wants.

Wealth � The accumulated possessions and savings of people, organizations, or societies that produce income after subtracting liabilities (amounts owed), e.g., mortgages.

Workers � People who sell their ability (human capitol) for a given amount of money (wages) for a specific amount of time (hour, week, month, year).

References:

• AmosWEB GLOSS*arama, http://www.AmosWEB.com, AmosWEB LLC, 2000-2006.

• Joint Council on Economic Education, Children in the Marketplace: Lesson Plans in Economics for Grades 3 and 4. 2nd. New York: Joint Council on Economic Education, 1986. 

• National Council for Economic Education, "High School Economics Lessons - Glossary." Capstone. 2006. National Council for Economic Education. 6 Jun 2006 <http://capstone.ncee.net/resources/glossary.php?#P>.