Important Definitions

IMPORTANT DEFINITIONS FROM MODULE 1 (What is Economics?)

Economics is the study of how scarce resources are allocated to satisfy seemingly unlimited needs and wants.

The economizing problem is that people’s needs and wants are seemingly unlimited, yet the resources they can use to satisfy those needs and wants are limited.

Economic resources are the things people use to attempt to satisfy their needs and wants. They can be divided into three categories: labor, capital, and natural resources.

Labor is human effort, both physical and mental.

A white-collar worker typically performs work that does not involve manual labor, is paid an annual salary instead of hourly wages, and is expected to dress with some formality.

A tangible commodity is a product that can be touched or held, such as an apple, a sweater, or a house.

A blue-collar worker typically performs work that involves manual labor, is paid hourly wages, and dresses in clothes that may become heavily soiled.

The Rust Belt is the heavily industrialized area of the upper Midwestern U.S. that contains older factories, many of which are closed.

Silicon Valley is a region southeast of San Francisco, California, which is known for its computer and other high-technology industries.

Productivity is the amount of output that can be produced in an hour of a worker’s time.

Human capital is the education, skills, and training that make workers more productive.

Entrepreneurship is the invention of new products, the improvement of existing products, or the delivery of products in better or more efficient ways.

Management is the allocation of economic resources.

Marketing is the process of informing society about products in an attempt to convince potential consumers to purchase them.

Finance is the management of money, credit, and other financial assets.

Accounting is the preparation and inspection of financial reports.

An entrepreneur is someone who invents a new product that satisfies a want or need of society, improves an existing product, or provides a product in a better or more efficient way.

A manager is someone who allocates economic resources. Successful managers are efficient in their use of labor, capital, and natural resources.

A marketer is someone who promotes the purchase or sale of a product.

The four Ps of marketing describe the marketing process: product (conception), price, promotion, and place (distribution). They are also called the marketing mix.

A financier is someone who engages in large-scale financial affairs.

A capitalist is a financier who invests in a business by providing it with significant money or other financial assets.

An accountant is someone who prepares and inspects the tax reports and other financial records of individuals or businesses.

Capital, in its broadest sense, is anything that increases productivity. Capital may also refer to physical capital, human capital, technology, or financial capital, depending on the context.

Physical capital is anything tangible and man-made that makes workers more productive.

Human capital is the education, skills, and training that make workers more productive.

Technology is the knowledge and methodology of means of production.

Financial capital is the money or other financial assets used to purchase physical capital, human capital, or technology.

Retained earnings are the portion of a company’s profits that are not distributed to the owners of the business.

A bond is a financial asset that represents a loan from the purchaser of the bond to the issuer of the bond.

A stock is a financial asset that represents a share of ownership of a corporation.

Stockholders are the owners of a corporation.

A dividend is the share of corporate profits that is distributed to each stockholder.

A natural resource is anything provided by nature that can be used to satisfy human needs and wants.

A renewable resource is capable of being replaced in a relatively short period of time.

A nonrenewable resource either cannot be replaced or its replacement requires an extremely long period of time.

Economic systems are methods of resource allocation. They can be divided into three categories: tradition, command, and markets.

An economic system based on tradition allocates economic resources by custom.

A dowry is a marriage gift of money or property from the family of a bride to the bridegroom.

In an economic system based on command, one person or a small group of people allocates economic resources for a larger group of people.

An economic system based on markets allocates economic resources through the separate decisions of households and business firms as they interact in markets for products and resources.

A household is a social unit comprised of those living together in the same dwelling.

A business or business firm is a company that produces goods or services, usually in an effort to make a profit.

A black market is an illegal market.

Economic efficiency occurs when a society obtains the largest possible output from its limited economic resources.

· A good is a tangible commodity or piece of merchandise that is produced for sale.

· A service is useful labor that does not create a tangible commodity or piece of merchandise.

· A product is a good or service that is the output of human labor.

Equity occurs if a society distributes its economic resources fairly among its people.

Macroeconomics is the field of economics that deals with issues that affect an entire economy, such as economic growth, unemployment, inflation, and monetary and fiscal policies.

Microeconomics is the field of economics that deals with issues that affect individual markets and business firms, such as market structure, profit maximization, and consumer theory.

· Positive analysis describes the world the way it is.

· Normative analysis describes the world the way it should be.