Economic Terms
The social sciences are concerned with how individuals, institutions, and society make optimal(best) choices under conditions of scarcity.
Economics
Products and services that are used together. When the price of one falls, the demand for the other increases ( and conversely).
Complementary Goods
A method of organizing an economy in which property resources are publicly owned and government uses central economic planning to direct and coordinate economic activities; socialism; communism. Compare with market system.
Command System
The principle that, other things equal, an increase in the price of a product will increase the quantity of it supplied, and conversely for a price decrease.
Law of supply
First wrote about the invisible hand
Adam Smith
The four economic resources: land, labor, capital, and entrepreneurial ability.
Factors of Production
A good or service whose consumption declines as income rises, other things equal.
Inferior Goods
An economic system in which individuals own most economic resources and in which markets and prices serve as the dominant coordinating mechanism used to allocate those resources; capitalism.
Market System
The amount by which the quantity supplied of a product exceeds the quantity demanded at a specific (above-equilibrium) price.
Surplus
A line that shows the different combinations of two products a consumer can purchase with a specific money income, given the products' prices.
Budget Line
The land, labor, capital, and entrepreneurial ability are used to produce goods and services. Also known as the factors of production.
Economic Resources
A legally established minimum price for a good or service. Normally, set a price above the equilibrium price.
Price Floor
A hypothetical economic system in which the government’s economic role is limited to protecting private property and establishing a legal environment appropriate to the operation of markets in which only mutually agreeable transactions take place between buyers and sellers; sometimes referred to as “pure capitalism.”
Laissez-Faire
When the supply and demand are equal
Market Equilibrium
The assumptions that factors other than those being considered are held constant.
Ceteris Paribus
The analysis of facts or data to establish scientific generalizations about economic behavior.
Positive Economics
A legally established maximum price for a good or service. Normally, set a price below the equilibrium price.
Price Ceiling
The direct exchange of one good or service for another good or service.
Barter system
The amount by which the quantity demanded of a product exceeds the quantity supplied at a particular (below-equilibrium) price.
Shortages
An improvement in the quality of existing products, the invention of entirely new products, or the creation of new or better ways of producing or distributing products.
Technology Change
The part of economics involving value judgements about what the economy should be like; focused on which economic goals and policies should be implemented; policy economics.
Normative Economics
Products or services that can be used in place of each other. When the price of one falls, the demand for the other product falls; conversely, when the price of one product rises, the demand for the other product rises.
Substitute Good
Money helps to avoid this problem
Double coincidence of wants
Economic mechanism in a free market that distributes limited resources, goods, and services to consumers by adjusting prices to reflect scarcity.
Rationing Function of Prices
The hypothesis that the creation of new products and production methods destroys the market power of firms committed to existing products and older ways of doing business.
Creative Destruction