Thinking Like an EconomistBundle 1 Key Terms

Capitalism

• Private citizens own and use factors of production to make money.

Command Economy• Central authority

(government) makes most big economic decisions.

Cost-Benefit Analysis• Comparing the cost

of something to the benefit you get from it.

Division of Labor• Dividing work into

separate tasks to be performed by different workers.

Economic Growth• An increase in a

country’s output of goods and services.

Economics• The study of how

people use scarce resources to satisfy unlimited wants and needs.

Factors of Production• Resources needed to

produce goods; Land, capital, labor, and entrepreneurship.

Free-Enterprise System• Privately owned

businesses work to make a profit with limited government intervention.

Goods• Physical product that

is useful, transferable, and satisfies wants and needs.

Market Economy• An economic system

where supply, demand, and price help people make economic decisions.

Needs• Basic requirements

for survival, such as food, clothing, and shelter.

Opportunity Cost• Cost of the next best

alternative use of money, time, or resources.

Productivity• The amount of

output in a specific time period using a given amount of resources.

Scarcity• Economic problem

of meeting unlimited wants and needs with limited resources.

Services• Work performed for

someone else.

Socialism• Economy where

government owns some factors of production and chooses what is produced and how.

Specialization• Someone performs a

specific task and gets better at doing it. Usually as part of a larger group.

Trade-Offs• What is given up

when one choice is made instead of another.

Traditional Economy• Economy where

scarce resources or other economic activity is the result of ritual, habit, or custom.

Utility• How useful

something is.

Value• How much

something is worth.