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Glossary of 15Introductory Economic Terms

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What is the definition of economics?
It is the study of the production, consumption and distribution of resources. It is the study of how nations deal with the question of limited resources and unlimited wants.
What are the three basic economic questions all societies must answer?
What do we produce?

How do we produce it?

For whom shall we produce it?
What is scarcity?
Scarcity is the problem of having unlimited wants and limited resources.
What are the three basic economic systems?
Traditional

Market

Command or Planned
How do traditional societies answer the three basic economic questions?
They answer them the same way they have always been answered - by looking to the past, to custom, to the ways of one's ancestors.
What are characteristics of traditional economies?
hunter gatherers, bartering, small clans or groups, egalitarian division of labor and resources, self-sufficiency, making things they have always made, food production an essential activity
What are the three basic kinds of resources?
natural

human (labor)

capital
What are capital resources?
Resources that are human made in order to make something else (another product).
What are the forms of human resources?
Skilled and unskilled laborers.
What agrarian economy was common throughout the Middle Ages in Europe?
feudal manorialism.
What is the basis of feudal wealth in the Middle Ages?
Land.
How does a command economy made the three basic economic decision?
the government or central planners in the government make all or most of the decisions.
How do market economies answer the three basic economic questions?
Private individuals and privately owned businesses (consumers and producers) make decisions based on the laws of supply and demand in the freely operating marketplace. (also called free enterprise system)
What are goods?
Products produced that are tangible.
What do most of the world's nation's have as their economic system?
A mixed economic system.
What are services?
They are things that are produced and have value but are not tangible (plumber services, doctor, education, etc.)

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