Civic Economic Vocabulary Cheat Sheet

Key Facts

• Scarcity is the core economic problem: wants are unlimited but resources are limited, so every choice has a trade-off.
• Every decision has an opportunity cost equal to the value of the next-best option you give up.
• Resources used to produce goods include land, labor, capital, and entrepreneurship; natural resources are a key category of land.
• Every economy answers three questions: what to produce, how to produce it, and for whom to produce.
• Market economies use prices and consumer choice; command economies use government planning; mixed economies blend both.
• Specialization and comparative advantage explain why people and countries trade. Focusing on what you produce most efficiently and trading for the rest raises total output.
• Imports are goods bought from other countries; exports are goods sold to other countries.
• Standard of living measures the material well-being of a country's people, often using GDP per capita, access to healthcare, education, and goods.

Vocabulary

Scarcity

The condition of having unlimited wants but limited resources, which forces individuals, businesses, and governments to make choices.

Opportunity Cost

The value of the next-best alternative you give up whenever you make a choice. Example: if you spend $60 on a video game, the opportunity cost might be the shoes you can no longer buy.

Resources

The inputs used to produce goods and services, traditionally grouped as land, labor, capital, and entrepreneurship.

Natural Resources

Materials from nature that people use to make goods or generate energy, such as oil, fresh water, forests, fertile soil, and minerals.

Economic System

The way a society organizes how goods and services are produced, distributed, and consumed. Every economic system answers what, how, and for whom to produce.

Market Economy

An economy in which buyers and sellers make most economic decisions through voluntary exchange, with prices set by supply and demand. Example: companies make more popular smartphones because consumers buy them.

Command Economy

An economy in which the government makes most major decisions about production, prices, and distribution. Example: North Korea is often described as a command economy.

Mixed Economy

An economy that combines market exchange with government rules, services, and protections. Example: the United States has private businesses but also taxes, regulations, and public services.

Consumer Choice

The decisions people make about what goods and services to buy. Consumer choices signal to producers what is valued in the market.

Specialization

When a worker, business, or country focuses on producing a narrow set of goods or services to do it more efficiently. Example: one country specializes in growing coffee while another specializes in making electronics.

Comparative Advantage

The ability of one producer to make a good or service at a lower opportunity cost than another. Trade benefits both sides when each focuses on their comparative advantage.

Trade

The voluntary exchange of goods and services between people, businesses, or countries. Trade lets each side get more of what they want than they could produce alone.

Imports

Goods and services a country buys from other countries. Example: the U.S. imports coffee, electronics, and bananas.

Exports

Goods and services a country sells to other countries. Example: the U.S. exports airplanes, soybeans, and oil.

Standard of Living

A measure of the material well-being of a country's people, including income, access to healthcare, education, and the goods and services available. Higher productivity and trade generally raise the standard of living.