Comparative Advantage is the concept where one person, business, or economy is able to outproduce one particular product or service compared to another person, business, or economy.

The “Gross Domestic Product” of a country is the total value of all finished goods and services that were produced in a given year. In other words, this is the total economic output. GDP is used to measure the total size of an economy, and therefore how much the economy has grown (or shrunk) in a year.

Risk is one of the most important concepts in investing, economics, and personal finance. Our appetite for, or aversion to, risk is the biggest driver behind spend and save decisions. Despite this, very few people really understand just how big a role risk plays in our everyday lives.

Property rights is the foundation of all free-enterprise economic systems. It is what allows people to profit from capital and ideas, without fear of seizure by the government or theft.

The government has two main ways it tries to influence the economy – through Fiscal Policy and Monetary Policy. Fiscal policy is the more direct approach, where the government levies taxes and subsidies to try to balance its budget while encouraging growth, while monetary policy is less direct – tweaking interest rates and modifying the money supply.

International Trade is the system under which businesses, individuals, and governments trade goods and services. This exchange from many different National economies is what makes up the Global economy.

Inflation: how much less a dollar is worth next year compared to today. Most consumers hate inflation – it erodes your savings, and eats away at the real benefits you get from increasing income. However, inflation plays a necessary role in the economy, and without it much of the economy would quickly fall apart.

Government spending makes up a whopping 20% of all spending in the American economy, including the salaries of all government employees, government contracts to private companies, and military spending. This is all paid for by taxes, meaning more than 1/3 of all economic activity filters through the public sector in some way.
This means government taxing and spending will have a huge impact on the rest of the economy, and so the way people and businesses are taxed, and how the money is spent, is centered on how it impacts the rest of the economy. The way the government organizes these taxes and spending to influence the economy is called the Fiscal Policy.

The “Time Value of Money” is one of the most important concepts in economics, investing, and business. For individuals, this determines how much you save and spend. For businesses, it determines how quickly they try to expand. For investors, it decides the mix of a portfolio.

In Economics, “Demand” is the relationship between prices and how much people want to buy a good or service.

In Economics, “Supply” means the relationship between prices and production. In general, the higher the market price of a good or service is, the more producers are willing to sell of it.

Cottage Industry, or the “Putting Out System” is a production system of producing goods that relies on producing goods, or parts of goods, by craftsmen at home, or small workshops, instead of large factories.

“Unemployment” is a major economic indicator measuring how much of the working population is currently looking for a job. The unemployment rate is the most “tangible” economic indicator – if GDP is going up or down, it is harder for people to notice in their day-to-day lives. When the unemployment rate goes up, it usually means you or someone you know lost their job recently, which puts a great strain on individuals.

“Specialization” is when a labor force begins to divide total production, leading to a rise of experts or specialists. This is called the Division of Labor, and it typically results in much higher productivity of labor.

Scarcity refers to the fact that resources are finite – people and organizations need to allocate their finite resources between their infinite wants.

“Opportunity Cost” is what needs to be given up to get something. This is different from an item’s price.

Everyone knows about costs and benefits of doing something – the pros and cons of making a choice. Marginal benefit and marginal cost are different – they look more closely at doing slightly more or less of different alternatives. Marginal costs and benefits are extremely important to producers when choosing their inputs and prices.

“Labor” is how much a person works. It is the use of time and exertion of effort to produce something of value. Generally speaking, the more valuable a person’s labor is, the higher their wage.

Interest rates are growth rates – it is a percentage that is used to calculate how much a loan or investment grows over time.

In Economics, an “Externality” is a benefit or cost that is not reflected in the price of a good or service.

“Economics” is often called the Dismal Science – it studies the trade-offs between making choices. The purpose of economics is to look at the different incentives, assets, and choices facing people, businesses, schools, and governments, and see if there is any way to improve outcomes.

Economic Incentives includes anything that pushes people, businesses, and governments to do one thing or another. This includes what products you buy, what career you choose, what products businesses produce, and what government programs are put in place.

Economic Growth means that the economy is growing. More goods and services are being produced and consumed than they were before. The most common measurement of economic growth is the Gross Domestic Product (or GDP), which measures the total number of finished goods and services produced in an economy in a year.

“Competition” is when many producers try to sell similar goods to the same set of consumers. The producers need to “compete” to try to attract more consumers, usually by lowering prices, offering better versions of the goods or services, or through marketing.

The Federal Reserve Bank, or the “Fed”, is the central banking system of the United States. It serves as the primary regulator of the US dollar, as well as the “lender of last resort” for other banks.

“Price Controls” are artificial limits that are put on prices. If the limit is put in place to prevent prices from getting too high, they are called Ceilings. If they are in place to prevent the price from getting too low, they are called “Floors”.

The Business Cycle is the broad, over-stretching cycle of expansion and recession in an economy.