Vocabulary Terms for Personal Finance

Opportunity Cost- The loss of potential gain from other alternatives when one alternative is
chosen.
Example...The opportunity cost of going to college is the money you would have earned
if you worked instead. On the one hand, you lose four years of salary while getting your
degree; on the other hand, you hope to earn more during your career, thanks to your
education, to offset the lost wages.
Scarcity- The basic economic problem that arises because people have unlimited
wants but resources are limited. Because of scarcity, various economic decisions must
be made to allocate resources efficiently.
Examples...After poor weather, corn crops did not grow resulting in a scarcity of food for
people and animals and ethanol for fuel.Coal is used to create energy; the limited
amount of this resource that can be mined is an example of scarcity...The depletion of
forests in Thailand has led to a scarcity of wood, forcing individuals to take wood from
demolished buildings in order to build new ones.
Capital- Financial assets or the financial value of assets, such as cash.
Example...Examples of capital include automobiles, patents, software and brand
names. All of these things are inputs that can be used to create wealth. Besides being
used in production, capital can be rented out for a monthly or annual fee to create
wealth. Capital itself does not exist until it is produced. Then, to create wealth, capital
must be combined with labor, the work of individuals who exchange their time and skills
for money. When people invest in capital by foregoing current consumption, they can
enjoy greater future prosperity.Capital has value because of property rights. Individuals
or companies can claim ownership to their capital and use it as they please. They can
also transfer ownership of their capital to another individual or corporation and keep the
sale proceeds. Government regulations limit how capital can be used and diminish its
value; the tradeoff is supposed to be some benefit to society. For example, when you
sell a stock that has increased in value since you purchased it, you must pay tax on the
capital gains. Those taxes are used for public purposes, such as national defense.
(Found online, a lot of text to help myself understand)
Natural Resources- Materials or substances such as minerals, forests, water, and
fertile land that occur in nature and can be used for economic gain.

Example...Natural resources are substances that occur naturally. They can be sorted
into two categories: biotic and abiotic. Biotic resources are gathered from the biosphere
or may be grown. Abiotic resources are non-living, like minerals and metals.

Human Resources- the personnel of a business or organization, especially when
regarded as a significant asset.
Example...Any person used to provide a service - Waiters, painters, Software
Programmers, Accountants, sales people.
Entrepreneurship- the process of starting a business or other organization. The
entrepreneur develops a business model, acquires the human and other required
resources, and is fully responsible for its success or failure. Entrepreneurship operates
within an entrepreneurship ecosystem.

Example...Steve Ells started the first Chipotle Mexican Grill and now it has turned into a
chain of restaurants with more than 1,600 locations.

Law of Supply- The law of supply is a fundamental principle of economic theory which
states that, all else equal, an increase in price results in an increase in quantity
supplied. In other words, there is a direct relationship between price and quantity:
quantities respond in the same direction as price changes.

Example...When consumers start paying more for cupcakes than for donuts, bakeries
will increase their output of cupcakes and reduce their output of donuts in order to
increase their profits...When your employer pays time and a half for overtime, the
number of hours you are willing to supply for work increases.

Law of Demand- at low prices people buy more, but at higher prices people will buy
less.

Example...When plane tickets become more expensive, youre less likely to travel by air
and more likely to choose the less expensive options of driving or staying home. The
amount of plane tickets that you demand decreases to zero because the cost has gone
up

Equilibrium Price- The equilibrium price is where the supply of goods matches
demand. When a major index experiences a period of consolidation or sideways
momentum, it can be said that the forces of supply and demand are relatively equal and
that the market is in a state of equilibrium.

Example...If I have 43 dogs and 43 people want to buy them so the price is an
equilibrium.

Surplus- The amount of an asset or resource that exceeds the portion that is utilized. A
surplus is used to describe many excess assets including income, profits, capital and
goods. A surplus often occurs in a budget, when expenses are less than the income
taken in, or in inventory when fewer supplies are used than were retained.

Examplesuppose that the price of coffee is $7/pound. If sellers are prepared to sell
100 tons at this price but buyers are only prepared to buy 80 tons, then there is a 20 ton
surplus of coffee.
Shortage- a state or situation in which something needed cannot be obtained in
sufficient amounts.

ExampleThere is a major storm and it knocks out the power which then turns off the
water filtration system in the city. Now there is no clean water to drink. There is a
shortage of drinking water.

Resource- A stock of supply of money, materials, staff and other assets that can be
drawn on by a person or organization in order for it to function.

ExampleWhen opening a new business one has to make sure they have the
necessary materials in order to start ot, such as a location and building and money and
workers. Without these resources there will be no business.

P.A.C.E.D.- Define problem, list alternatives, state criteria, evaluate alternative, make
decision.