The Importance of Understanding Economic Terms
By admin on Jul 18, 2009 with Comments 0
The Importance of Understanding Economic Terms
The term “Economics” is commonly defined as “The science of how people make choices for the allocation of scarce resources to satisfy their unlimited desires.”
Though a major concern, which analysts should pay more attention to, the distribution of wealth has lately become less important than it used to be. The science dealing with this is political economy, which is the science that has to do with the nature of and of economic value, together with the production and distribution of valuable goods and services.
It is very important for everyone to thoroughly understand a set of highly used economic terms, such as wealth, production, value, labor, land, etc, and here are some of the definitions of these economic terms:
· Wealth – all material things produced by labor for the satisfaction of human desires and having a certain exchange value.
Moreover, wealth is material and is produced by workforce and it can satisfy human desires. However, contrary to common belief, money is not considered wealth, if not a medium of exchange, because of which, one can acquire wealth, which also has exchange value.
Production – all the processes by which human labor creates valuable goods and services and brings them to the ultimate consumer.
Production includes not only the producing or manufacturing of goods, but it also has to do the process of bringing them directly to the consumer. The factors that help produce wealth are land, labor and also capital.
· Value – the quantity of labor or products of labor that people are generally willing to give in exchange for something.
The economic value of an item is just what it will exchange for, under normal circumstances.
· Land – the entire material universe exclusive of people and their products.
Land includes not only the dry surface of earth, if not all other natural materials, as well as forces and opportunities.
· Labor – all human exertion in the production of wealth and services.
Both entrepreneurs along with blue-collars are part of this category; labor does not only refer to physical strength, whereby finished products are produced, if not also to mental work, whereby wealth is also produced.
· Capital – wealth used in the process of production, or in the course of exchange.
· Distribution – The division of wealth among the factors, which produce it.
Rent, wages and interest are the avenues of distribution are, and here is also their definition:
· Rent – that part of wealth, which is the return for the use of land.
· Wages – that part of wealth, which is the return to labor.
· Interest – that part of wealth, which is the return for the use of capital.
These factors involved in production all work together and produce a “pie”, called “wealth.”
Further reading on www.economywatch.com and www.economypedia.com:
Economic Terms on EconomyWatch
Encyclopedia of Economic Terms – Economypedia.com
Definition of “Global Economy”
