Introduction to Economics GEN1704.2/ECN1101.2 L, Mussurov Altay

Broadly defined, capital represents the tools which people use when they work, in order to make their work more productive and efficient. Under capitalism, capital can also refer to a sum of money invested in a business in hopes of generating profit. (See also. circulating capital, fixed capital, human capital, machinery and equipment, physical capital, and structures.)

An economic system in which privately-owned companies and businesses undertake most economic activity (with the goal of generating private profit), and most work is performed by employed workers who are paid wages or salaries.

A public financial institution, usually established at the national level and controlled by a national government, which sets short-term interest rates, lends money to commercial banks and governments, and otherwise oversees the operation of the credit system. Some central banks also have responsibility for regulating the activities of private banks and other financial institutions.

The different broad groups in society, defined according to what work they do, their wealth, their degree of control over production, and their general role in the economy.

The tradition of economics that began with Adam Smith, and continued with other theorists including David Ricardo, Thomas Malthus, Jean-Baptiste Say, and others. The classical economists wrote in the early years of capitalism, and they uniformly celebrated the productive, innovative actions of the new class of industrial capitalists. They focused on the dynamic economic and political development of capitalism, analyzed economics in class terms, and advocated the labor theory of value.

Anything that is bought and sold for money is a commodity – including produced goods and services, inputs (such as capital or raw materials), and even labor.

A theory of international trade that originated with David Ricardo in the early 19th Century, and is maintained (in revised form) within neoclassical economics. The theory holds that a national economy will specialize through international trade in those products which it produces relatively most efficiently. Even if it produces those products less efficiently (in absolute terms) than its trading partner, it can still prosper through foreign trade. The theory depends on several strong assumptions – including an absence of international capital mobility, and a supply-constrained economy.

Competition occurs between different companies trying to produce and sell the same good or service. Companies may compete with each other for markets and customers; for raw materials; for labor; and for capital.

The consumer price index (CPI) is a measure of the overall price level paid by consumers for the various goods and services they purchase. Retail price information is gathered on each type of product, and then weighted according to its importance in overall consumer spending, to construct the CPI. Monthly or annual changes in the CPI provide a good measure of the rate of consumer price inflation.

Goods and services which are used for their ultimate end purpose, meeting some human need or desire. Consumption can include private consumption (by individuals, financed from their personal incomes) or public consumption (such as education or health care – consumption organized and paid for by government). Consumption is distinct from investment, which involves using produced goods and services to expand future production.