ECON: Unit 1: Ch 1

Question 1

economics

Answer 1

the study of how people make choices when they face a limited supply of resources

Question 2

the fundamental economic problem

Answer 2

scarcity

Question 3

scarcity

Answer 3

• limited quantities of resources to meet unlimited wants

- scarcity always exists and affects every decision

Question 4

factors of production

Answer 4

resources used to make all goods and services

-land, labor, capital (any human made resource used to produce other goods and services)

Question 5

physical capital

Answer 5

goods used to make other goods ie tools and buildings

Question 6

human capital

Answer 6

knowledge and skills a worker gains through education and experience ie schooling

Question 7

entrepreneurs

Answer 7

leaders who decide how to combine land/labor and capital resources to create new goods and services

Question 8

opportunity cost

Answer 8

most desirable alternative given up as a result of a decision, ie buy a computer=no vacation

Question 9

efficiency

Answer 9

using resources to maximize the production of goods and services
-underutilization: using fewer resources than an economy is capable of using

Question 10

cost

Answer 10

the alternative that is given up due to a decision

Question 11

resources and technology

Answer 11

must 1st determine which goods and services a country can produce, given its current resources
-both human and physical capital reflect a vital ingredient: technology

Question 12

microeconomics

Answer 12

individuals, households, business

Question 13

macroeconomics

Answer 13

the economy as a whole

Question 14

positive economics

Answer 14

describes how things are

• what impact will a salary increase have on next years budget?
• role of most economists

Question 15

normative economics

Answer 15

• focus on how things ought to be done
• what actions should we take now to reduce expenses to balance next years budget?
• economists working with government to create policy

Question 16

consumer decisions

Answer 16

• has a fixed amount of funds/budget

- how can they get the most quantity for amount of money allotted?

Question 17

producer decisions

Answer 17

• what to produce?
• how to produce?
• for whom to produce?

Question 18

“there is no such thing as free lunch”

Answer 18

• everything has a cost

- someone pays for the production/uses time for a “free” object

Question 19

7 principles to guide an economic way of thinking

Answer 19

1. scarcity forces tradeoffs
2. cost vs benefits
3. thinking at the margin
4. incentives matter
5. trade makes people better off
6. markets coordinate
7. future consequences count

Question 20

scarcity forces tradeoffs

Answer 20

due to scarcity and consequences of making choices, people have to make sacrifices

Question 21

cost vs benefits

Answer 21

when making a trade off, we must weigh the cost of the decision vs the benefits
-goal: for the benefits to outweigh the costs

Question 22

thinking at the margin

Answer 22

costs and benefits of adding 1 more unity of a good or subtracting one
-example: how will i feel after 1 more cookie BAD THE ANSWER IS ALWAYS BAD

Question 23

incentives matter

Answer 23

motivational, responses are predictable, can be positive or negative incentives, will influence decision making

Question 24

trade makes people better off

Answer 24

someone wont engage in trade if it doesn’t make them better off. focus on what we do well and trade for what you need/want

Question 25

markets coordinate

Answer 25

when markets operate freely with limited government interference

• capitalism
• adam smiths philosophy in wealth of nations
• “the invisible hand”

Question 26

future consequences count

Answer 26

most people are shortsighted, economists must consider all consequences.
-law of unintended consequences (unexpected results from action)

Question 27

economic interaction

Answer 27

exchanges of goods and services between people

-how we get what we want

Question 28

market

Answer 28

an arrangement by which economic exchanges between people take place
-how we get what we want

Question 29

price and scarcity

Answer 29

price is determined by scarcity

• need: something we must have to survive
• wantL a way to fulfill a need

Question 30

paradox of value

Answer 30

• why are diamonds (a want) more expensive than water (a need)?
• diamonds are more scarce than water

Question 31

growth

Answer 31

more people or inventions

Question 32

law of increasing costs

Answer 32

as production switches from 1 item to another, more and more resources are necessary to increase production, therefor opportunity cost increases

Question 33

production possibilities

Answer 33

alternative combos of production of various goods that are possible, given the economys resources

Question 34

points inside PPC curve

Answer 34

represents inefficient combos, able to increase production without having to decrease 1/2 productions

Question 35

points outside PPC curve

Answer 35

represents combo that is unattainable to produce with given resources
-can eventually reach w shift in economy/resources/population