Chapter 1

Question 1

Economics

Answer 1

• The study of choice under conditions of scarcity
o Unlimited wants
o Limited resources (time and money)

Question 2

Scarcity

Answer 2

A situation in which the amount of something is available

Is insufficient to satisfy the desire for it

Question 3

Scarcity and individual choice

Answer 3

Scarcity of time 
		-Limited numbers of hours in each day 
	Scarcity of spending power
		-Limited spending power 
	Because of scarcity we have to make choices 
		-We have to make choices

Question 4

Opportunity cost

Answer 4

What is given up when taking an action or making a choice
What we must forego when we make that choice
• Explicit cost
– The dollars sacrificed – and actually paid out – for a choice
• Implicit cost
– The value of something sacrificed when no direct payment is made

Question 5

Resources

Answer 5

a. Things we use to make goods and services that help us achieve our goals
b. The labor, capital, land and natural resources, and entrepreneurship
i. That are used to produce goods and services

Question 6

Four Resources in depth

Answer 6

Labor 1
a. Time human beings spend producing goods and services
Capital 2
b. A long-lasting tool that is used to produce other goods
• Physical capital
– Part of the capital stock
– Physical goods
• Machinery, equipment, factories
Human capital
Skills and training of the labor force
– Long-lasting
Capital stock
Total amount of capital in a nation that is productively useful at a particular point in time
All the capital - physical and human
• Created in previous periods
• Still productively useful
Land 3
– Physical space on which production takes place
– And the natural resources that come with it
Entrepreneurship 4
– Ability and willingness to combine the other resources into a productive enterprise

Question 7

Mirco VS Marco

Answer 7

Microeconomics 
a.	Behavior of individual households, firms, and governments
i.	Choices they make
ii.	Their interaction in specific markets.
b.	Greek word mikros, meaning “small”
Macroeconomics 
c.	Behavior of the overall economy
d.	Greek word makros, or “large”

Question 8

Stock VS flow variables

Answer 8

• Stock variable
– Measures a quantity in existence at a moment in time
• Housing stock: number of homes that people own at a given time
• Flow variable
– Measures a process that takes place over a period of time
• New home construction

Question 9

Postive VS normative statments

Answer 9

Positive economics
a. The study of how the economy works
Normative economics
b. The practice of recommending policies to solve economic problems

Question 10

Explain why economists build models.

Answer 10

6. Explain why economists build models.
   To understand the world better
   a. Global and catastrophic events
   i. Wars, famines, epidemics, and depressions
   b. Local and personal events
   i. Salary, rent
   To achieve social change
   c. Understand the origins of social problems
   d. Explain why previous efforts to solve them haven’t succeeded
   e. Design new, more effective solutions