CH. 1

Question 1

Economic problem

Answer 1

people have unlimited wants and desires, but resources are limited/scarce

Question 2

How do you know if something is scarce?

Answer 2

If it costs money, it’s not available to everyone in unlimited amounts

Question 3

how to solve economic problem/scarce resources

Answer 3

Choices have to be made, when we choose one thing, we usually give up the other (trade-off)

Question 4

economics is the study of ____

Answer 4

decision making

Question 5

What does economics look at?

Answer 5

how people make choices about what to buy, produce, or use considering that resources (money, time, and materials) are limited

Question 6

economic models

Answer 6

-simplified representations of reality

Question 7

What do economic models help us do?

Answer 7

Understand, predict, and make decisions about economic activities

Question 8

4 steps of circular flow model

Answer 8

-Households provide labor
-Businesses pay wages
-Households spend money
Businesses provide goods and services

Question 9

what does capital include

Answer 9

all the tools, machines, and buildings used to produce goods and services

Question 10

physical capital

Answer 10

factories, machines, and tools

Question 11

human capital

Answer 11

skills, knowledge, and experience of people. ex. doctor’s medical training

Question 12

labor depends on _____

Answer 12

time

Question 13

how are resources rewarded (4)

Answer 13

wages, interest, rent, profit

Question 14

scarcity

Answer 14

there isn’t enough of something for everyone who wants it

Question 15

‘bads’

Answer 15

things people don’t want even if they’re free

Question 16

Who makes decisions in the economy?

Answer 16

-households, businesses, governments, and the rest of the world

Question 17

market

Answer 17

a place where buyers and sellers come together to exchange goods and services

Question 18

types of markets

Answer 18

product markets
resource markets

Question 19

product markets

Answer 19

places where businesses sell goods and services directly to consumers

Question 20

Resource Markets

Answer 20

places where businesses buy the resources they need to produce goods and services. Resources include workers, land and capital (money, machinery)

Question 21

green circle

Answer 21

represents the flow of money

Question 22

households spend money on goods and services in the product market (______)

Answer 22

expenditure

Question 23

firms use this revenue to pay households for their resources in the resource market (_____)

Answer 23

income

Question 24

decisions people make about what to buy or not buy

Answer 24

economic choices

Question 25

what drives our choices?

Answer 25

-making the best decision -getting the most benefit -spending as little as possible

Question 26

looking out for what's best for yourself

Answer 26

self interest

Question 27

_____ involve making smart decisions by using time and information effectively

Answer 27

rational choices

Question 28

people who ____ are usually willing to spend money or effort to get information that will help them make better choices

Answer 28

rational decisions

Question 29

merginal

Answer 29

the next unit of something

Question 30

marginal benefit

Answer 30

additional satisfactions or utility gained from consuming one more unit of good or service

Question 31

economics uses ___ or ____, which are simplified versions of real life to help us understand and predict what might happen in the world.

Answer 31

theories or models

Question 32

marginal cost

Answer 32

the cost of producing one more unit

Question 33

supply and demand model

Answer 33

predicts how prices will change in response to shifts in supply and demand

Question 34

the law of demand

Answer 34

states all else being equal, as the price of a good increases, the quantity demanded increases

Question 35

theory

Answer 35

guides us by organizing, remembering, and understanding information

Question 36

fallacy

Answer 36

occurs when someone assumes that because two things happen together, one must be causing the other

Question 36

How to make a theory?

Answer 36

-Ask a question -make assumptions -create hypothesis -test the hypothesis