Chapter 1

Question 1

what is economics

Answer 1

the study of efficient allocation of scarce resources

Question 2

scarcity

Answer 2

society’s resources are limited, nothing is infinite in nature

Question 3

allocate

Answer 3

study of how people/society decides to distribute their limited resources to satisfy needs/wants

Question 4

physical capital

Answer 4

K˚ everything we need and use to make final products that we consume

Question 5

labor

Answer 5

L

Question 6

natural resources

Answer 6

R anything mother nature provides

Question 7

technology

Answer 7

T better machines, improved quality & product life, better “know how”

Question 8

entrepreneurship

Answer 8

E desire, willingness, and ability to improve products, production processes, and physical capital to satisfy society’s needs/wants

Question 9

production function

Answer 9

Q(amount of output)=f(K˚,L,R,T,E)

Question 10

two fundamental assumptions in capitalist or free enterprise economic systems

Answer 10

1. all members are free to make their own choices

2. all members are rational