Chapter 1 - What is Economics?

Question 1

What does economics mean?

Answer 1

Economics, a social science, is the study of how individuals and society allocate resources, which can be used for production, distribution, and consumption.

Question 2

What is the scarcity problem?

Answer 2

Resources are limited, which cannot fully satisfy the unlimited wants of humans.

Question 3

What is a resource, and what do they consist of?

Answer 3

Resources generate goods and services. They consist of land, labor, capital, and entrepreneurship.

Question 4

What is land and what is an example of it?

Answer 4

Land refers to naturally occurring resources and geographical locations. Examples of these resources is wood, oil, gold, silver, iron, copper, water, food, etc.

Question 5

What is labor?

Answer 5

Labor refers to human resources, workers that provide a good or service. Examples include waiters, economists, teachers, doctors, etc.

Question 6

What is capital?

Answer 6

There are 2 different types of capital. Capital goods, like machinery, are goods not directly sold to consumers, but used towards production of other goods. Financial capital which is what is colloquially used by most people refers to monetary assets. Anything that has monetary value can be considered financial capital.

Question 7

What is entrepreneurship?

Answer 7

Entrepreneurship is a type of labor, and organizes the other 3 resources, land, labor, and capital, like starting a business.

Question 8

What does ceteris paribus mean and what is its significance?

Answer 8

Ceteris paribus means all other factors remain unchanged. This ensures that the effects of certain variables changing can be isolated and pinpointed, which is important when trying to prove relationships.

Question 9

What is positive economics?

Answer 9

Positive economics refers to statements like if-then statements, that can be tested and verified to be true or false.

Question 10

What is normative economics?

Answer 10

Normative economics refers to moral statements on what the economy should be like. An example would be marxist critiques of wage labor, referring it to be exploitation.

Question 11

What is macroeconomics?

Answer 11

Macroeconomics deals with the entire economy as a whole and its interactions with other foreign countries’ economies. It usually refers to broad variables like inflation, money supply, employment rates, and growth.

Question 12

What is microeconomics?

Answer 12

Microeconomics deals with decisions that individual firms and consumers make in relation to the economy.