1-The Science Of Scarcity

Question 1

Utility

Answer 1

The satisfaction one receives from a good

Question 2

Bad

Answer 2

Anything from which individuals receive disutility or dissatisfaction

Question 3

Disutility

Answer 3

The dissatisfaction one receives from a bad

Question 4

Resources

Answer 4

To produce goods.

Sometimes resources are referred to as inputs or factors of production

Question 5

Resources are divided into four broad categories, what are they?

Answer 5

Land, labor, capital and entrepreneurship

Question 6

Land

Answer 6

Natural resources such as minerals, forests, water and unimproved land.
Eg. Oil, woods and animals
Also refered to as natural resources

Question 7

Labor

Answer 7

Consists of the physical and mental talents people contribute to the production process.
Eg. A person building a house is using his or her own labor

Question 8

Capital

Answer 8

Consists of produced goods that can be used as inputs for further production.
Eg. Factories, machinery, tools, computers, and buildings
One country might have more capital than another. This means that it has more factories, buildings, machinery and so on.

Question 9

Entrepreneurship

Answer 9

Refers to the particular talent that some people have for organizing the resources of land, labor and capital to produce goods, seek new business opportunities, and develop new ways of doing things.

Question 10

Scarcity

Answer 10

The condition in which our wants [for goods] are greater than the limited resources [land, labor, capital and entrepreneurship] available to satisfy those wants.

Question 11

Scarcity is our infinite wants hitting up against finite resources.
Why is this?

Answer 11

Our wants are infinite, but our resources are finite

Question 12

Economics

Answer 12

The science of scarcity. The science of how individuals and societies deal with the fact that wants are greater than the limited resources available to satisfy those wants.

Question 13

Name three effects that scarcity can have

Answer 13

1. The need to make choices
2. The need for a rationing device
3. Competition

Question 14

People have to make choices because of scarcity, why?

Answer 14

Because our unlimited wants are greater than our limited resources, so some wants must go Unsatisfied. We must choose which want we will satisfy and which we will not.
Eg. Go to Hawaii or pay off the car loan?

Question 15

Rationing device

Answer 15

A means for deciding who gets what of available resources and goods

Question 16

We need rationing devices because of scarcity. Why?

Answer 16

If people have infinite wants for goods and there are only limited resources to produce the goods, then of rationing device must be used to decide who gets the available quantity of goods.
Eg. Dollar price
Those people who pay the dollar price for the new car end up with a new car.

Question 17

Are rationing devices discriminating?

Answer 17

Yes, every rationing device discriminates against someone.
Eg. Dollar price discriminates against the poor.
The first 100 in line get a ticket, discriminates against people with disabilities, people who can’t afford a car to get there.
Brute force, discriminates against the weak.
Beauty, discriminates against the ugly.
None is clearly superior to dollar price.

Question 18

Just competition exist because of scarcity?

Answer 18

Yes, if there were enough resources to satisfy all our seemingly unlimited wants, people would not have to compete for the available but limited resources.

Question 19

Why do people compete for the rationing device?

Answer 19

Because it will allow you to satisfy more of your wants.

Whatever the rationing device, people will compete for it.

Question 20

Opportunity cost

Answer 20

The most highly valued opportunity or alternative forfeited when choices made.
Every time you make a choice, you incur an opportunity cost.
Eg. You made the choice to study. In making this choice you denied yourself the benefit of doing something else i.e. Watch tv. Whatever you would have chosen to do had you decided not to study is the opportunity cost of you studying.
Opportunity cost of studying is watching TV

Question 21

Opportunity cost and behavior

Answer 21

The higher the opportunity cost of doing something, the less likely it will be done.
Changes in opportunity cost affect behavior

Question 22

In economics what is word marginal a synonym for?

Answer 22

Additional

Question 23

Marginal benefits

Answer 23

Additional benefits.

The benefits connected to consuming an additional unit of a good or undertaking one more unit of the activity

Question 24

Marginal costs

Answer 24

Additional costs.

The costs connected to consuming an additional units of a good or undertaking one more unit of an activity.

Question 25

When ordering a second hamburger you do not consider total benefits and total costs of the hamburger, why is this?

Answer 25

Because the benefits and cost connect with the first hamburger (the one you already eaten) are no longer relevant to the current decision.
You are not deciding between eating two hamburgers and eating no hamburgers.

Question 26

Decisions at the margin

Answer 26

When individuals make decisions by comparing marginal benefits to marginal costs.
Decision making characterized by weighing the additional benefits of a change against the additional costs of a change with respect to current conditions.

Question 27

Efficiency

Answer 27

Exists when marginal benefits equal marginal costs.

The right amount is the ‘optimal’ or ‘efficient’ amount.

Question 28

Unintended effects

Answer 28

Economist often think in terms of causes and effects.
When something doesn’t turn out the way as it was expected.
Minimum wage increases may have the unintended effect of people losing there jobs as employers don’t think it’s worth while to keep employing them. Although the original plan was to help people earn more money.
Also seat belt law may result in people feeling safer and so driving less careful

Question 29

Exchange or trade

Answer 29

The process of giving up one thing for another. People enter into exchanges to make themselves better off.
Science of exchange.

Question 30

Economic categories

Answer 30

Positive economics
normative economics
microeconomics
macroeconomics

Question 31

Positive economics

Answer 31

The study of “what is” in economic matters.

Question 32

Normative economics

Answer 32

The study of “what should be” in economic matters.

Question 33

Microeconomics

Answer 33

The branch of economics that deals with human behavior and choices as they relate to relatively small units an individual, a firm, an industry, a single market.

Question 34

Macroeconomics

Answer 34

Deals with human behavior and choices as they relate to an entire economy.

Question 35

Good

Answer 35

Anything from which individuals receive you utility or satisfaction.