Chapter 1-5

Question 1

economics

Answer 1

the study of the allocation of our limited resources to satisfy our unlimited wants

Question 2

resources

Answer 2

inputs used to produce goods and services

Question 3

the economic problem

Answer 3

Scarcity forces us to choose, and choices are costly because we must give up other opportunities that we value

Question 4

macroeconomics

Answer 4

the study of the aggregate economy, including the topics of inflation, unemployment, and economic growth

Question 5

aggregate

Answer 5

the total amount—such as the aggregate level of output

Question 6

microeconomics

Answer 6

the study of the smaller units within the economy, including the topics of household and firm behaviour and how they interact in the marketplace

Question 7

theory

Answer 7

an established explanation that accounts for known facts or phenomena

Question 8

hypothesis

Answer 8

a testable proposition

Question 9

empirical analysis

Answer 9

the examination of data to see if the hypothesis fits well with the facts

Question 10

ceteris paribus

Answer 10

holding everything else constant

Question 11

correlation

Answer 11

two events that usually occur together

Question 12

causation

Answer 12

when one event causes another event to occur

Question 13

fallacy of composition

Answer 13

Even if something is true for an individual, it is not necessarily true for a group.

Question 14

positive analysis

Answer 14

an objective, value-free approach, utilizing the scientific method

Question 15

normative analysis

Answer 15

a subjective, biased approach

Question 16

scarcity

Answer 16

the situation that exists when human wants exceed available resources

Question 17

labour

Answer 17

the physical and mental effort used by people in the production of goods and services

Question 18

land

Answer 18

the natural resources used in the production of goods and services

Question 19

capital

Answer 19

the equipment and structures used to produce goods and services

Question 20

human capital

Answer 20

the productive knowledge and skill people receive from education and on-the-job training

Question 21

entrepreneurship

Answer 21

the process of combining labour, land, and capital together to produce goods and services

Question 22

goods

Answer 22

items we value or desire

Question 23

services

Answer 23

intangible acts that people want

Question 24

bads

Answer 24

items that we do not desire or want

Question 25

opportunity cost

Answer 25

the highest or best forgone opportunity resulting from a decision

Question 26

marginal thinking

Answer 26

focusing on the additional, or incremental, choices

Question 27

rule of rational thinking

Answer 27

Individuals will pursue an activity if the expected states that individuals will pursue an activity if they expect the marginal benefits to be greater than the marginal costs, or E(MB)>E(MC)

Question 28

net benefits

Answer 28

the difference between the expected marginal benefits and expected marginal costs

Question 29

positive incentives

Answer 29

incentives that either reduce costs or increase benefits, resulting in an increase in the activity or behaviour

Question 30

negative incentives

Answer 30

incentives that either increase costs or reduce benefits, resulting in a decrease in the activity or behaviour

Question 31

specializing

Answer 31

concentrating on the production of one, or a few, goods or services, allows them to make the best use of their limited resources.

Question 32

comparative advantage

Answer 32

occurs when a person or a country can produce a good or service at a lower opportunity cost than others can

Question 33

consumer sovereignty

Answer 33

consumers vote on economic affairs with their dollars in a market economy

Question 34

command economy

Answer 34

The government uses central planning to coordinate most economic activities.

Question 35

market economy

Answer 35

Goods and services are allocated based on the private decisions of consumers, input suppliers, and firms.

Question 36

mixed economy

Answer 36

Government and the private sector together determine the allocation of resources.

Question 37

labour-intensive

Answer 37

production that uses a large amount of labour

Question 38

capital-intensive

Answer 38

production that uses a large amount of capital

Question 39

economic theories

Answer 39

statements used to explain and predict patterns of human behaviour, that through abstractions, provide a broad view of human economic behaviour.

Question 40

why are observations and predictions more difficult in the social sciences

Answer 40

With its focus on human behaviour, which is more variable and less predictable, observation and prediction are more difficult in the social sciences.

Question 41

why are “free lunches” not free

Answer 41

Because the production of any good uses up some of society’s resources, there is no such thing as a free lunch.

Question 42

how specialization and trade lead to greater wealth and prosperity

Answer 42

Specialization and trade increase wealth by allowing a person, a region, or a nation to specialize in those products that it produces at a lower opportunity cost and to trade for those products that others produce at a lower opportunity cost.

Question 43

3 questions every society faces

Answer 43

1. what to produce
2. how are the goods and services produced
3. who will get the goods and services

Question 44

what to produce

Answer 44

In a decentralized market economy, millions of buyers and sellers determine what and how much to produce. In a mixed economy, the government and the private sector determine the allocation of resources.

Question 45

how to produce

Answer 45

The best form of production is the one that conserves the relatively scarce (more costly) resources and uses more of the abundant (less costly) resources. When capital is relatively scarce and labour is plentiful, production tends to be labour-intensive. When capital is relatively abundant and labour is relatively scarce, production tends to be capital-intensive.

Question 46

who will get the goods and services

Answer 46

In a market economy, the amount of goods and services one is able to obtain depends on one’s income. The amount of one’s income depends on the quantity and the quality of the scarce resources that the individual controls.