Chapter 1

Question 1

Scarcity

Answer 1

the inability to get everything we want. This is universal.

Question 2

Incentive

Answer 2

A reward that encourages an action or a penalty that discourages one.
● Example: Prices of goods

Question 3

Economics

Answer 3

A reward that encourages an action or a penalty that discourages one.
● Example: Prices of goods

Question 4

Microeconomics

Answer 4

The study of small-scale economic events that impact individuals and firms in society.

Question 5

Macroeconomics

Answer 5

The study of large economic phenomenon like national economies and global economic stability.

Question 6

Two big questions in economics

Answer 6

1. How do choices end up determining what, how, and for whom goods are
   produced?
2. When do choices made in self-interest also promote social interest?

Question 7

Goods and services

Answer 7

Objects that people value and produce to satisfy human wants

Question 8

Factors or production

Answer 8

the resources businesses use to produce goods and services.
● Land – earns rent
● Labour – earns wages
● Capital – earns interest
● Entrepreneurship – earns profit

Question 9

Self-interest

Answer 9

People make choices in support of their own interests with the goal of advancing their own agendas

Question 10

Social Interest

Answer 10

An outcome is in the social interest if it benefits society as a whole.

Question 11

Efficient

Answer 11

An everyday situation that cannot be improved upon

Question 12

Tradeoff

Answer 12

an exchange, giving up something to gain something else.

Question 13

Globalization

Answer 13

expansion of foreign trade, borrowing and lending, and investment.

Question 14

Market Capitalism

Answer 14

The market is free for individuals to buy and sell goods and services.
● Adam Smith said that an INVISIBLE HAND existed that promoted social interest
by corporations competing against each other in their self-interests

Question 15

Centrally planned socialism

Answer 15

Government controls the means of production and
determines the direction of the economy.
● Karl Marx and other theorists supported these ideas
● The modern-day Occupy Wall Street movement advocates to ideas similar to
these (redistribution of wealth, greater corporate regulations, etc.)

Question 16

MIXED ECONOMY

Answer 16

The MIXED ECONOMY combines these two ideas(Centrally planned socialism and Market Capitalism) and is most prevalent in the
economies of developed countries, including Canada.

Question 17

Six economic ways of thinking

Answer 17

1. Choice is a tradeoff
2. People make rational choices by comparing benefits and costs
3. Benefit is what you gain from something
4. Cost is what you must give up for something
5. Most choices are how much choices made at the margin
6. Choices respond to incentives

Question 18

OPPORTUNITY COST

Answer 18

OPPORTUNITY COST is the cost of the highest valued alternative to a decision.
● All tradeoffs involve an opportunity cost

Question 19

Marginal Benefit

Answer 19

The benefit that arises from an increase in an activity.
When individuals make choices they make them at the MARGIN – comparing the
benefit of a little bit more of something with its cost.

Question 20

Positive Statement

Answer 20

What it is. Generally, policy statements or other statements that can
be supported by facts (either proven or disproven).

Question 21

Normative Statement

Answer 21

What it ought to be. These statements cannot be proven or

disproven and generally tend to be subjective statements depending on the individual.

Question 22

ECONOMIC MODELS

Answer 22

ECONOMIC MODELS are used to explain the economic world.