Chapter 1: Five Foundations of Economics

Question 1

refers to the limited nature of society’s resources, given society’s unlimited wants and needs

Answer 1

scarcity

Question 2

study of how individuals and societies allocate their limited resources to satisfy their nearly unlimited wants

Answer 2

economics

Question 3

study of the individual units that make up the economy

Answer 3

microeconomics

Question 4

study of the overall aspects and workings of an economy

Answer 4

macroeconomics

Question 5

factors that motivate a person to act or exert effort

Answer 5

incentives

Question 6

the highest valued alternative that must be sacrificed to get something else

Answer 6

opportunity cost

Question 7

requires a purposeful evaluation of the available opportunities to make the best decision possible

Answer 7

economic thinking

Question 8

requires decision-makers to evaluate whether the benefit of one more unit is greater than its cost

Answer 8

marginal thinking

Question 9

bring buyers and sellers together to exchange goods and services

Answer 9

markets

Question 10

shows how resources and final goods and services flow through the economy

Answer 10

circular flow

Question 11

involves individuals trading a good they already have or providing a service in exchange for something they want

Answer 11

barter

Question 12

occurs when each party in an exchange transaction has what the other party desires

Answer 12

double coincidence of wants

Question 13

the voluntary exchange of goods and services between two or more parties

Answer 13

trade

Question 14

the situation where an individual, business, or country can produce at a lower opportunity cost than a competitor can

Answer 14

comparative advantage

Question 15

encourage action by offering rewards or payments

Answer 15

positive incentives

Question 16

discourage action by providing undesirable consequences or punishments

Answer 16

negative incentives

Question 17

an action taken with the objective of causing another action or actions

Answer 17

direct incentives

Question 18

usually the unintended consequence from a direct incentive

Answer 18

indirect incentives