Chapter 1 Foundation of Economics

Question 1

Factors of Production (Resources)

Answer 1

the inputs used to produce goods and services wanted by people, consisted of land, labor, capital, entrepreneur

Question 2

Scarcity

Answer 2

the situation in which available resources, or factors of production, are finite, whereas wants are infinite. In this state, There are not enough
resources to produce everything that human beingsneed and want

Question 3

Choice

Answer 3

essential since it is not possible for all human needs and wants to be satisfied

Question 4

Efficiency

Answer 4

making the best possible use of scarce resources

Question 5

Equity

Answer 5

being fair or just

Question 6

Economic well-being

Answer 6

levels of prosperity, economic satisfaction and standards of living among the members of a society

Question 7

Sustainability

Answer 7

the ability of the present generation to satisfy its needs by the use of resources, and especially non-renewable resources, without limiting future generations’ ability to satisfy their own needs

Question 8

Interdependence

Answer 8

economic decision-makers interact with and depend on each other

Question 9

Intervention

Answer 9

government becomes involved with the workings of markets

Question 10

Economics

Answer 10

the study of choices leading to the best possible use of scarce resources in order to best satisfy unlimited human needs and wants

Question 11

Resource Allocation

Answer 11

assigning available resources, or factors of production, to specific uses chosen among many possible alternatives, and involves answering the what to produce and how to produce questions

Question 12

Reallocation

Answer 12

a decision to change the amounts of goods produced

Question 13

Overallocation/Underallocation

Answer 13

Too many/few socially desirable goods and services being produced

Question 14

Distribution of Income

Answer 14

concerned with how much output different individuals or different groups in the population receive

Question 15

Redistribution of Income

Answer 15

distribution of income or output changes so that different social groups now receive more, or less, income and output than previously

Question 16

Land

Answer 16

all natural resources, including all agricultural and non-agricultural land, as well as everything that is under or above the land, such as minerals, oil reserves, underground water, forests, rivers and lakes

Question 17

Labor

Answer 17

includes the physical and mental effort that people contribute to the production of goods and services. The efforts of a teacher, a construction worker, an economist, a doctor, a taxi driver or a plumber all contribute to producing goods and services

Question 18

Capital (Physical Capital)

Answer 18

a manmade factor of production (it is itself produced)used to produce goods and services. Examples of physical capital include machinery, tools, factories, buildings, road systems, airports, harbours, electricity generators and telephone supply lines

Question 19

Entrepreneur

Answer 19

a special human skill possessed by some people, involving the ability to innovate by developing new ways of doing things, to take business risks and to seek new opportunities for opening and running a business

Question 20

Physical Capital

Answer 20

one of the four factors of production consisting of man-made inputs that provide a stream of future benefits in the form of the ability to produce greater quantities of output

Question 21

Human Capital

Answer 21

the skills, abilities and knowledge acquired by people, as well as good levels of health, all of which make them more productive.

Question 22

Natural Capital

Answer 22

includes everything that is included in land, plus additional natural resources that occur naturally in the environment such as the air, biodiversity, soil quality, the ozone layer, and the global climate

Question 23

Opportunity Cost

Answer 23

the value of the next best alternative that must be sacrificed to obtain something else

Question 24

Production Possibility Curve (PPC)

Answer 24

represents all combinations of the maximum amounts of two goods that can be produced by an economy, given its resources and technology, when there is full employment of resources and productive effi ciency

Question 25

Productive Efficiency

Answer 25

output is produced by use of the fewest possible resources; alternatively, we can say that output is produced at the lowest possible cost

Question 26

Actual Output

Answer 26

the quantity of output actually produced, is always at a point inside the PPC, because in the real world all economies have some unemployment of resources and some productive inefficiency

Question 27

Ceteris Paribus

Answer 27

a Latin expression that means ‘other things equal’

Question 28

Rational Economic Decision Making

Answer 28

individuals are assumed to act in their best self-interest, trying to maximize (make as large as possible) the satisfaction they expect to receive from their economic decisions

Question 29

Positive Statements

Answer 29

about something that is, was or will be. Positive statements may be true or they may be false

Question 30

Normative Statements

Answer 30

are about what ought to be. These are subjective statements about what should happen

Question 31

Economic Growth

Answer 31

the quantity of output produced increasing over time; if it decreases, negative economic growth

Question 32

Economic Development

Answer 32

raising the standard of living and well-being of people