Chapter 1: Introducing Economics

Question 1

Good

Answer 1

Anything from which individuals receive utility or satisfaction

Question 2

Utility

Answer 2

The satisfaction one receives from a good.

Question 3

Bad

Answer 3

Anything from which individuals receive disutility or dissatisfaction

Question 4

Disutility

Answer 4

The dissatisfaction one receives from a bad.

Question 5

Land

Answer 5

All natural resources, such as minerals, forests, water and unimproved land.

Question 6

Labor

Answer 6

The physical and mental talents people contribute to the production process.

Question 7

Capital

Answer 7

Produced goods that can be used as inputs for further production such as factories, machinery, tools, computers and buildings.

Question 8

Entrepreneurship

Answer 8

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

Question 9

Scarcity

Answer 9

The condition in which our wants are greater than the limited resources available to satisfy those wants.

Question 10

Economics

Answer 10

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 11

Three effects of scarcity:

Answer 11

• The need to make choices
• The need for a rationing device
• Competition

Question 12

Rationing Device

Answer 12

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

Question 13

Opportunity Cost

Answer 13

The most highly valued opportunity or alternative forfeited when a choice is made.

Question 14

Marginal Benefits

Answer 14

Additional benefits. The benefits connected with consuming an additional unit of a good or undertaking one more unit of an activity.

Question 15

Marginal Costs

Answer 15

Additional Costs. The costs connected with consuming an additional unit of a good or undertaking one more unit of an activity.

Question 16

Decisions at the Margin

Answer 16

Decision making characterised by weighing the additional benefits of a change against the additional costs of a change with respect to current conditions.

Question 17

Efficiency

Answer 17

Exists when marginal benefits equal marginal costs.

Question 18

Incentive

Answer 18

Something that encourages or motivates a person to undertake an action.

Question 19

Exchange (Trade)

Answer 19

The giving up of one thing for something else.

Question 20

Ceteris Paribus

Answer 20

A Latin term meaning “all other things constant” or “nothing else changes”

Question 21

Theory

Answer 21

An abstract representation of the real world designed with the intent to better understand it.

Question 22

Abstract

Answer 22

The process (used in building a theory) of focusing on a limited number of variables to explain or predict an event.

Question 23

Four common economic categories

Answer 23

• Positive economics
• Normative economics
• Microeconomics
• Macroeconomics

Question 24

Positive Economics

Answer 24

The study of “what is” in economics

Question 25

Normative Economics

Answer 25

The study of “what should be” in economics.

Question 26

Microeconomics

Answer 26

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

Question 27

Macroeconomics

Answer 27

The branch of economics that deals with human behaviour and choices as they relate to highly aggregate markets or the entire economy.