Chapter 1- Limits, Alternatives, and Choices

Question 0

Economic Perspective

Answer 0

A viewpoint that envisions individuals and institutions making rational decisions by comparing the marginal benefits and marginal costs associated with their actions.

Question 1

Economics

Answer 1

The social science concerned with how individuals, institutions, and society make optimal (best) choices under conditions of scarcity.

Question 2

Opportunity Costs

Answer 2

The amount of other products that must be forgone or sacrificed to produce a unit of a product.
Opportunity cost is opportunity lost.

Question 3

Utility

Answer 3

The want-satisfying power of a good or service; the satisfaction or pleasure a consumer obtains from the consumption of a good or service (or from the consumption of a collection of goods and services).

Question 4

Marginal Analysis

Answer 4

The comparison of marginal (“extra” or “additional”) benefits and marginal costs, usually for decision making.

Question 5

Scientific Method

Answer 5

The procedure for the systematic pursuit of knowledge involving the observation of facts and the formulation and testing of hypotheses to obtain theories, principles, and laws.

Question 6

Economic Principle

Answer 6

A widely accepted generalization about the economic behavior of individuals or institutions.

Question 7

Other-things-equal assumption

Answer 7

The assumption that factors other than those being considered are held constant; ceteris paribus assumption.

Question 8

Microeconomics

Answer 8

The part of economics concerned with decision making by individual units such as a household, a firm, or an industry and with individual markets, specific goods and services, and product and resource prices.

Question 9

Macroeconomics

Answer 9

The part of economics concerned with the economy as a whole; with such major aggregates as the household, business, and government sectors; and with measures of the total economy.

Question 10

Aggregate

Answer 10

A collection of specific economic units treated as if they were one. For example, all prices of individual goods and services are combined into a price level, or all units of output are aggregated into gross domestic product.

Question 11

Positive Economics

Answer 11

The analysis of facts or data to establish scientific generalizations about economic behavior. (“What is”)

Question 12

Normative Economics

Answer 12

The part of economics involving value judgments about what the economy should be like; focused on which economic goals and policies should be implemented; policy economics. (“What ought to be”)

Question 13

Economizing Problem

Answer 13

The choices necessitated because society’s economic wants for goods and services are unlimited but the resources available to satisfy these wants are limited (scarce).

Question 14

Budget Line

Answer 14

A line that shows the different combinations of two products a consumer can purchase with a specific money income, given the products’ prices.

Question 15

Budget Line

Answer 15

A line that shows the different combinations of two products a consumer can purchase with a specific money income, given the products’ prices.

Question 16

Economic Resources

Answer 16

The land, labor, capital, and entrepreneurial ability that are used in the production of goods and services; productive agents; factors of production.

Question 17

Labor

Answer 17

People’s physical and mental talents and efforts that are used to help produce goods and services.

Question 18

Land

Answer 18

Natural resources (“free gifts of nature”) used to produce goods and services.

Question 19

Capital

Answer 19

Human-made resources (buildings, machinery, and equipment) used to produce goods and services; goods that do not directly satisfy human wants; also called capital goods

Question 20

Investment

Answer 20

In economics, spending for the production and accumulation of capital and additions to inventories. (For contrast, see financial investment.)

Question 21

Entrepreneurial Ability

Answer 21

The human resource that combines the other resources to produce a product, makes nonroutine decisions, innovates, and bears risks.

Question 22

Factors of Production

Answer 22

Economic resources: land, capital, labor, and entrepreneurial ability

Question 23

Consumer Goods

Answer 23

Products and services that satisfy human wants directly

Question 24

Capital Goods

Answer 24

Human-made resources (buildings, machinery, and equipment) used to produce goods and services; goods that do not directly satisfy human wants; also called capital goods.

Question 25

Production Possibilities Curve

Answer 25

A curve showing the different combinations of two goods or services that can be produced in a full-employment, full-production economy where the available supplies of resources and technology are fixed.

Question 26

Law of Increasing Opportunity Costs

Answer 26

The principle that as the production of a good increases, the opportunity cost of producing an additional unit rises.

Question 27

Economic Growth

Answer 27

(1) An outward shift in the production possibilities curve that results from an increase in resource supplies or quality or an improvement in technology; (2) an increase of real output (gross domestic product) or real output per capita.