Chapter 1: Limits, Alternatives, and Choices

Question 1

What is economics?

Answer 1

the social science concerned with how individuals, institutions, and societies maximize their satisfaction for needs and wants under conditions of scarcity

Question 2

What is the definition of economics?

Answer 2

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

Question 3

What is marginal analysis?

Answer 3

comparisons of marginal costs (MC) and marginal benefits (MB)

Question 4

What is the economic perspective?

Answer 4

the economic way of thinking: how economists view things from a unique perspective

Question 5

What is scarcity?

Answer 5

the limited supply of economic resources needed to make goods and services.

Question 6

What does scarcity restrict?

Answer 6

options and demand choices

Question 7

What is opportunity cost?

Answer 7

to obtain more of one thing, society forgoes the opportunity of getting the next best thing.

Question 8

What does economics assume?

Answer 8

that human behavior reflects “rational self-interest”

Question 9

What is utility?

Answer 9

the pleasure, happiness, or satisfaction obtained from consuming a good or service

Question 10

What do consumers allocate to maximize their satisfaction

Answer 10

their time, energy, and money

Question 11

What is purposeful behavior?

Answer 11

the idea that people make decisions with some desired outcome in mind

Question 12

Is rational self interest the same thing as selfishness?

Answer 12

no

Question 13

What does marginal mean?

Answer 13

extra, additional, or a change in

Question 14

What is always present whenever a choice is made?

Answer 14

an opportunity cost

Question 15

What does economics rely on?

Answer 15

the scientific method

Question 16

What is the first step of the scientific method?

Answer 16

observing real-world behavior and outcomes

Question 17

What is the second step of the scientific method?

Answer 17

formulating a possible explanation of cause and effect (hypothesis)

Question 18

What is the third step of the scientific method?

Answer 18

testing the hypothesis by comparing outcomes of specific events to the outcome predicted by the hypothesis

Question 19

What is the final step of the scientific method?

Answer 19

to continue to test the hypothesis against the facts

Question 20

What is the steps to an economic principle

Answer 20

hypothesis —–> theory ——–> economic principle

Question 21

What is an economic principle?

Answer 21

a statement about economic behavior or the economy that enables prediction of the probable effects of certain actions

Question 22

What are theories, principles, and models?

Answer 22

purposeful simplifications

Question 23

What are economic principles?

Answer 23

generalizations

Question 24

What is other-things-equal in latin?

Answer 24

ceteris paribus

Question 25

What is the other things equal assumption

Answer 25

the assumption that factors other than those being considered do not change

Question 26

What is microeconomics?

Answer 26

the part of economics concerned with decision making by individual customers, workers, households, and business firms

Question 27

What does macroeconomics examine?

Answer 27

the performance and behavior of the economy as a whole

Question 28

What is an aggregate?

Answer 28

a collection of specific economic units treated as if they were one unit

Question 29

What does positive economics focus on?

Answer 29

the facts and cause-and-effect relationships

Question 30

What does normative economics incorporate?

Answer 30

value judgement about what the economy should be like or what particular policy actions should be recommended to achieve a desirable goal.

Question 31

What is the relationship between positive and normative economics, summarized?

Answer 31

positive economics concerns what is; normative economics concerns what ought to be

Question 32

What is the economizing problem?

Answer 32

the need to make choices because economic wants exceed economics needs

Question 33

What does everyone have a finite amount of?

Answer 33

income

Question 34

What do most people have?

Answer 34

virtually unlimited wants

Question 35

What does it mean to economize?

Answer 35

to pick and chose goods and services that maximize our satisfaction value given the limitations we face

Question 36

What is a budget line?

Answer 36

a schedule or curve that shows various combinations of two products a consumer can purchase with a specific money income

Question 37

What does the budget line show?

Answer 37

a maximization of utility

Question 38

T/F: Society also faces an economizing problem

Answer 38

True

Question 39

What are economic resources?

Answer 39

natural, human, and manufactured resources that go into production of goods and services

Question 40

What are land resources?

Answer 40

all natural resources used in the production process

Question 41

What are labor resources?

Answer 41

physical actions and mental activities that people contribute to the production of goods and services

Question 42

What are capital resources?

Answer 42

all manufactured aids used in producing consumer goods and services

Question 43

What is investment?

Answer 43

spending that pays for the production and accumulation of capital goods

Question 44

How do capital goods satisfy the consumer goods indirectly?

Answer 44

by aiding the production of consumer goods

Question 45

What four things does an entrepreneur do?

Answer 45

takes the initiative in combining resources of land, labor, and capital to produce a good or a service, makes the strategic business decisions that set the course of an enterprise, innovates, and bears risks

Question 46

What are land, labor, capital, and entrepreneurship ability called?

Answer 46

factors of production, or "inputs"

Question 47

What four things are assumed when drawing a PPC curve?

Answer 47

full employment, fixed resources, fixed technology, and two goods

Question 48

What are consumer goods?

Answer 48

products that satisfy our wants directly

Question 49

What are capital goods?

Answer 49

products that satisfy our wants indirectly

Question 50

What is the generalization of the PPC?

Answer 50

at some point, a fully employed economy must sacrifice some of one good to obtain more of another good

Question 51

What does the production possibilities curve display?

Answer 51

the different combinations of goods and services that society can produce in a fully employed economy, assuming a fixed availability of supplies of resources and fixed technology

Question 52

What is displayed on the y-axis of a PPC?

Answer 52

Capital goods

Question 53

What is displayed on the x-axis of a PPC?

Answer 53

consumer goods

Question 54

What s the law of increasing opportunity costs

Answer 54

the opportunity cost of each additional unit is greater than the cost of the previous one

Question 55

How is the law of increasing opportunity costs reflected in a PPC?

Answer 55

The shape of the curve

Question 56

What is the economic rationale behind the law of increasing opportunity costs?

Answer 56

Economic resources are not completely adaptable to alternative uses, so as production increases, it becomes less effective

Question 57

Where does the optimal amount of activity occur?

Answer 57

where MB = MC

Question 58

What is the net result of increased supplies of factors of production?

Answer 58

the ability to produce more of consumer goods and capital goods

Question 59

What 3 things are the economic growth a result of?

Answer 59

increases in supplies of resources, improvements in resource quality, and technological advances

Question 60

What helps determine the future location of the PPC curve?

Answer 60

an economy's current choice of positions on its PPC