Chapter 1: Limits Alternatives, and Choices

Question 1

Economics

Answer 1

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

1.1

Question 2

Economic perspective

Answer 2

An economic way of thinking that involves thinking about scarcity and choice, purposeful behavior and marginal analysis: comparing benefits and costs

1.1

Question 3

Opportunity costs

Answer 3

To obtain more of one thing, society forgoes all the opportunity of getting the next best thing, that sacrifice is the opportunity cost.

Always present when a choice is made.

1.1

Question 4

Utility

Answer 4

The pleasure, happiness, or satisfaction obtained from consuming a good or service.

1.1

Question 5

Purposeful behavior

Answer 5

Society purchases or sells good with a purpose to there actions rather than a random or chaotic reason

1.1

Question 6

Self interested behavior

Answer 6

Behavior designed to increase personal satisfaction

1.1

Question 7

Marginal analysis

Answer 7

Comparisons of marginal benefits and marginal costs. Usually for decision making

1.1

Question 8

Marginal

Answer 8

Extra, additional, a change in

1.1

Question 9

Scientific method

Answer 9

Procedure economists follow that consists of:

1. Observing real world behavior and outcomes
2. Based on observations, creating a possible explanation of cause and effect (hypothesis)
3. Testing the explanation by comparing outcomes of events to the explanation of cause and effect
4. Accepting, rejecting or modifying the hypothesis
5. Continue testing hypothesis against the facts

1.1

Question 10

Economic principle

Answer 10

A statement about economic behavior or the economy that enables prediction of the probable effects of certain actions. A good theory does a good job of explaining and predicting

1.1

Question 11

Generalizations

Answer 11

Economic principles are generalizations relating to economic behavior or to the economy itself

1.1

Question 12

Other things equal assumption

Answer 12

A.K.A ceteris paribus, this is the assumption that factors other than those being compared do not change

1.1

Question 13

Macroeconomics

Answer 13

Examines the economy as a whole or its basic subdivisions or aggregates such as the government, household, and business sectors.

Looks at the beach, not the pieces of sand, the rocks, and the shells

1.1

Question 14

Microeconomics

Answer 14

Part of economics concerned with decision making by customers, workers, households and business firms.

Examines the sand, rocks, and shells, not the beach

1.1

Question 15

Aggregate

Answer 15

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

Ex: lumping all the millions of consumers in the U.S. economy and treating them as one unit called “consumers”

1.1

Question 16

Positive economics

Answer 16

Focuses on facts and cause and effect relationships. Avoids value judgements. Aims to establish scientific statements about economic behavior, dealing with how the economy really is.

(What is, not what ought to be)

1.1

Question 17

Normative economics

Answer 17

Incorporates value judgments about what the economy should be like or what actions should be taken to achieve a desirable goal. Looks at the desirability of aspects of the economy

(What ought to be, not what is)

1.1

Question 18

Economizing problem

Answer 18

The need to make choices because economic wants exceed economic means

1.2

Question 19

Budget line

Answer 19

A budget constraint that is a schedule or curve that shows different combinations of two products a consumer can purchase

1.2

Question 20

Economic resources

Answer 20

All natural, human, and manufactured resources that go into the production of goods and services. There are 4 general categories:

1. Land
2. Labor
3. Capital
4. Entrepreneurial ability

1.3

Question 21

Land

Answer 21

All natural resources used in the production process

1.3

Question 22

Labor

Answer 22

The physical actions people contribute to producing goods and services

1.3

Question 23

Capital

Answer 23

All manufactured aids used in producing consumer goods and services, including tools and machinery

1.3

Question 24

Entrepreneurial ability

Answer 24

The ability of an entrepreneur to:

1. Take initiative in using economic resources to produce a good or service
2. Make strategic business decisions
3. Innovate and invent
4. Bear risk of failure

1.3

Question 25

Factors of production

Answer 25

Land, labor, capital, and entrepreneurial ability used as inputs to produce goods and services

1.3

Question 26

Consumer goods

Answer 26

Products that satisfy our wants directly

1.3

Question 27

Capital goods

Answer 27

Products that satisfy our wants indirectly by making possible more efficient production of consumer goods

1.3

Question 28

Production possibilities curve

Answer 28

A curve that displays the different combination of goods and services that society can produce in a fully employed economy

1.3

Question 29

Law of increasing opportunity costs

Answer 29

As the production of a particular good increases, the opportunity cost of producing an additional unit rises. Economic resources are not completely adaptable to alternative uses

1.3

Question 30

Economic growth

Answer 30

A larger total output, on a production possibilities curve, this occurs when the budget line expands to the right. Mainly occurs when:

1. Supplies of resources increase
2. Resource quality improves
3. Advances in technology occur

1.4

Question 31

Direct relationship

Answer 31

Two variables that change in the same direction (+, +)v(-,-)
Graph: /

1.Appendix

Question 32

Inverse relationship

Answer 32

Two variables that change in the opposite direction (+,-)
Graph: \

1.Appendix

Question 33

Independent variable

Answer 33

Cause or source, the first variable that is changed

1.Appendix

Question 34

Dependent variable

Answer 34

The effect or outcome of changing the independent variable

1.Appendix