Chapter 1 Terms

Question 1

Factors of production

Answer 1

Resource inputs used to produce goods and services, such as land, labor, capital, and entrepreneurship.

Question 2

Capital

Answer 2

Final goods produced for use in the production of other goods, such as equipment and structures.

Question 3

Entrepreneurship

Answer 3

The assembling of resources to produce new or improved products and technologies.

Question 4

Economics

Answer 4

The study of how best to allocate scarce resources among competing uses.

Question 5

Opportunity Cost

Answer 5

The most desired goods or services that are forgone to obtain something else.

Question 6

Production Possibilities

Answer 6

The alternative combinations of final goods and services that could be produced in a given time period with all available resources and technology.

Question 7

Production Possibilities Curve (PPC)

Answer 7

Describes the various output combinations that could be produced in a given time period with available resources and technology.

Represents a menu of output choices an economy confronts.

Question 8

Scarce resources

Answer 8

There is a limit to the amount of output we can produce in a given time period with available resources and technology.

Question 9

Opportunity costs

Answer 9

We can obtain additional quantities of any particular good only by reducing the potential production of another good.

Question 10

Efficiency

Answer 10

Maximum output of a good from the resources used in production

Squeezing maximum output out of available resources

Question 11

Economic growth

Answer 11

An increase in output; an expansion of production possibilities.

Pushes PPC outward which means we have to create more jobs to stay on PPC.

-Eco. Growth is good because it allows us to produce more goods and raise living standards

Question 12

Market Mechanism

Answer 12

The use of market prices and sales to signal desired outputs (or resource allocations)

• Adam smiths “invisible hand”
• doesn’t require direct contact between consumers and producers
• answers how, what, and for whom
• communication made by how much of a demand there is for the output “price signal”

Question 13

Laissez Faire

Answer 13

The doctrine of “leave it alone”, of nonintervention by government in the market mechanism

-Adam smith: his view was price signals and responses of the marketplace were likely to do a better job of allocating resources than any government could.

Question 14

Mixed economy

Answer 14

An economy that uses both market signals and government directives to allocate goods and resources.

• united states uses this to direct economic outcome
• uses both “invisible” and “visible” hands

Question 15

Market failure

Answer 15

An imperfection in the market mechanism that prevents optimal outcomes.

• when market signals don’t give the best possible answers to what, how, and for whom we say the market mechanism has failed
• “invisible hand” has failed to achieve the best possible outcomes

Question 16

Government failure

Answer 16

Government intervention that fails to improve economic outcomes.

-fails to improve or makes market outcomes worse

Question 17

Macroeconomics

Answer 17

The study of aggregate economic behavior, of the economy as a whole.

• focuses on behavior of entire economy, the “big picture”
• how much money in total consumers will spend on goods and services
• depends on micro behavior
• worry about national goals as full employment, control of inflation, & economic growth, without worrying about the well being or behavior of individual groups.
• goal is to understand and improve the performance of the Economy as a whole.

Question 18

Microeconomics

Answer 18

The study of individual behavior in the economy, of the components of the larger economy.

• concerned with details of the “big picture”
• focus on individuals, firms, and government agencies that actually compose the larger economy.

-interest in the behavior of individual economic actors
What are their goals? How can they achieve these goals with their limited resources? How will they respond to various incentives and opportunities?

• attention on purchases of specific goods and services, not in aggregated totals.
• how individual businesses make their investment decisions
• affected by macro outcomes

Question 19

Ceteris paribus

Answer 19

The assumption of nothing else changing

-allows us to make straight forward predictions

-increases risk of error
Makes it easier to formulate economic theory and policy

• occasional failure is inevitable
• better to be approximately right than dead wrong

Question 20

Fiscal policy

Government spending

Answer 20

Study of government pumping money in or out

Question 21

Government gets its money from what? And what does it spend it on?

Answer 21

Taxes

School lunches, help other nations… And so on

Question 22

Does a public good fit with the supply and the demand curve?

Answer 22

No, it has its own little thing going on for itself

Question 23

Command economy

Answer 23

The government controls the entire market
Prices, how much is produced and so on.

Kind of like communist

Question 24

Normative analysis

(What is normal)

Judgmental

Answer 24

What ought to be done

Judgmental

Markets are good and government is bad

Question 25

Positive analysis

Preschool teacher, punishes by what she sees

Answer 25

How things might be done without subjective judgments of what is “best”

Market reliance

Observable fact

Question 26

Scarcity

Answer 26

Lack of enough resources to satisfy all desired uses of those resources.