Chapter 1: The Economic Way of Thinking

Question 1

desires that can be met by consuming products

Answer 1

wants

Question 2

things necessary for survival

Answer 2

needs

Question 3

lack of resources available to meet all human wants - not a temporary shortage

Answer 3

scarcity

Question 4

study of how people use resources to satisfy wants

• examines how individuals and societies choose to use resources
• organizes, analyzes, and interprets data about economic behavior
• develops theories, economic laws to explain the economy, predict future

Answer 4

economics

Question 5

physical objects that can be bought

Answer 5

goods

Question 6

work one person does for another to pay

Answer 6

services

Question 7

person who buys a good for personal use

Answer 7

consumer

Question 8

a maker of goods or a provider of services

Answer 8

producer

Question 9

resources needed to produce goods and services

- supply is limited

Answer 9

factors of production

1. land
2. labor
3. capital
4. entrepreneurship

Question 10

all natural resources on or under the ground (water, forests, wildlife, mineral deposits)

Answer 10

land

Question 11

humans and their efforts, time, and talent used to make products (physical and mental)

Answer 11

labor

Question 12

producer’s physical resources (tools)

machines, offices, stores, roads, vehicles

Answer 12

capital (“physical” or “real”)

Question 13

vision, skill, ingenuity, willingness to take risks

• develop new products, methods of production, marketing, or distributing
• risk time, energy and money to make a profit
• anticipate consumer wants

Answer 13

entrepreneurship

Question 14

benefits that encourage people to act in certain ways

Answer 14

incentives

Question 15

benefit or satisfaction gained from using a good or service

Answer 15

utility

Question 16

to make choices, people __________ - make decisions according to best combination of costs and benefits

Answer 16

economize

Question 17

an alternative people give up when they make a choice (usually give up to get more of another)

Answer 17

trade-off

Question 18

the value of the next best alternative a person gives up

- not the value of all possible alternatives

Answer 18

opportunity cost

Question 19

examination of costs, expected benefits of choices

- one of the most useful tools for evaluation relative worth of economic choices

Answer 19

cost-benefit analysis

Question 20

additional cost of using one more unit of a good or service

Answer 20

marginal cost

Question 21

additional benefit of using one or more good or service

Answer 21

marginal benefit

Question 22

simplifies representations of economic forces

Answer 22

economic models

Question 23

a model that shows maximum goods or services that con be produced from limited resources
- based on assumptions that simplify economic interactions

Answer 23

production possibilites curve

Question 24

producing the maximum amount of goods and services

Answer 24

efficiency

Question 25

producing fewer goods and services than possible

Answer 25

underutilization

Question 26

as a production switches from one product to another, more resources needed to increase production of second product

Answer 26

law of increasing opportunity costs

Question 27

numerical data or information - show patterns of human behavior - economic models help analyze and interpret data (focus on a limited number of variables)

Answer 27

statistics

Question 28

show changes over time

Answer 28

line graph

Question 29

usually show a comparison of years

Answer 29

bar graph

Question 30

show percentages

Answer 30

pie charts

Question 31

studies of behavior of individual players in an economy (includes individuals, families, and businesses) - prices, costs, profits, competition, consumer/producer behavior

Answer 31

microeconomics

Question 32

studies behavior of the economy as a whole (inflation, unemployment, aggregate demand/supply) - sectors of economy (combination of all individual units - consumer, business, government, etc.)

Answer 32

macroeconomics

Question 33

``` describes and explains economic behavior as it is - uses verifiable facts, no judgements scientific method used - observe data, hypothesize - proved or disproved - "concrete", not "abstract" ```

Answer 33

positive economics

Question 34

studies what economic behavior should be - makes value judgements to recommend future actions - study facts, ask if course of action is good - recommendations differ because the values they are based on also differ

Answer 34

normative economics

Question 35

founder of modern economics | "Wealth of Nations"

Answer 35

Adam Smith