Chapter 2 Flashcards
What is Scarcity?
This is the condition of having to choose among alternatives. Because resources are limited and our wants are unlimited.
What are scarce goods?
These are goods for which the choice of one alternative use requires that another be give up.
What are free goods?
These are goods for which the choice of one alternative use does not require another be given up
Is it possible that air is a free good?
No because other things must be given up in order to use air.
Is gravity a free good?
Yes because nothing is given up in order to use it
What are the two types of choices that must be made when deciding how produce something?
Labor intensive
Capital intensive
What is labor intensive?
Using more human and physical and mental effort than modern production.
What does Capital intensive mean?
Using more machines in production
If you produce a product for one group what happens to the other other group?
Resources become limited
What is opportunity cost?
This is the next best alternative. It is something given up to get what is wanted more.
What are three key economic ideas?
People are rational
People Responds to incentives
Optimal decisions are made at the margin
What does it mean that people are rational?
Informed people will make decisions that if the benefit will be greater than the cost given certain information
What does it mean that people will respond to incentives?
This means people can be motivated to take an action or refrain from action; incentives are negative or positive.
What optimal decisions are made at the margin?
Most decisions are not all or nothing decisions. Little additional benefit will cause action. Little additional cost causes refrain.
What does marginal benefit refer to?
Additional or extra gain
