Chapter 1 Limits, Alternatives, and Choices

entrepreneurial ability

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

factors of production

Economic resources are also called factors of production because they are used to produce goods and services.

production possibilities curve

curve displays 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

economics

A social science concerned with making optimall choices under conditions of scarcity Economic wants exceed productive capacity

Explain how (if at all) each of the following events affects the location of a country's production possibilities curve: d. A devastating earthquake destroys numerous production facilities.

The curve should shift inward with the destruction of resources (capital).

marginal analysis

Margin means extra,addition or change it is a comparison of marginal benefits and marginal costs. Ex: Should you study an extra hour? Should the gov't increase or decrease funding. In the world of scarcity, the decision to obtain the marginal benefit associated with some specific option always includes the marginal cost of forgoing something else.

Which of the following decisions would entail the greater opportunity cost: Allocating a square block in the heart of New Your City for a surface parking lot or allocating a square block at the edge of a typical suburb for such a lot?

The opportunity cost would be much higher in New York City as the alternative uses for that square block are much more valuable than for a typical suburban city block.

inputs

They are called inputs because they go into a production process (like ingredients go into a bowl to make a cake), with the resulting goods and services also being referred to as output.

economic growth

a larger total output. See figure 1.5

law of increasing opportunity costs

as the production of a particular good increases, the opportunity cost of producing an additional unit rises. (see figure 1.2 on page 12).

macroeconomics

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

utility

individuals look for and pursue opportunities to increase the pleasure, happiness, or satisfaction obtained from consuming a good or service

investment

spending that pays for the production and accumluation of capital goods

Which statements applies to macroeconomics? a. The unemployment rate in the United States was 9.7 percent in March 2010. b. A U. S. software firm discharged 15 workers last month and transferred the work to India. c. An unexpected freeze in central Florida reduced the citrus crop and caused the price or oranges to rise. d. U. S. output, adjusted for inflation, decreased by 2.4 percent in 2009. e. Last week Wells Fargo Bank lowered its interest rate on business loans by one=-half of 1 percentage point. f. The consumer price index rose by 2.7 percent from December 2009 to December 2009.

A) The unemployment rate in the United States was 9.7 percent in March 2010. D) U.S. output, adjusted for inflation, decreased by 2.4 percent in 2009. F). The consumer price index rose by 2.7 percent from December 2008 to December 2009.

opportunity cost

An opportunity cost is what was sacrificed to do or acquire something else. The condition of scarcity creates opportunity cost. If there was no scarcity, there would be no need to sacrifice one thing to acquire another.

Which statements applies to microeconomics? a. The unemployment rate in the United States was 9.7 percent in March 2010. b. A U. S. software firm discharged 15 workers last month and transferred the work to India. c. An unexpected freeze in central Florida reduced the citrus crop and caused the price or oranges to rise. d. U. S. output, adjusted for inflation, decreased by 2.4 percent in 2009. e. Last week Wells Fargo Bank lowered its interest rate on business loans by one=-half of 1 percentage point. f. The consumer price index rose by 2.7 percent from December 2009 to December 2009.

B)A U. S. Software firm discharged 15 workers last month and transferred the work to India. C) An unexpected freeze in central Florida reduced the citrus crop and caused the price of oranges to rise. e.) Last week Wells Fargo Bank lowered its interest rate on business loans by one-half of 1 percentage point.

land

all natural resources (gifts of nature) used in the production process.

other-things-equal assumptions

ceteris paribus - the factors other than those being considered do not change. Ex: relationship of Pepsi and Coke . The relationship between the price and purchase of Pepsi in isolation without be confused with changes in other variables

generalizations

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

positive economics

focuses on facts and cause-effect relationships. It avoids value judgments. It is concerned with what is. Ex: the unemployment rate in France is higher than that in the United States.

factors of production

land, labor, capital, and entrepreneurial ability that are combined to produce goods and services.

economizing problem

the need to make choices because economic wants exceed economic means. Economic problems faced by an individual are due to the following: limited income, unlimited wants, and a budget limit.

Explain how (if at all) each of the following events affects the location of a country's production possibilities curve: a. The quality of education increases.

Assuming better education translates into better work skills, then productivity should rise and this would shift the curve outward.

economic resources

Economic resources are the natural, human and manufactured inputs used to produce goods and services.

economic resources fall into four main categories:

Economic resources fall into four main categories: 1. labor 2. land (natural resources), 3. real capital (machines, factories, buildings, etc.) 4. and entrepreneurs.

normative statement

Focuses on ought to undertake. It embodies subjective feelings about the economy. Ex: France ouht to undertake polices to make its labor market more flexible to reduce unemployment

Explain how (if at all) each of the following events affects the location of a country's production possibilities curve: b. The number of unemployed workers increases.

Should not affect location of curve. Production moves inward, away from the curve.

economic perspective

Stresses a) resource scarcity and the necessity of making choices, b) the assumption of purposeful or rational behavior, and c)comparisons of marginal benefit and marginal cost.

Explain how a new technique improves the efficiency of extracting copper from ore.

The curve should shift outward as more production is possible with existing resources.

capital

all manufactured aids used in producing consumer goods and services. Included are all factory, storage, transportation, and distribution facilities, as well as tools and machinery.

economic resources

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

aggregate

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

budget line

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

economic principle

a very well-tested and widely accepted theory

entrepreneurial ability

entrepreneur takes the initiative in combing the resources of land, labor, and capital to produce a good or a service. 1. Makes strategic business decisions that set the course of an enterprise. 2. entrepreneur innovates 3. entrepreneur bears risk

microeconomics

part of economics concerned with decision making by individual customers, workers, households, and business firms. Measure the price of a specific product, the number of workers unemployed by single firm, the revenue or income of a particular firm, household, or the expenditures of a specific firm, government entity or family

consumer goods

products that satisfy our wants directly, industrial robots (for example, the kind used to weld automobile frames)

capital goods

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

scientific method

the process of observing formulating and explanation of cause and effect(hypothesis) testing this explanation by comparing the outcomes of specific events to the outcome predicted by the hypothesis accepting, rejecting, and modifying the hypotheis, based on these comparisons continuing to test the hypothesis