Ch 1 Econ
Shortage
When producers cannot or will not offer goods or services at current prices
Why is the idea of scarcity a starting point for thinking economically?
Economics seeks to solve the scarcity problem, which exists because resources are limited whereas needs and wants are unlimited.
What role do entrepreneurs play in the economy?
Entrepreneurs decide how to combine factors of production to create new goods and services.
opportunity cost
Cost of the next best alternative use of money, time, or resources when one choice is made rather than another
How does a production possibilities curve illustrate opportunity cost?
cost moves when producing increases or decreases
List two examples that illustrate how all decisions involve trade-offs.
individual (person choices affect way we live), business (choices in how to use LLC affect business), society (guns or butter-a country that decides to produce more military goods has few resources for consumer goods).
underutilization
using fewer resources than the economy is capable of using
efficiency
using resources in such a way as to maximize the production or output of goods and services
Why must the opportunity cost always be something desirable?
usually it's the one out of the other alternatives that is desirable
Economics
study of how people and societies use limited resources to satisfy unlimited wants; the management of scarcity and choice
Goods
tangible products that we use to satisfy our wants and needs
cost
the alternative we give up when we choose one option over the other
Labor
the effort that a person devotes to a task that they are getting paid for
Trade-off
All the alternatives that are given up whenever a decision is made.
Need
A "need" is a good that must be consumed in order to maintain human life.
What is the difference between a good and a service?
A service is an intangible act while goods are physical.
Services
Actions or activities that one person performs for another
Describe the three factors of production.
Land includes any natural resources used to produce goods and services., such as fertile soil or coal. Labor is the effort that one person exerts for another and for which the first person is paid. Capital is any human-made resource used to produce goods and services.
Scarcity
Limited quantity of resources to meet unlimited wants
What special advantage does physical capital offer?
Physical capital provides extra time, increased knowledge, and/or greater productivity.
How is scarcity different from shortages?
Scarcity always exists because goods and services are produced from limited resources.
Want
a good that is desired for comfort or utility, but not needed to maintain human life
guns or butter
a phrase that refers to the trade-offs that nations face when choosing whether to produce more or less military or consumer goods
Land
all natural resources used in production to produce goods
entrepreneur
ambitious leaders who decide how to combine land, labor, and capital to create new goods and services
law of increasing costs
as a production switches from one item to another more an more resources are necessary to increase production of the second item
thinking at the margin
deciding whether to do or use one additional unit of some resource
How does a production possibilities curve illustrate how efficient an economy is?
displays alternative ways to use an economy's productive resources
Production possibilities curve
graph; shows alternative ways to use an economy's productive resources
Physical Capital
human-made objects used to create other goods and services ex: buildings, equipment, tools
Human capital
knowledge and skills gained through experience and education
Factors of Production
land, labor, capital (human and physical)
production possibilities frontier
line on a production possibilities graph that shows the maximum possible output for a specific economy
Capital
man made (see below)
How is underutilized depicted on a production possibilities frontier?
points inside a line
What does it mean to "think at the margin"?
when you decide how much more or less to does