Chapter 1 (3 sections) Introduction to Economics

incentive

something that encourages or motivates a person to take action.

tangible

Able to be felt by touch. For example, a book is tangible: you can touch and feel it.

Capital/Capital goods

Produced goods that can be used as resources for further production. Ex:factories, machines, and farm tractors.

services

Tasks that people pay others to perform for them.

microeconomics

The branch of economics that deals with human behavior and choices as they relate to relatively small units--an individual, a business firm, or a single market.

macroeconomics

The branch of economics that deals with human behavior and choices as they relate to the entire economy.

scarcity

The condition in which our wants are greater than the resources available to satisfy those wants

Economics

The science that studies the choices of people trying to satisfy their wants in a world of scarcity. The study of how people use their limited resources to satisfy their unlimited wants.

Section 3 Summary

Utility means the same thing as satisfaction or happiness; disutility means the same thing as dissatisfaction or unhappiness. Goods are tangible items; services are tasks that people perform for others. The four categories of resources, or factors of production, are land, labor, capital, and entrepreneurship.

resources=factors of production

What people use to produce goods and services. Renewable resource: wood, timber (resource that can be drawn on indefinitely if it is replaced) Nonrenewable resource: oil and natural gas (resource that cannot be replenished) Factors of Production: 1. Land 2. Labor 3. Capital: goods 4. Entrepreneurship

cost-benefit analysis

When economists study a problem, weighing the costs and the benefits, they refer to this process as a cost-benefit analysis.

want

a thing that we desire to have

marginal

in economics, marginal means additional *When people make decisions, they do not think of the total costs and benefits involved in the decision. Instead, they think about the additional, or marginal, costs and benefits.

incur

verb (incurs, incurring, incurred) [ with obj. ] become subject to (something unwelcome or unpleasant) as a result of one's own behaviour or actions: I will pay any expenses incurred.

Section 1 Summary

People have unlimited wants, but resources are limited. The condition in which our wants are greater than the limited available resources is known as scarcity. Because of scarcity, people must make choices, which means they must incur opportunity costs. A production possibilities frontier shows all the possible combinations of two goods that an economy can produce. Rationing devices are needed to decide who gets what portion of the available goods. Because people compete for the rationing device, competition is a consequence of scarcity.

opportunity cost

The most highly valued opportunity or alternative forfeited when a choice is made; The most valued opportunity or alternative you give up to do something--the next best choice--is that something's opportunity cost. *misunderstanding: Opportunity cost refers to what you would have done not what you could have done. Your opportunity cost is fixed which cannot be changed. 2. The higher the cost of doing something, the less likely it will be done. (choose between 300$ easy job and 100$ hard job)

utility

The quality of bringing satisfaction or happiness. Reflects different values of different people.

Entrepreneurship

The special talent that some people have for searching out and taking advantage of new business opportunities and for developing new products and new ways of doing things. Takes the factors of production and brings some products to market. allows the society to grow and provides goods and services Ex:Steve Jobs saw a use for the personal computer and developed it, and hundreds of thousands of customers then purchased his product-The Apple computer. *Entrepreneurship is different from Labor resources entrepreneurship: extraordinary service labor: normal

Scarcity:combination of limited resources and unlimited wants

1. scarcity creates the need for a rationing device---people compete for the rationing device. 2. Due to scarcity, people must make choices----When people make choices, they incur opportunity costs---Changes in opportunity cost cause changes in behavior

Production Possibilities Frontier

A graphic representation of all possible combinations of two goods that an economy can produce. *The PPF tells us that certain things are available to us and certain things are not. We can't have everything we want. Any point on the PPF itself, inside or under the curve, is available to us. (X:available; Y:unavailable)

trade-off

A situation in which more of one thing necessarily means less of something else. *speaking about trade-offs is just another way of speaking about opportunity cost. "life is full of trade-offs"= "every time we choose one thing over another, we incur an opportunity cost."

Land

All the natural resources found in nature. An acre of land, mineral deposits, and water in a stream are all considered land.

Theory

An explanation of how something works, designed to answer a question for which there is no obvious answer. Ex: What causes inflation? How do business firms operate? Trying to answer your question by offering your "best answer" is really no different from an economist creating a theory about some aspect of economics. The economist puts forth his or her "best guess" as to what causes inflation, high interest rates, or economic growth. We should evaluate theories based on how well they predict.

Section 2 Summary

Economists often consider both the costs and benefits of an activity. Economists believe that people act as they do in response to incentives. Individuals and societies must deal with trade-offs. Economists try to see "what would have been" as well as "what will be." Decisions and actions often have important unintended effects. Economics is divided into two branches: microeconomics and macroeconomics. Economists construct theories to answer economic questions.

intangible

Not able to be felt by touch. For example, an economics lecture is intangible.

Rationating device

One Consequence of Scarcity A means for deciding who gets what portion of the available resources and goods.

Labor

The physical and mental talents that people contribute to the production of goods and services.

disutility

The quality of bringing dissatisfaction or unhappiness.

Competition

Another Consequence of Scarcity Competition exists because of scarcity. Competition takes the form of people trying to get more of the rationing device: People compete to earn dollars every day. Whatever the rationing device, people will compete for it. Suppose muscular strength were used as the rationing device, people with more muscular strength would receive more resources and goods than people with less muscular strength. Then people would compete for muscular strength and would lift weights each day.

resource

Anything that is used to produce goods or services. For example, a person's labor may be used to produce computers, TV sets, and much more, and therefore a person's labor is a resource.

goods

Anything that satisfies a person's wants or brings satisfaction; also, tangible products.

Price

a certain number of dollars most widely used rationing device in our society.