Chapter 1: What Is Economics?

Define Economics

Economics is a social science involving the study of economic behavior and decision making process of people to satisfy unlimited needs and wants by making choices that must be matched with scarce resources.

Define opportunity cost as the next best alternative given up when individuals, business and government confronts scarcity by making choices.

Opportunities cost is the cost of choosing the next best alternative. The opportunity cost of going to college is the money you would earn if you would earn if you worked instead.

Identify and list strategies for allocating scarce resources.

Price; Majority; Contest; Force; Sharing; Lottery; Command; First Come, First Served; Personal Characteristics

Explain the concept of "guns vs. butter."

The country that decides to produce more military good ("gun") has fewer resources to devote to consumer goods ("butter") and vice versa.

Explain the rational decisions occur when the marginal benefits of an action equals or exceeds the marginal costs.

When thinking at the margin you analyze the costs/ benefits. If the cost outweighs the benefits then you make the decision to not add more units

Explain the concept of "thinking at the margin."

Thinking at the margin, from an economist's point of view is when you decide how much more or less to do.

Explain the difference between goods and services and give examples of both.

Goods are physical objects such as shoes and shirts. Services are actions or activities that one person performs for another. Haircuts, deliveries, checkups, and tutoring are all services. Goods and services are easily accessible for most of us.

Explain the difference between a trade-off and the opportunity cost.

A trade-off is the comparison being made between choices when making a decision. Each choice has an advantage and disadvantage.

Define and give example of productive resources. (Factors of Production)

Land- is used to refer to all natural resources used to produce goods and services. Labor- is the effort laborers have. Also includes all the work that laborers and workers perform. Capital- is any human-made resource that is used to produce other goods and services. Entrepreneurship- is the act of seeing opportunity for new or better products and brings together the resources needed for producing them

Define marginal benefits and marginal costs.

Marginal cost is the cost of producing one more unit of a good. Marginal benefits is the advantages of producing more units of a good.

Identify the components/ parts of a production possibilities curve.

Product A, Product B, x-axis, y-axis, numbers, plot points

Define scarcity as it relates to economics.

Scarcity implies limited quantities of resources to meet unlimited wants. On person could be able to buy hundreds or thousands of something but no one can have an endless amount of everything. Economics is mainly about solving scarcity.

Explain the purpose of a production possibilities curve.

The main purpose of productions possibilities curve is to show alternative ways to use an economy's resources.