Chapter 1 What is Economics (Economics)

Production Possibilities Curve

A graph that shows alternative ways to use an eonomy's resources.

Guns or Butter

A phrase that refers to trade-offs that nations face when choosing whether to produce more or less military or consumer goods.

Shortage

A situation in which a good or service is unavailable.

Services

Actions or activites that one person performs for another.

Physical Capital

All human-made goods that are used to produce other goods and services; tools and buildings.

Entrepreneur

Ambitious leader who combines land, labor, and capital to create and market new goods and services.

Trade-off

An alternative that we sacrifice when we make a decision.

Want

An item that we desire but that is not essential to survival.

Capital

Any human-made resource that is used to create other goods and services.

Thinking at the Margin

Deciding whether to do or use one additional unit of some resource.

Factors of Producation

Land labor, capital; the three groups of resources that are used to make all goods and services.

Law of Increasing Cost

Law that states that as we shift factore of producation from making one good or service to another, the cost of producing the second item increases.

Scarcity

Limited quantities of resources to meet unlimited wants.

Land

Natural resources that are used to make goods and services.

Goods

Physical objects such as cloths or shoes.

Need

Something like air, food, or shelter that is necessary for survival.

Labor

The effort that people devote to a task for which they are paid.

Producation Possibilities Frontier

The line on a producation possibilities graph that shows the maximum possible output.

Opportunity Cost

The most desirable alternative given up as the result of a decision.

Human Capital

The skills and knowledge gained by worker through education and experience.

Economics

The study of how people seek to satisfy thier needs and wants by making choices.

Cost

To an economist, the alternative that is given up becuase of a decision.

Underutilization

Using fewer resources than an economy is capable of using.

Efficiency

Using resources in such a way as to maximize the producation of goods and services.