Chapter 1 What is Economics?

Underutilization

The use of fewer resources than the economy is capable of using.

Efficiency

The use of resources in such a way to maximize the output of goods and services. Sometimes economies operate inefficiently.

Production Possibilites Curve

A graph which shows alternative ways to use an economy's productive resources

Production Possibilites Frontier

A line on production possibilities curve that shows the maximum possible output an economy can produce

Growth

A production possibilities curve is a snapshot. It reflects current production possibilities.

Scarce Resources

All goods and services are scarce because the resources used to produce them are scarce.

Law of increasing cost

An economic principle which states that as production shifts from making one good or service to another, more and more resources are needed to increase production of the second good or service

Capital

Economists divide capital into two types- physical capital and human capital. Human-made objects used to create other goods and services are physical capital. Capital goods is sometimes used for physical capital. Human capital is the knowledge and skills a worker gains through education an experience.

Entrepreneurs

Entrepreneurs are people who decide how to combine resources to create new goods and services. To make a profit, entrepreneur's are willing to take risks. They develop original ideas, start business, create new industries, and fuel economic growth.

The Problem of Limits

People's needs and wants are unlimited. When one want is satisfied, others arise. Goods and services, are however, are limited. No one can have an endless supply of anything. Sooner or later, a limit is always reached. Scarcity is the principle that limited amounts of goods and services are available to meed unlimited wants. Shortage is a situation in which consumers want more of a good or service than producers are willing to make available at a particular price.

Scarcity vs Shortage

Scarcity is not the same thing as shortage. Shortage occurs when consumers want more of a good or service than producers are willing to make available at a particular price. Shortages may be temporary or long term. Unlike shortages, scarcity always exists. There simply are not enough goods and services to supply all of societies needs and wants.

Business and trade off

The decision that business make about how to use their factor resource; land, labor, and capital also involve trade offs.

Marginal Benefit

The extra benefit of adding the same unit.

Opportunity cost

The most desirable alternative somebody gives up as the result of a decision is the opportunity cost.

F.O.P

The resources used to make all goods and services. The three main factors of production are land, labor, and capital. Land is all natural resources used to produce goods and services. Labor is the effort people devote to tasks for which they are pain. Capital is any human made resource that is used to produce other goods and services.

Benefits of Capital

Capital is a key factor of production because people and companies can use it to save a great deal of time and money. Physical capital such as machines and tools help workers produce goods and service more easily and less cost.

Cost

Cost does not necessarily mean money. To an economist, cost always means opportunity cost.

Cost/ Benefit Analysis

Decision makers have to compare the opportunity costs and benefits what they will sacrifice and what they will gain. Marginal cost is the extra cost of adding one unit

Trade off

The act of giving up one benefit in order to gain another, greater benefit. Trade off often involve things that can be easily measured, such as money, property, or time. But trade off may also involve values that are not so easy to measure.

Scarcity and Choice

The study of economics begins with the fact that people cannot have everything they need and want. People satisfy their needs and wants with goods and services. Goods are physical objects that someone produces, such as food, clothing, or video games. Want is something we desire but that is not necessary for survival. Need is something that is essential for survival, and services is the actions or activities that one person performs for another.