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