CHAPTER 1 TERMS AND QUESTIONS

Using assumptions to simplify

A roadmap is a good example of one of the four elements of economic thinking. Which one?

Economics studies the choices that can be made when there is scarcity. Scarcity is a situation in which resources are limited in quantity and can be used in different ways. Because our resources are limited, we must sacrifice one thing for another. Economists are always reminding us that there is scarcity—that there are tradeoffs in everything we do.

Define "economics" and explain the most fundamental economic problem.

How do we produce the products?

Economic decisions are made at every level in society. When we try to decide which production method to use among several alternatives, which of the key economic questions are we trying to answer?

The economic view of Japan's economic problems The economic view of poverty in Africa The economic view of traffic congestion

Economists develop analytical tools to deal with specific problems. what problem is an economist prepared to discuss?

-4 The slope of this line is -4. You can calculate this by finding any two points on the line and remembering that the slope is the change in Y divided by the change in X. Alternatively, for any linear function of the form Y = a + bX, b is the slope.

If Y = 800 - 4X, what is the slope of this line?

normative question

If the president of Colombia commented that "we should do something to reduce inflation in Colombia," this would be an example of:

a. To determine how well the government performs its roles in the market economy and to examine the tradeoffs associated with various public policies b. To answer many practical questions about markets and how they operate c. To explain why some resources increase over time and how an increase in resources translates into a higher standard of living **d. All of the above

In which of the following situations can we use economic analysis?

a. how the national economy works. ****b. how consumers decide which car to buy based on their preferences vs. prices. **** c. what causes economic booms and downturns. d. how to make informed business decisions.

Macroeconomics can be used to understand all of the topics below, EXCEPT:

natural resources

The resources provided by nature and used to produce goods and services are also known as:

positive analysis

answers the question "what is?" or "what will it be?"

normative analysis

answers the question "what ought to be?"

scarcity

economics is the study of choice under condition of what?

entrepreneurship

effort used to coordinate the factors of production-- natural resources, labor, physical capital and human capital -- to produce

labor

human effort [physical/mental]

human capital

knowledge and skill acquired by worker through education and experience and used to produce goods/services

natural resources

resource provided by nature and used to produce goods/services.

factors of production

resources used to produce goods/services.. also known as production inputs or resources. 1. natural resources 2. labor 3. physical capital 4. human capital 5. entrepreneurship

scarcity

resources we use to produce goods and services are limited

economic models

simplifications of reality that focus only on key relationships and ignore less relevant details.

marginal change

small, one unit change in value

physical capital

stock of equipment, machines, structures and infrascructure used to produce goods/services.

economics

study of CHOICES when there is scarcity

microeconomics

study of choices made by households, firms and govt and how these choices affect markets for goods and services

macroeconomics

study of nations economy as a whole

slope of a curve

vertical difference between 2 points (RISE) by the horizontal difference (RUN)

normative questions

what questions usually lie at the heart of policy debates?

trade offs

what term would best describe the consequence of scarcity?