Economics Chapter 1: What is Economics?

human resources (labor)

physical efforts people use to create goods

voluntary exchange

producers and consumers come together and make transactions; both parties are benefiting

factors of reproduction

resources that can be used to produce foods and services

entrepreneur

takes business risks in hopes of earning a profit

resources

the basic elements used to produce goods and services

economy

the system that results from choices we make as consumers and producers

which of the following would be a good

a pair of scissors

economics

a social science that studies how people, acting individually and in groups, decide to use scarce resources to satisfy their wants

marginal

an "extra bit" to whatever you're associating with

trade-offs

consumers make decisions to give up one thing to have more of another - marginal costs vs. marginal benefits

which of the following is not one of the basic choices that people in all societies must make

what should be done with resources that aren't scarce

the owner of a new store in town wants to know whether she should increase the store's advertising spending. the owner should do so if estimates show that

the marginal cost of the advertising is less than the marginal benefit

scarcity

the result of inability to satisfy all of everyone's wants - a fundamental problem that forces society to make wise decisions - limited productive resources vs. unlimited wants - how we are going to use the money and resources

economists say that scarcity is a relative concept. this means that

the scarcity of resources can change if wants or amounts of resources available change

three basic economic choices

what to produce? (demand) how to produce? (methods and technology) who receives the goods and services? (buying power of consumers)

markets

allow businesses and individuals who own their resources to exchange them voluntarily

market

an arrangement that allows people to make exchanges with one another

incentive

an expectation that encourages people to behave in a certain way

free enterprise

another name for market economy

which of the following illustrates a market

both a and b

in an exchange between two people

both people believe they are benefiting

capital resources (capital)

buildings, tools and machines people use to produce other goods and services

in a market economy, what organizes and coordinates the production of goods and services

exchange

basic economic decisions

how people in a society make the what, how, and who decisions

natural resources (land)

human hands did not produce - minerals, water, etc.

entrepreneurship

imagination, innovative thinking, and management skills needed to start and operate a business

detailed knowledge about the production and distribution of most products

is spread among many people who may not even know each other

opportunity cost

is the highest valued alternative given up whenever someone makes a choice

goods

items of value that can be seen or touched

services

items of value that cannot be seen and touched

capital resources

machinery and tools

the unemployment rate is a subject of

macroeconomics

four factors of production

natural resources (land), human resources (labor), capital resources (capital), entrepreneurship

opportunity cost

the best alternative given up when making a choice - every choice people make involves opportunity cost

trade-off

the choice that is GIVEN UP between two choices

the need for understanding

- more than 30 percent of high school students use a credit card and more than 80 percent of undergraduate college students have at least one credit card - more than 2 million people filed for personal bankruptcy in 2005 - people are spending more than they earn - about 1/2 of all the people in who are working full-time in the U.S. report that they live paycheck to paycheck - about 40 percent of people who work full-time do not save money for retirement

economic way of thinking

- scarcity forces choices - choices always involve alternatives; a lot of time and thought are used - people try to make good choices - respond to incentives - voluntary exchanges are positive; both believe that both are benefiting - choices are future oriented - choices are influenced

why study economics

- helps a person make better decisions - helps you fulfill your responsibilities as a citizen (ex. voting, saving, budgeting, etc)