Chapter 1: What is Economics?
does it matter whether a theory is reasonable
no because it most likely won't sound reasonable until it is proven
tangible
can be felt or touched
non renewable resources
can't be replenished, oil, natural gas
intangible
cannot be felt or touch
scarcity
our wants are greater than the resources available to satisfy them
points above the PPF
overproduction
labor resources
physical and mental talents of people, person working in a factory
capital resources
produced goods, computers, trucks, buildings
what do people compete to have more of
rationing device
what problem exists if our wants are unlimited
resources become limited
what three economic concepts can be illustrated by the diagram
scarcity, choice, opportunity cost
from an economic standpoint what does daily life involve
seeing choices and opportunity costs
what does a production possibilities frontier show
shows all possible combinations of two goods that an economy can produce in a certain period of time
what is a rationing device
some way to decide who gets what portion of all the resources and goods available
renewable resources
something that can be replaced, wood
incentive
something that encourages or motivates a person to take an action
entrepreneurship resources
special talent people have for taking advantage of business opportunities, apple company-Steve Jobs
what do people think about when making a decision
the additional benefits
story of broken window`
the boy set off a chain reaction that provided work, income, and profits
opportunity cost
the most valued opportunity you give up
disutility
the quality of bringing dissatisfaction or unhappiness
utility
the quality of bringing satisfaction or happiness
what is economics
the science that studies the choices people make as they try to satisfy their wants in a world of scarcity
microeconomics
the study of small economic units such as an individual or single business firm
macroeconomics
the study of the "big picture" the entire economy
points below the PPF
underproduction
example of cost benefit analysis
building a highway, cost: price to build, benefit: less traffic on smaller roads
what happens when a society faces trade offs
a conflict arises
what is a theory
a mechanism that an economist uses to answer a question that has no obvious easy answer
marginal
additional
land resources
all natural resources, water, animals
what are goods
anything that satisfies a person's wants
why must a choice be made between the different points on a PPF
because of scarcity
example of an intangible service
haircut, getting treated by a doctor
why do economists believe that competition exists because of scarcity
if enough resources were available to satisfy all of our wants, people wouldn't compete
a person will only want to do a particular activity if what happened
if the benefits are greater than the cost
four categories of resources
land, labor, capital, entreprenerurship
what is the most widely used rationing device
money
what happens when we think in terms of "what would've been"
we know the opportunity cost of "what is"
develop a question and accompanying theory
what causes prices of goods to change? demand of the product
how does broken window story illustrate the idea of "what would've been"
what would the baker spend with the money to fix the window if the window didn't have to be fixed
is a theory's predictability factor important
yes because it will influence whether we will accept them
