Chapter 1 - What Is Economics?

specialization

A focus on a particular activity or area of study.

Entrepreneur

A person who starts up and takes on the risk of a business.

Capital

An economic system based on private ownership of capital.

How does economic models help economists develop strategies that help people make economic choices?

Economic models help economists develop strategies that help people make economic choices by reducing complex situations to their most basic elements.

labor

Human effort directed toward producing goods and services.

Explain how the circular flow of economic activity generates wealth in an economy.

The key feature of this circular flow is the market. Individuals earn their income in factor markets, after they earn their income they spend it on market products. Then the business they buy goods from using the money to produce more goods and services. The cycle then repeats itself.

Gross Domestic Product (GDP)

The total output of all economic activity in the nation, including goods and services.

When buying something there are two classifications:

a need and a want.

Because of resource limitation (scarcity), that is why everything has

a price and nothing is free.

economic interdependence

a reliance on others, as they rely on you, to provide goods and services to be consumed.

economic model

a simplified equation, graph, or figure showing how something works

Now that we know what to build we have to make it affordable so we have to use

a strong yet cheap material that is also abundant in resources.

A want is

a thing that isn't a requirement in order to live, for example a bike or a playstation.

Scarcity

a useful, tangible item that satisfies a want.

trade-off

alternative choices

durable goods

any good that lasts three years or more when used on a regular basis.

Productivity is often discussed in terms of labor,

but it applies to all factors of production.

Productivity is the most important factor

contributing to economic growth.

production possibilities frontier

diagram representing maximum combinations of goods and services an economy can produce when all its resources are in use

As a result,

events in one part of the world often have a dramatic impact elsewhere.

Scarcity affects almost every decision we make.

every decision we make.

Individuals can invest in their own education by completing high school,

going to technical school, or attending college.

consumer goods

goods intended for final use by individuals.

Capital goods are

goods that are used in producing other goods, rather than being bought by consumers.

Travels throughout Europe and talks with notable thinkers helped Smith turn

his attention to economics.

To become a good decision maker, you need to know how to

identify the problem and then analyze your alternatives.

Factors of production are

inputs into the production process.

With economics, we can understand how income is

is earned and spent, how jobs are created, and how the economy functions on a daily basis.

This means that the circular flow becomes

larger, with more factors of production, goods, and services flowing in one direction and more payments in the opposite direction.

We must produce houses but should it be

low income, middle income, or higher income homes?

Smith's doctrine of laissez-faire marked the beginning of

modern economics, and it serves as the basis of our free market economy.

People are greedy and always want

more then what they have.

human capital

sum of people's skills, abilities, health, and motivation.

standard of living

the quality of life based on ownership of necessities and luxuries that make life easier

An example of an opportunity cost would be that you need to balance the time you spend doing homework and the time you spend with your friends; If you decide to spend extra hours on your homework, the opportunity cost would be

the time that you can't spend with your friends.

You normally have a number of trade-offs available whenever you make a decision, and the opportunity cost of the choice you make is

the value of the next best alternative that you give up.

This means that we rely on others, and others rely on us,

to provide most of the goods and services we consume.

When building a society there are two questions:

what to produce and how to produce.

product markets

where goods and services are bought and sold.

productivity

the number of goods and services produced from each unit of labor input.

Economic growth, made possible by having more resources or increased productivity, causes

the production possibilities frontier to move outward.

free enterprise

where consumers and privately owned businesses, rather than the government, make the majority of WHAT, HOW, and FOR WHOM decisions

factor markets

where resources, especially capital and labor, are bought and sold.

Most economic decisions can be evaluated with cost-benefit analysis, which is a way of what?

which is a way of comparing the costs of an action to the benefits received.

Productivity goes up whenever more can be produced

with the same amount of resources.

service

work that is performed for someone.

Taking small, consistent steps toward achieving your goal in economics is helpful, when we are unsure..

..of the exact cost involved.

The convenience store industry offers a compelling employment opportunity, with..?

With competitive wages, flexible schedules, and career development.

A need is

a basic requirement in order to live, for example water and food.

Someone with a small home would want a bigger one, and another person with a big house would want a mansion,

a human's heart is never satisfied with what it has.

market

a location or other mechanism that allows buyers and sellers to exchange a certain economic product.

Economic growth occurs when

a nation's total output of goods and services increases over time.

cost-benefit analysis

a way of comparing the costs of an action to the benefits received

land

all natural resources used to produce goods and services.

The gains in productivity and income that result from specialization

almost always offset the costs associated with the loss of self—sufficiency.

Opportunity cost applies to almost all activities, and it is not

always measured in terms of dollars and cents.

Smith's most important contribution was the notion that competition and individual self-interest would somehow act as

an "invisible hand" to guide resources to their most productive uses.

Adam Smith did not set out to become

an economist.

nondurable goods

an item that lasts for fewer than three years when used on a regular basis.

Two strategies that people, who are trying to increase their economic growth, use are

building models and preparing a cost-benefit analysis.

Describe the paradox of value.

contradiction that useful necessities (like water) have a very low value while nonecessities (like diamonds) have very high value

The study of economics involves the study of how things are

made, bought, sold, and consumed.

One of the most important strategies at gaining economic growth is to

make an economic model which is a simplified equation, graph, or figure showing how something works.

Using economics, we can make sense of how

of how things work and have a framework for analyzing them.

Specialization takes place when factors of production perform

only tasks they can do better or more efficiently than others.

When the production for one item increases, the

production of other items decreases.

Simple models can often

reduce complex situations to their most basic elements.

value

refers to a worth that can be expressed in dollars and cents.

Many times a lot of people want the same thing but there is not enough of it, which is

scarcity.

Need

something essential for survival.

Want

something that people desire but that is not necessary for survival.

Because economists study how people satisfy their competitive wants with limited use of resources, they study the

strategies that will help people make the best choices.

In most cases, a worker who performs a few tasks many times a day is likely to be more proficient

than a worker who performs hundreds of different tasks in the same period.

Division of labor is a way of organizing work so

that each individual worker completes a separate part of the work.

Businesses can invest in training and other programs

that improve the skills of their workers.

economic growth

the ability of the economy to increase the production of goods and services.

wealth

the accumulation of past income, natural resources, and financial resources.

Raising the federal minimum wage by..?

By $1.50 an hour will reduce job opportunities for those who need it most, new entrants to the job market with the least skills or experience.

Business leaders still trot out economists to claim that raising the minimum wage will destroy..?

Destroy jobs and hurt small businesses.

Division of labor

Division of work into a number of separate tasks to be performed by different workers.

It is important to realize that models are based on assumptions; In general, the quality of a model is no better than

the assumptions on which it is based, but a model with simple assumptions is usually easier to understand.

utility

the capacity to be useful and provide satisfaction.

opportunity cost

the cost of the next best alternative

What is the basic economic sense of cost?

In a basic economic sense, cost is the measure of the alternative opportunities foregone in the choice of one good or activity over others. This fundamental cost is usually referred to as opportunity cost.

Identify the economic concept illustrated by the production possibilities frontier.

In business analysis, the production possibility frontier (PPF) is a curve illustrating the varying amounts of two products that can be produced when both depend on the same finite resources.

Explain why economic education is important?

Economic education is important ,by studying how markets work, our young people also learn how to make efficient choices in managing their own scarce resources, such as time and money. Along the way, we teach them a decision- and choice-making process that they can apply to all aspects of their lives.

With higher costs of healthcare and other benefits, and lower profit margins, convenience store..?

Store owners and petroleum marketers cannot sustain an increase in the minimum wage.

Business organizations typically oppose a hike in the minimum wage, arguing that..?

That it will increase unemployment.

Making better decisions in both your personal and political life..

..can benefit from studying economics.

When you study economics, you'll learn how to..

..how to evaluate production and how productivity impacts our quality of life

The minimum wage was created in..?

In 1938 by the Fair Labor Standards l Act (FLSA), debuting at 25 cents per hour.

Identify two ways to increase productivity.

One way to increase productivity is diving the labor. It is more efficient when a worker focuses on one task multiple times than different tasks every day. Another way to increase productivity is by investing in human capital. For example, if the government provides good education then there will be more people in the workforce, which can increase the number of goods and services.

Most convenience stores offer wages far above the..?

The minimum in 2001, the average was $9.28 an hour.

Unions and antipoverty organizations typically spearhead campaigns to increase the..?

The minimum wage, saying it will help the nation's working poor without affecting employment.

paradox of value

The situation where some necessities, such as water, have little monetary value, whereas some non-necessities, such as diamonds, have a much higher value.