Econ ch 1

Explain how scarcity is illustrated by a production possibilities frontier.

A PPF shows that there is a limit on resources

want

A thing that we desire to have

Why is it preferable to think in terms of costs and benefits rather than just benefits?

Because there is.a cost to every choice, so you must weigh the costs and the benefits for every choice. We cannot produce outside the production possibilities frontier. (PPF)

Explain this statement. "Because scarcity exists, choices must be made."

Because wants are always greater than our resources and since our resources are scarce we have to make choices

Explain how scarcity is related to choice, opportunity cost and a rationing device.

Choice- You make choices because resources are always scarce Opportunity cost- Time is scarce so we must always weigh the opportunity cost of time Rationing device- People compete for a rationing device to get those scarce resources

Describe the connection between choices and opportunity costs

In every choice we make we weigh the costs and benefits. Opportunity costs are the consequence for our house or the next best alternative we forfeit

How does entrepreneurship differ from labor?

Labor refers to any kind of human effort provided in the creation of goods and services. Entrepreneurship refers to all assets (tangible or intangible) that are mobilized by entrepreneurs while building their business

If you attend a public high school, you are not charged admission fees or tuition. Does it follow, then, that you face no opportunity cost in attending school?

No, you are still incurring opportunity costs like the lost wages you could be earning at a job instead of high school.

unintended effect

Outcomes that were not expected from the action

Explain the link between scarcity and competition.

Scarcity means there are limited resources, so people compete for those resources

Why do points on a production possibilities frontier represent choices?

The points represent what the economy chooses to produce whether that be all of one thing and none of the other or any other combo. If the cost of the choice is greater than the benefit than you should choose not to do that

Why is it better to judge theories by how well they predict than by whether they sound right or reasonable to us?

Theories are used to explain complex ideas so its important to wait for proof of the outcome

What does it mean to think "at the margin"?

To think of the cost and benefit one additional unit (one step ahead)

production possibilities frontier

a graphic representation of all possible combinations of two goods that an economy can produce

rationing device

a means for deciding who gets what portion available resources and goods

tradeoff

a situation in which more of one thing necessarily means less of something else

tangible

able to felt by touch

land

all the natural resources found in nature (acre of land, mineral deposits, water)

theory

an explanation of how something works, designed to answer a question for which there is no obvious answer

resource

anything that is used to produce goods or services

goods

anything that satisfies a persons wants or brings satisfaction;tangible products

marginal

means additional

intangible

not able to be felt by touch

capital

produced goods that can be used as resources for further production (factories, machines and farm tractors)

incentive

something that encourages or motivates a person to take action

services

tasks that people pay others to perform for them

microeconomics

the branch of economics that deals with human behavior and choices as they relate to relatively small units-an individual, a business firm or a single market

macroeconomics

the branch of economics that deals with human behavior and choices as they relate to the entire economy

scarcity

the condition in which our wants are greater than the resources available to satisfy those wants

opportunity cost

the most highly valued opportunity or alternative forfeited when a choice is made

labor

the physical and mental talents that people contribute to the production of goods and services

disutility

the quality of bringing dissatisfaction or unhappiness

utility

the quality of bringing satisfaction or happiness

economics

the science that studies the choices of people trying to satisfy their wants in a world of scarcity

entrepreneurship

the special talent that some people have for searching out and taking advantage of new business opportunities and for developing new products and new ways of doing things