Chapter 1: What is Economics?

explain the story of the broken window

a boy throws a rock through a bakery window and people get mad at him but then realize that they can't be because this brought business to other store owners

what is a nonrenewable (exhaustible) resource? give 5 different examples

a nonrenewable resource is one that can't be replaced and therefore a limited quanity exists; oil, natural gas,

what is a renewable resource? give an example

a renewable resource is a resource that can be drawn indefinitely if replaced; an example would be trees since they can be planted again

does it matter whether a theory is a reasonable? explain why?

a theory doesn't always have to look reasonably at first

is a theorys predictability factor important? explain why or why not?

a theory's predictability is important because if it predicts well we should accept them but if they don't predict well then we shouldn't

what does marginal mean?

additional

what is a theory?

an explanation of how something works

what is an incentive?

an incentive is something that encourages or motivates a person to take action

give an example of an individual tradeoff

an individual trade off can be keeping the same diet and exercise and not be at the weight you want to be but if you decide to change you would then have to give up some of your favorite foods

explain why a choice must be made between the difference points on a PPF

because of scarcity a choice must be made then after a choice is made opportunity cost can be looked at

what are some examples of wants that people have?

car, houses, haircuts, clothes, better health, etc

what is microeconomics?

deals with human behavior and choices

what are goods? give 5 different examples

goods are anything that can statify ones wants; friendship, a new car, a good grade, new phone, or even a new book

what is an example of an unintended effect of an action?

if japanese raised the tax on computers made in the us and then us went on and raised the taxes on their cars they took part in an unintended effect

how does this story illustrate the idea of "what would have been"?

it tells how other story owners wouldn't be able to make as much profit if the baker didn't have to fix the window and because of events like this there wouldn't be economic booms

what are the 4 categories of resources?

land, labor, capital, entrepreneurship

what is a rationing device?

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

what do people compete to have more of?

more money

what are the tradeoffs between driving a car and clean air?

more of driving necessarily means less of clean air

why do economists believe that competition exists because of scarcity?

not enough resources are available so competition comes up

a person will only want to do a particular activity if what happens?

only if the the benefits are greater than the costs

what do the points above the PPF and below the PPF tell us?

points above the PPF show what we cant have due to lack of resources and when its below the PPF it shows the combination of goods

what is the most widely used rationing device?

price

how do people satisfy their wants?

resources are needed to produce the goods and services that satisfy wants

what problem exists if our wants are unlimited?

resources available to satisfy these wants are limited

what three economic concepts can be illustrated by the diagram?

scarcity, choice, and opportunity cost

what is the definition of economics?

science which studies choices people make as they try to satisfy their wants in a world of scarcity

what does a production possibilities frontier (PPF) show?

shows all possible combinations of two goods that an economy can produce

what is another way of speaking about an opportunity cost?

speaking about tradeoffs

what is an opportunity cost?

the most valued opportunity forfeited when a choice is made

from an economic standpoint, what does daily life involve?

they see as everything involves costs and benefits

what do economists look at in macroeconomics?

they stand back to look at the bigger picture of things

instead of thinking about the total cost and benefits, what do people think about when making a decision?

they think about marginal costs and benefits

what is the difference between utility and disutility?

utility is quality of bringing satisfaction and disutility is quality of bring dissatisfaction

what is scarcity?

when our wants are greater than the resources available to satisfy them

what does it mean to say that something is tangible or intangible?

when something is tangible it can be felt by touch but if its intangible then it can't be felt by touch

what often happens when societies face tradeoffs?

when two groups have conflicting groups a conflict often arises from the differences

what is an example of making choices to satisfy a want?

when you get a paycheck you must decide what you want when you have different options on which want to satisfy

what does it mean to "see with your mind"?

when you see with your mind you can see what would have been

what happens when we think in terms of "what would have been"?

when you think of what would have been you also think about the opportunity costs for what is