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)