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Economics: Chapter 1 Sections 1,2 and 3

Terms in this set (29)

Economics
The study of how individuals, families, businesses, and societies make choices about ways to use scarce resources to fulfill their wants
Want
Things that economist consider other than basic survival needs.
Goods and Services
Choices that people, businesses, and societies make that utilize resources and affect production.
Scarcity
Conditions in which people do not have enough income, time, and other resources to satisfy their every want.
Land, labor, capital, and entrepreneurship
The four factors of production.
Land
A natural resource present without human intervention.
Labor
The work that people do. Human effort directed toward producing goods and services.
Capital
Previously manufactured goods used to make other goods and services. Work people do to make tangible items and services.
Entrepreneurship
Individuals who take the initiative to start a new business or a new product.
Technology
The use of science to produce goods and services. Advance in knowledge leading to new and improved goods and services and better ways of producing them.
Trade-off
Exchanging one thing for the use of another. Sacrificing one good or service to purchase or produce another .
Opportunity-cost
Value of the next best alternative given up for the alternative that was chosen. Example: free time for leisure instead of studying.
Production possibilities curve
A graph showing the maximum combinations of good and services that can be produced from a fixed amount of resources in a given period of time.
Guns vs butter
Or
Military vs civilian goods
The classic example for explaining the production possibilities curve shows the relationship between two factors.
Best use of resources
Benefits from a nation, business, or individual using the production possibilities curve.
Microeconomics
The branch of economic theory that deals with behavior and decision making small units such as individuals and firms.
Macroeconomics
The branch of economic theory dealing with the economy as a whole and decision making by large units such as governments.
Economic model
A theory or simplified representation that helps explain and predict economic behavior in the real world.
What does a production possibilities curve reveal?
It is an economic model that reveals opportunity cost.
What is the most common economic model?
A line graph explaining how consumers react to changes in the price of goods and services.
What do economic models assume?
Economic models assume that in the real world, several things may be changing at once.
In what way are models helpful to economist?
Models are helpful to economists and us by helping us understand the way the real world works.
Hypothesis
An assumption involving two or more variables that must be tested for validity.
What does an economist develop in order to test his or her theory or model
Hypothesis
Testing a Model-How does testing a model help economist test their hypothesis?
Testing a model or hypothesis, allows economists to see if the model represents reality under certain conditions.
Applying Models to Real Life-Why is it difficult for economist to apply the results of economic models?
The difficulty for economist to apply the results of their model involves predicting how people will react in a particular situation. Individual human behavior is not always predictable.
Why do economist disagree over economic theories?
Economist deal with facts. Their personal opinion and beliefs may influence how they view those facts and fit them to theories. The government under which an economist lives also shapes how he or she views the world.
Values
The beliefs or characteristics that a person or group considers important, such as religious freedom, equal opportunity, individual initiative, freedom of want and so on.
What can the science of economics not help judge?
The Science of Economics is not used to judge whether a certain policy is good or bad. Economist only inform us as to likely short-term and long-term outcomes of these policies.
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