Economics – Chapter 1 Scarcity

Define Economics.
The study of how best to allocate scarce resources among competing uses.
What is the basic problem Economics is concerned with?
Scarcity
Define scarcity.
Limited quantity of resources to meet unlimited wants
Define goods and give two examples.
Physical objects. Any product that can be purchased.
Define services and give two examples.
Actions or activities performed by people to meet another’s need or want. Medical care, babysitting, waitstaff, hair care, auto repair.
Define opportunity cost.
Most desirable alternative given up when making a decision. Every decision has an opportunity cost.
What is an opportunity cost of going to the movies?
Alternatives: spending time with family, riding your bike, listening to music. (any other desirable alternative to going the movies).
True or False. One opportunity cost of going to Pizza Ranch for lunch is the money spent on the meal.
False. Money is the price of the meal, not an opportunity cost (not an alternative to lunch at Pizza Ranch).
Define trade-offs.
All the alternatives that are given up whenever a decision is made.
Name the four factors of production.
Land, Labor, Capital, Entrepreneurship
Define land as a factor of production and give examples.
All natural resources used to produce goods and services.
Examples: coal, water, land, trees, soil.
Define labor as a factor of production and give examples.
The effort a person devotes to a task.
Examples: repairing a car, teaching children, cutting hair, providing medical assistance, fighting a fire.
Define capital as a factor of production and give examples.
Any human-made resource that is used to produce other goods and services.
Examples: buildings, tools, machines, tractors.
Define entrepreneur and give examples.
a risk-taking individual in search of profits by using the factors of production.
Examples: Steve Jobs, Bill Gates, Henry Ford, Mark Zuckerberg.
What does a Production Possibilities Frontier graph show?
Alternative uses for scare productive resources
On the Production Possibilities Frontier graph, where would efficient production fall: on, outside, inside the curve?
On the curve.
On the Production Possibilities Frontier graph, where would underutilized production fall: on, outside, inside the curve?
Inside the curve – not using all resources to maximum potential.
What is microeconomics?
The branch of economics that studies the economic choices of consumers, households or individual firms
What is macroeconomics?
Large economic choices faced by society as a whole
Explain an efficient economy.
An economy producing the maximum amount of goods and services with its available resources