question
What is the Economic Problem?
answer
Wants are unlimited, resources are limited (Scarcity problem)
question
Resources
answer
Inputs, or factors of production, used to produce goods and services
question
What are the 4 types of resources available?
answer
1. Land (Natural Resources)
2. Labor
3. Capital (Human/Physical)
4. Entrepreneurial Ability
2. Labor
3. Capital (Human/Physical)
4. Entrepreneurial Ability
question
Land (Natural Resources)
answer
Plots of land, water, trees, gas, oil, etc.
question
Renewable Resources
answer
resources that can be used indefinitely if used conservatively
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Exhaustible Resources
answer
Resources that are limited in their amount
question
Labor
answer
The physical and mental efforts of people
question
What resource does Labor come from?
answer
Time
question
What types of Capital Resources are there?
answer
Physical Capital and Human Capital
question
Physical Capital
answer
Tangible things that are needed to produce goods and services (factories, highways, machines, buildings, tools, etc.)
question
Human Capital
answer
Intangible things, such as the knowledge and skill, that people use to enhance their productivity
question
Entrepreneurial Ability
answer
Talent and organizational ability to develop new products and processes and start a firm
question
Who are considered risk-takers?
answer
Entrepreneurs
question
What type of payments do Natural Resources earn?
answer
Rent
question
What type of payments does Labor earn?
answer
Wages
question
What type of payments does Capital earn?
answer
Interest
question
What type of payments does entrepreneurial ability earn?
answer
Profit
question
Good
answer
A tangible item used to satisfy wants
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Service
answer
An activity used to satisfy wants (intangible)
question
Scarcity
answer
When people desire more than what is available at a price of $0.00.
If it is not free, it is considered scarce.
If it is not free, it is considered scarce.
question
Markets
answer
A set of arrangements where buyers and sellers carry out exchange at mutually agreeable terms
(anywhere where buyers and sellers can exchange goods/services)
(anywhere where buyers and sellers can exchange goods/services)
question
Product Market
answer
Where goods/services are sold/bought
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Resource Market
answer
Where resources are sold/bought
question
What does marginal mean?
answer
Incremental, additional, or extra
"one more"
"one more"
question
What is the marginal benefit?
answer
The dollar value placed on the satisfaction obtained from one more unity of a good
question
What is marginal cost?
answer
The dollar value of the sacrifice made to obtain one more unit of a good
"How much does it cost to produce one more?"
"How much does it cost to produce one more?"
question
In regards to marginal analysis, when will consumers "take action"?
answer
When Marginal benefit> Marginal Cost
question
Describe the concept of Rational Self Interest
answer
People make decisions that they perceive to be in their own best interests
people will try to maximize benefits, or minimize expected costs
people will try to maximize benefits, or minimize expected costs
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What do rational choices require?
answer
time and information
question
Describe the concept of Rational Choices
answer
individuals will gather enough information so that the benefits exceed the costs of gathering such information
question
Microeconomics
answer
Examines the factors that influence individual economic choices and how particular markets influence the choices of various decision makers
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Macroeconomics
answer
Studies the performance of the economy as a whole
question
What is an Economic Theory?
answer
A prediction of the way that the real economy reacts in certain situations
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What are Economic Models?
answer
Stripped down versions of the real economy that allow us to experiment
question
What does the phrase "Ceteris Paribus" mean?
answer
"all else constant"
everything that doesn't matter will be considered irrelevant and will therefore stay the same
everything that doesn't matter will be considered irrelevant and will therefore stay the same
question
Name the 4 steps of the Scientific Method
answer
1. Identify the question and define variables
2. Specify assumptions
3. Create a hypothesis
4. Test the hypothesis
2. Specify assumptions
3. Create a hypothesis
4. Test the hypothesis
question
What does Marginal analysis help us determine?
answer
WHY an INDIVIDUAL buys a good
question
What does Economics predict?
answer
Average behavior
question
What does an Economic theory predict?
answer
What will happen throughout the economy
question
What is Positive analysis?
answer
It consists of a positive statement that tells us the way the world actually IS.
It is a fact.
It is a fact.
question
What is Normative analysis?
answer
It consists of a normative statement that tells use the way the world SHOULD BE.
It is an opinion.
It is an opinion.
question
What is the Fallacy that Association is Causation
answer
Just because two events occur in time together, does not mean that one event caused the other
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What is the Fallacy of Composition
answer
Just because it is good for one, does not mean it is good for all
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