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What is economics?
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The study of how humans make choices under conditions of scarcity.
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Economic Systems: Planned Economy
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Most resources are state owned, planning allocates resources, little role for market prices
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Microeconomics
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the study of how households and firms make decisions and how they interact in markets
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What is meant by scarcity in economics?
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The wants for goods, resources, and services exceeds what is available.
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Fallacy of false cause
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The incorrect assumption that one event causes another because the two events tend to occur together.
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Which part of the economy does the microeconomic perspective focus on?
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Inidividuals
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Positive Statement
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a statement about how the world actually works
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normative statement
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statement which describes how the world should be
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Why do economists use models?
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To test economic theory
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Factors of Production: Natural Resources
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Land, trees, wind, water, and minerals
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Factors of Production: Labor
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Human Capital
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Circular Flow Model
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It provides an overview of demand and supply in product and factor markets and suggests how these markets are linked to one another.
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Factors of Production: Entrepreneurship
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a person who organizes and manages any enterprise, especially a business, usually with considerable initiative and risk.
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Factors of Production: Capital
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Machinery, Factories & Equipment
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Traditional Economy
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Goods and services are produced the way it has always been done
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Command economy
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An economic system in which the government controls a country's economy.
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Market Economy
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Decision making is de-centralized. Businesses supply goods and services based on demand
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The economic concept of scarcity includes which of the following?
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Limited resources
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Which characteristic describes a market economy?
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Incentive-based decisions
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What is an example of factors of production?
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Land
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A student has been studying algebra for 1.5 hours and is debating whether to study 1 more hour or go to the gym to exercise. When is this student making this decision, according to economists?
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At The Margin
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What is an example of factors of production?
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Capital
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The price of gasoline increased this summer. Which decision is not an example of making a decision at the margin?
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I sell my car and never drive again.
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What type of economy receives economic decisions passed down from a government authority and where resources are owned by the government?
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Command Economy
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production possibilities frontier
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a line on a production possibilities curve that shows the maximum possible output an economy can produce
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law of diminishing returns
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As additional increments of resources are added to a certain purpose, the marginal benefit from those additional increments will decline.
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The production possibilities frontier has a curved shape because of which law?
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Law of diminishing returns
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Which concept describes when a country can produce a good at a lower opportunity cost than another country?
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Comparative advantage
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The study of economics is primarily concerned with:
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Allocating scarce resources to meet society's wants
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What is the difference between physical capital and human capital
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Physical Capital are tangible resources used to produce goods and service while human capital us intangible knowledge and skills.
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The next best alternative given up when a decision is made
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An opportunity cost
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production possibilities curve
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The different combinations of two goods or services that can be produced given a fixed number of resources.
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