Chapter 1: The Economic Way of Thinking

wants

n. desires that can be satisfi ed by consuming a good or service (p. 4)

needs

n. things such as food, clothing, and shelter that are necessary for survival (p. 4)

scarcity

n. a situation that exists when there are not enough resources to meet human wants (p. 4)

economics

n. the study of how individuals and societies satisfy their unlimited wants with limited resources (p. 4)

goods

n. physical objects, such as food, clothing, and furniture, that can be purchased (p. 5)

service

n. work that one person does for another for payment (p. 5)

consumer

n. a person who buys goods or services for personal use (p. 5)

producer

n. a person who makes goods or provides services (p. 5)

factors of production

n. the economic resources needed to produce goods and services (p. 8)

land

n. all the natural resources on or under the ground that are used to produce goods and services (p. 8)

labor

n. all the human time, effort, and talent used to produce goods and services (p. 8)

capital

n. all the resources people make and use to produce and distribute goods and services (p. 8)

entrepreneurship

n. the combination of vision, skill, ingenuity, and willingness to take risks that is needed to create and run new businesses (p. 9)

incentive

n. a benefit offered to encourage people to act in a certain way (pp. 12, 176)

utility

n. the benefit or satisfaction gained from using a good or service (p. 12)

economize

v. to make decisions according what is believed to be the best combination of costs and benefits (p. 12)

trade-off

n. the alternative someone gives up when making an economic choice (p. 14)

opportunity cost

n. the value of something that is given up by choosing one alternative over another (p. 14)

cost-benefit analysis

n. the practice of examining the costs and the expected benefits of a choice as an aid to decision making (p. 15)

marginal cost

n. the additional cost of producing or using one more unit of a good or service (pp. 16, 140)

marginal benefit

n. the benefit or satisfaction gained from using one more unit of a good or service (p. 16)

economic model

simplified representations of complex economic activities, systems, or problems (p.18)

production possibilities curve (PPC)

n. a graph used to illustrate the impact of scarcity on an economy (p. 18)

efficiency

the condition in which economic resources are being used to produce the maximum amount og goods and services (p. 20)

underutilization

n. the condition in which economic resources are not being used to their full potential, resulting in fewer goods and services (p. 20)

law of increasing opportunity costs

n. states that as production switches from one product to another, increasingly more resources are needed to increase the production of the second product, which causes opportunity costs to rise (p. 21)

statistics

n. numerical data (p. 24)

microeconomics

n. the study of the behavior of individual players—such as individuals, families, and businesses—in an economy (p. 27)

macroeconomics

n. the study of the behavior of the economy as a whole; concerned with large-scale economic activity (p. 27)

positive economics

n. a way of describing and explaining economics as it is (p. 29)

normative economics

n. a way of describing and explaining what economic behavior ought to be, not what it actually is (p. 29)