Chapter 1 — Introduction to Economics

scarcity

fundamental economic problem facing all societies resulting from a combination of scarce resources and people’s virtually unlimited needs and wants

economics

social science dealing with how people satisfy seemingly unlimited and competing needs and wants with the careful use of scarce resources

good

tangible economic product that is useful, transferable to others, and used to satisfy wants and needs

durable good

good that lasts for at least three years when used regularly

nondurable good

item that wears out of lasts for fewer than three years when used regularly

consumer good

good intended for final use by consumers other than business

capital good

a tool or good such as machinery or equipment that is used by businesses to produce other products

service

work that is performed by someone to fill a desire; intangible

value

refers to a worth that can be expressed in dollars and cents

paradox of value

how some necessities have low monetary value, while non-necessities have high monetary value

utility

the capacity to be useful and provide satisfaction

wealth

the accumulation of products that are tangible, are scarce, have utility, and are transferable from one person to another (goods)

TINSTAAFL

“there is no such thing as a free lunch” — everything has a cost

gross domestic product (GDP)

the monetary value of all final goods, services, and structures produced within a country’s borders in a twelve month period

factors of production

the resources required to produce the things we would like to have (land, labor, capital)

physical capital

the tools used to produce goods

human capital

the level of experience and education one possesses

entrepreneurship

risk-takers in search of profits who do something new with existing resources

production possbilities curve

a diagram that represents various combinations or goods and services an economy can produce when all its resources are efficiently used

opportunity cost

the value of the next best alternative given up

trade-offs

alternative choices that are given up in favor of the choice we select

consumerism

an attempt to educate buyers about purchases they make and to demand better and safer products from producers

economic growth

when a nation’s total output of goods and services increases over time

productivity

a measure of the amount of goods and services produced with a given amount of resources in a specific period of time

division of labor

a way of organizing work so that each worker or work group completes a separate part of an overall task

specialization

occurs when factors of a production perform only tasks they can do better

cost-benefit analysis

a way of comparing the benefits of an action to the expected costs