Unit 1 Economics test

What is economics?

The study of how individuals, businesses, and societies allocate scarce resources to satisfy their wants and needs.

Define scarcity in economic terms.

The fundamental economic problem of having limited resources to meet unlimited wants.

What is economic decision making?

Individuals and businesses weigh the benefits and costs before making a choice.

What is cost-benefit analysis?

A decision-making process where the costs of an action are weighed against its benefits.

What is marginal cost?

The additional cost incurred by producing one more unit of a good.

Define marginal benefit.

The additional satisfaction or benefit gained from consuming one more unit of a good.

What does the Law of Diminishing Marginal Utility state?

Each additional unit of a good provides less utility than the previous one.

Give an example of trade-offs.

When making a decision, you give up one alternative for another.

What are the three economic questions due to scarcity?

1. What to produce? 2. How to produce? 3. For whom to produce?

List the four factors of production.

1. Land 2. Labor 3. Capital 4. Entrepreneurship.

What is the definition of incentives?

Rewards or punishments that influence economic choices.

What is opportunity cost?

The value of the next best alternative given up when making a decision.

What is the Production Possibilities Curve (PPC)?

A graph that shows the maximum possible output of two goods given limited resources.

What does an outward shift in the PPC indicate?

Growth, such as improved technology or more resources.

Why do opportunity costs increase when shifting production?

Resources are not equally suited for all production.

How does opportunity cost relate to trade-offs?

Opportunity cost is the value of the next best alternative given up when choosing one option over another.

What example demonstrates the Law of Increasing Opportunity Cost?

As production of one good increases, more resources must be taken from the production of another good, increasing its opportunity cost.

What happens to the PPC when efficiency improves?

The PPC shifts outward, allowing more goods to be produced.

What role does entrepreneurship play in production?

The ability to combine the other factors of production to create new goods/services and take risks for profit.