study

Need

A basic requirement for survival

Want

Something we would like to have but is not necessary for survival.

goods

physical objects that someone produces, such as food, clothing, or video games.

Services

actions or activities that one person performs for someone else.

Scarcity

the condition that results from society not having enough resources to produce all the things people need and want.

What causes scarcity?

Unlimited wants and needs combined with limited resources.

Economics

the study of how people make decisions to satisfy their wants and needs with limited resources; how societies deal with scarcity.

How does scarcity force people to make economic choices?

Because there are not enough goods and services to satisfy all of society's needs and wants, people, businesses, and governments must make choices about production.

Shortage

when consumers want more of a good or service than a producer is willing to make available.

Scarcity is a problem that all societies face. Is the same true of shortages? Why or why not?

Scarcity always exists because resources are limited, while a shortage can be temporary or caused by things such as a war or drought.

Entrepreneur

a person who decides how to combine resources to create new goods and services;

Why do you think entrepreneurs take the risk to start or expand a business?

To make a profit and develop new ideas/businesses.

Factors of production

productive resources needed to produce goods. The three factors are land, capital, and labor.

land

all natural resources used to produce goods and services; examples include water, sunlight, plants, oil, trees, stone, and animals.

labor

any effort a person devotes to a task for which that person is paid; examples include manual laborers, lawyers, doctors, teachers, and waiters.

capital

resources used to produce goods and services.

Physical capital

any human-made resource used to create other goods and services, such as tools, tractors, machinery, buildings, and factories.

Human capital

skills or knowledge gained by a worker through education and experience, such as college degrees and vocational training.

Trade-off

the act of giving up one benefit in order to gain another, greater benefit.

Every decision we make has a

trade-off

Trade-offs involve things that can easily be measured, such as

money, property, time.

Explain the term “guns or butter.” What are the trade-offs?

describes the choice governments make between spending money on military goods or domestic/consumer needs. Producing more military goods means fewer resources are available for consumer goods, and vice versa.

Opportunity Cost

the most desirable alternative someone gives up as a result of a decision.

What do economists mean when they say, “choosing is refusing”?

When we choose one alternative, we must sacrifice at least one other alternative and its benefits.

When is it helpful to use a decision-making grid?

When deciding between alternatives and determining whether you are willing to accept the opportunity cost of a choice.

Thinking at the margin

deciding how much more or less to do by considering one additional unit, such as one hour or one dollar.

Cost benefit analysis

comparing the costs and benefits of a decision.

What does the term “marginal” mean?

Extra or additional.

Marginal cost

the extra cost of adding one unit.

Marginal benefit

the extra benefit of adding the same unit.

What are the two main parts of a cost/benefit analysis? How are they used to make a decision?

The two parts are marginal cost and marginal benefit. Decision makers compare the extra cost with the extra benefit to decide whether the additional unit is worthwhile.

Production possibilities curve

a graph that shows alternative ways of using a country's resources.

Production possibilities frontier

illustrates all the possible combinations of output when resources are efficiently used.

Why is a production possibilities frontier useful for an economist or a business?

It shows the maximum combinations of goods and services that can be produced with available resources and helps show efficiency, opportunity cost, and economic growth.

What is underutilization

Underutilization is the use of fewer resources than the economy is capable of using.

Law of increasing costs

as production shifts from making one item to another, more and more resources are necessary to increase production of the second item, causing opportunity costs to grow.

Why do many governments and businesses invest in technology

Technology can increase a nation's/business's efficiency and productivity, allowing more output to be produced.

Why do many governments and businesses invest in human capital?

Education and training help workers develop and use new technologies. Highly skilled workers can increase efficiency and lead to economic growth.

Give two examples of how the government and businesses can invest in human capital.

education and health care | training and skill-improving programs