Honors Economics Chapter 1

Need

Something essential for survival

Want

Something desired, but is not necessary for survival

Goods

physical objects someone produces

Services

actions/activities one person performs for another

Scarcity

when a limited number of goods/services can meet unlimited wants

Economics

the study of now people seek to satisfy their needs and wants by making choices

Shortage

occurs when consumers want more goods/services than producers are willing to make available at a particular price

Entrepreneurs

people who decide how to combine resources into new goods and services

Factors of Production

resources used to make all goods and services

Land

all NATURAL resources used to make goods and services

Labor

effort people devote to tasks for which they are paid

Physical Capital

human-made resources used to produce other goods and services

Human Capital

knowledge and skills workers gain via education and experience

Trade-Off

act of giving up one benefit in order to gain a greater benefit

“Guns or Butter”

government choice on spending money on miliary or domestic needs

Opportunity Cost

Most desirable alternative someone gives up as a result of a decision

Marginal Cost

extra cost of adding one unit

Marginal Benefit

extra benefit of adding one unit

Production Possibilities Curve

a graph showing alternative ways to use an economy’s productive resources

Production Possibilities Frontier

shows combinations of the productions of two goods that can be maximized in an output when all resources are being maximized

Efficiency

the use of resources to maximize the output of goods and services

Underutilization

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

Law of Increasing Costs

states that as production shifts from making one item to another, more and more resources are necessary to increase production of the second item. Therefore, opportunity cost increases