Economics Chapter 1 - What is Economics

Scarcity

The resources we use to produce goods and services are limited.

Economics

The study of choices when there is scarcity.

Factors of production

The resources used to produce goods and services; also known as production inputs or resources.

Natural resources

Resources produced by nature and used to produce goods and services.

Labor

Human effort, including both physical and mental effort, used to produce goods and services.

Physical capital

The stock of equipment, machines, structures, and infrastructure that is used to produce goods.

Human capital

The knowledge and skills acquired by a worker through education and experience and used to produce goods and services.

Entrepreneurship

The effort used to coordinate the factors of production - natural resources, labor, physical capital, and human capital - to produce and sell products.

Positive analysis

Answers the question "What is?" or "What will be?"

Normative analysis

Answers the question "What ought to be?"

Economic model

A simplified representation of an economic environment, often employing a graph.

Variable

A measure of something that can take on different values.

Microeconomics

The study of the choices made by households, firms and government and how these choices affect the markets for goods and services.

Marginal change

A small, one-unit change in value.

Macroeconomics

The study of the nation's economy as a whole, focuses on the issues of inflation, unemployment and economic growth.

Ceteris paribus

The Latin expression meaning that other variables are held fixed.

The three basic economic questions a society must answer are _______ products do we produce? ______ do we produce the products? _______ consumes the products?

What, how, who

What are the five factors of production?

Natural resources, labor, physical capital, human capital, entrepreneurship.

Positive statements answer questions like "What will happen if...?" T or F

true

Normative statements answer questions like "What will happen if...? T or F

false

Most modern economics is based on positive analysis. T or F

true

Should your city build levees strong enough to protect the city from Category Five hurricanes? Normative or positive?

Normative

How did Hurricane Katrina affect housing prices in New Orleans and Baton Rouge? Normative or positive?

positive

Who should pay for a new skate park? Normative or positive?

normative

Should a school district increase teachers' salaries by 20 percent? Normative or positive?

Normative

Would an increase in teachers' salaries improve the average quality of teachers? Normative or positive?

positive

What is the economist's solution to the congestion problem?

Charge a toll during rush hour.

Some recent work by economists on the sources of growth suggests that institutions such as the ______ and ______ play key roles in economic growth.

legal system and regulatory environment

A road map incorporates two unrealistic assumptions ___________ and ________________

the earth is flat and all roads are flat

The four elements of the economic way of thinking are use _____ to simplify the analysis, explore the relationship between two variables by _________, think at the _________, and rational people respond to __________.

use assumptions, isolating variables, margin and incentives

Which of the following is the Latin expression meaning other things being held fixed?

ceteris paribus

The federal subsidy for hybrid cars was responsible for roughly ______ of the hybrid cars purchased in 2007.

one third

The economic approach to spam is to follow the lead of ______ and establish a ______ for email.

snail mail and a commercial price

Adam Smith suggested that people are motivated solely by self-interest. T or F

false