ECON CH1

What core problem marks the beginning of economics according to Chapter 1?

Human wants exceed available resources, creating scarcity.

How is economics formally defined in Chapter 1?

Economics is the social science that studies how individuals, businesses, governments, and societies make choices when resources are scarce—and how incentives influence those choices.

What does microeconomics focus on?

It zooms in on the choices of individuals and businesses, how they interact in markets, and how policies affect them.

What does macroeconomics focus on?

It zooms out to examine the performance of national and global economies.

What are the three core economic questions every economy must answer?

What gets produced?, How is it produced?, and For whom is it produced?

What determines what gets produced in an economy?

Demand helps determine what gets produced.

What determines how products are produced?

Production depends on available resources and technology.

What affects who receives the goods and services produced (for whom)?

Income and prices affect who gets goods and services.

What is the relationship between self-interest and social interest when aligned?

A business seeking profit creates useful products, provides jobs, and generates consumer benefits through competition and exchange.

What occurs when self-interest and social interest conflict?

Private choices can create costs for others (such as pollution), which is why economists study market failures and public policy.

What are the four factors of production?

Land, labor, capital, and entrepreneurship.

What does land represent as a factor of production?

Natural resources used in production, such as water, farmland, minerals, and energy resources.

What type of income is earned by land?

Rent.

What does labor represent as a factor of production?

People's time and effort.

What type of income is earned by labor?

Wages.

What is human capital?

Knowledge and skills gained from education, training, and experience.

What improvements can higher human capital bring?

Worker productivity, ability to use new technology, career opportunities, and innovation and problem-solving.

What does capital represent in economics?

Tools, machines, equipment, and buildings used to produce (capital does not simply mean money).

What type of income is earned by capital?

Interest.

What does entrepreneurship represent as a factor of production?

Organizing resources, spotting opportunities, making decisions, and taking business risks.

What type of income is earned by entrepreneurship?

Profit.

Why is every choice considered a tradeoff?

Because resources are scarce, choosing one thing requires giving up something else.

What does a rational choice mean in economics?

A choice that best achieves your objective, given the costs and benefits you face.

Does "rational" mean a person is perfect, selfish, or emotionless?

No, rational does not mean perfect, selfish, or emotionless; preferences can differ across people.

How is benefit defined in economic decision-making?

Benefit is what you gain.

How is cost defined in economic decision-making?

Cost is what you give up.

What is opportunity cost?

The highest-valued alternative you give up.

Does opportunity cost include all forgone alternatives added together?

No, it includes only the single best forgone alternative.

What components make up the economic cost (total tradeoff) of attending college?

Direct costs (tuition plus books) plus forgone income and time (what you could have done).

What type of decisions do people make when thinking at the margin?

Most real decisions are "how much?" rather than "yes or no?"

What is marginal benefit (MB)?

The extra benefit from one more unit of an activity.

What is marginal cost (MC)?

The extra cost of one more unit of an activity.

When should an activity be increased based on marginal analysis?

Do more when marginal benefit exceeds marginal cost (MB > MC).

When should an activity stop increasing based on marginal analysis?

Stop increasing when the extra benefit is no longer worth the extra cost (MB = MC).

How do people respond to incentives?

When benefits or costs change, behavior often changes in predictable directions.

What is a positive statement?

A statement that describes what is, was, or will be, and can be tested against evidence.

What is a normative statement?

A statement that describes what ought to be, and depends partly on values or judgments.