Chapter 1 Study Guide - Economics

List and define the four factors of production

1. Physical Capital: Any human-made resource that is used to create other goods and services (tools, tractors, machinery, buildings, factories, etc.) Human Capital: Any skills or knowledge gained by a worker through education and experience (college degrees, vocational training, etc.)

2. Entrepreneurship: ambitious leaders that combine the other factors of production to create goods and services (bill gates, inventors, store owners, etc)

3. Land: All natural resources that are used to produce goods and services. Anything that comes from “mother nature.” minerals, water, soil, oil, stone, animals, and etc

4. Labor: Any effort a person devotes to a task for which that person is paid. (manual laborers, lawyers, doctors, teachers, waiters, etc.)

Provide 3 real worlds examples of the four production

Capital:

1. A factory assembly line conveyor belt

2. A carpenter’s electric saw

3. A restaurant’s commercial oven

Entrepreneurship:

1. Steve Jobs starting Apple

2. A local baker opening a new neighborhood bakery

3. An inventor patenting a new app and pitching it to investors

Land:

1. Crude oil extracted from the ground

2. Water used for irrigation on a farm

3. Timber from a forest used to make paper

Labor:

1. A software engineer writing code

2. A construction worker laying bricks

3. A teacher delivering a classroom lesson

Sarcity

The condition in which our wants are greater than our limited resouces.

Five Examples of Scarcity in Your Life

1. Time: Having only 24 hours in a day to sleep, attend school, practice sports, and study

2. Money: Having a limited budget to choose between buying a pair of jeans or a pair of shoes

3. Concert Tickets: A venue having a limited number of seats available for a popular artist.

4. Gasoline: Having a set amount of gas in your car’s tank to commute throughout the weak

5. Fresh Produce: Seasonal shortages

Explain the difference between a constant opportunity cost curve and a increasing opportunity cost curve

A constant opportunity cost curve is usually a straight line.

• Every time you produce more of one good, you give up the same amount of the other good.

• Resources can switch between producing the two goods equally well.

• Example : 1 pizza — give up two burgers ( it goes by twos) Opportunity cost stays the same

An increasing opportunity cost curve is usually bowed outward (concave).

• As you produce more of one good, you have to give up increasingly larger amounts of the other good.

• This happens because resources aren't equally good at producing both goods.

Example:

• 1st pizza → give up 1 burger

• 2nd pizza → give up 2 burgers

The fundamental economic problem facing all societies

Scarcity

When you make a choice, the value of the next best alternative that you did not choose is called the

Opportunity Cost

A statement that describes what is and can be tested against facts is a

Positive statements

The study of how individual households and firms make decisions and interact in specific markets

Micro ecnomics

Which of the following would be considered a topic of macroeconomics?

The national unemployment rate

True or False There is no such thing as a free lunch because all goods and services have an opportunity cost

True

True or False A “tradeoff” refers specifically to the highest-valued alternative that is forgone

False

True or False The government should increase spending on education. Is an example of a positive economic statement

False

True or False microeconomics examines the economy as a whole, including issues like inflation and economic growth.

False

True or False scarcity applies only to poor countries, not to wealthy ones

False

Explain what scarcity means in economics

Scarcity means that resources are limited, but people's wants and needs are unlimited.

you have $20. You can either buy a new video game (which costs $20) or go to a concert with friends, You choose to go to the concert. What is the opportunity cost of your decision?

The opportunity cost is the $20 video game you gave up by choosing to go to the concert. The video game is the answer

Classify each of the following statements as either Positive or Normative and explain your reasoning

A decrease in the price of gasoline will lead to an increase in gasoline consumption

Which statement is Micro or macro economics.

The overall rise in prices across the economy

when you choose to spend a n hour studying for an economics test instead of working your part-time job, what is the tradeoff you are making? how does this differ from the opportunity cost

The tradeoff is what you give up when you make a choice.

• Choice: Spend 1 hour studying for the economics test.

• Tradeoff: You give up the opportunity to work for 1 hour and earn money.

The opportunity cost is the specific best alternative you gave up.

👉Tradeoff: Studying instead of working.
Opportunity cost: The money you would have earned during that hour.

Easy way to remember:
Tradeoff = the choice between alternatives.
Opportunity cost = the value of the next-best alternative you give up.