Chapter 1 Summary
What is Economics?
Victoria Patterson
Eric Grove
Mr. Treadway|Period 3
Eric Grove
Mr. Treadway|Period 3
Overview
This chapter essentially covers the basics of economics, such as defining simple terms and an introduction to understanding how costs, benefits, and incentives effect decision making. Also covered in this chapter is an introduction to understanding how possibilities production frontiers enable us to determine how much of a product is able to be produced compared to another product when there are limited resources.
Key Terms
Want: A thing that we desire to have.
Resource: Anything used to produce goods or services. Ex. labor makes computers, televisions, etc. Labor is a resource.
Scarcity: The condition in which our wants are greater than the resources available to satisfy those wants.
Opportunity Cost: The most highly valued opportunity or alternative forfeited when a choice is made.
Trade-Off: A situation in which more of one thing necessarily means less of something else.
Production possibilities frontier: A graphic representation of all possible combinations of two goods that an economy can produce.
Rationing Device: A means for deciding who gets what portion of the available resources and goods.
Economics: The science that studies the choices of people trying to satisfy their wants in a world of scarcity.
Marginal: Additional (in economics).
Incentive: Encourages or motivates a person into action.
Microeconomics: Branch of economics's that deals with human behavior and choices as they relate to relatively small units.
Macroeconomics: Observation of human behavior and choices as they relate to the entire economy.
Tangible: Able to be be felt by touch.
Intangible: Not able to be felt by touch.
Goods: Anything that satisfies our wants.
Utility: Quality of bringing satisfaction or happiness.
Disutility: Quality of bringing dissatisfaction or unhappiness.
Land: All natural resources found in nature.
Labor: Physical and mental talents that people contribute to the production of goods and services.
Capital: Produced goods that can be used as resources for further production.
Entrepreneurship: Special talent that some people have for searching and taking advantage of new business opportunities and for developing new products and new ways of doing things.
Comprehension/Critical Thinking and Writing
1. Explain how a production possibilities frontier can be used to illustrate both choice and opportunity and cost. Include a PPF.
A production possibilities frontier shows the choices we can make to produce any combination of goods. Likewise, those choices are followed by an opportunity cost. (See Fig. 1)
This chapter essentially covers the basics of economics, such as defining simple terms and an introduction to understanding how costs, benefits, and incentives effect decision making. Also covered in this chapter is an introduction to understanding how possibilities production frontiers enable us to determine how much of a product is able to be produced compared to another product when there are limited resources.
Key Terms
Want: A thing that we desire to have.
Resource: Anything used to produce goods or services. Ex. labor makes computers, televisions, etc. Labor is a resource.
Scarcity: The condition in which our wants are greater than the resources available to satisfy those wants.
Opportunity Cost: The most highly valued opportunity or alternative forfeited when a choice is made.
Trade-Off: A situation in which more of one thing necessarily means less of something else.
Production possibilities frontier: A graphic representation of all possible combinations of two goods that an economy can produce.
Rationing Device: A means for deciding who gets what portion of the available resources and goods.
Economics: The science that studies the choices of people trying to satisfy their wants in a world of scarcity.
Marginal: Additional (in economics).
Incentive: Encourages or motivates a person into action.
Microeconomics: Branch of economics's that deals with human behavior and choices as they relate to relatively small units.
Macroeconomics: Observation of human behavior and choices as they relate to the entire economy.
Tangible: Able to be be felt by touch.
Intangible: Not able to be felt by touch.
Goods: Anything that satisfies our wants.
Utility: Quality of bringing satisfaction or happiness.
Disutility: Quality of bringing dissatisfaction or unhappiness.
Land: All natural resources found in nature.
Labor: Physical and mental talents that people contribute to the production of goods and services.
Capital: Produced goods that can be used as resources for further production.
Entrepreneurship: Special talent that some people have for searching and taking advantage of new business opportunities and for developing new products and new ways of doing things.
Comprehension/Critical Thinking and Writing
1. Explain how a production possibilities frontier can be used to illustrate both choice and opportunity and cost. Include a PPF.
A production possibilities frontier shows the choices we can make to produce any combination of goods. Likewise, those choices are followed by an opportunity cost. (See Fig. 1)
2. How do costs and benefits affect decisions? What role do incentives play in decision making?
When we make a decision, we weigh the costs and benefits. We think, "Are the benefits really worth the cost of this want?" If we decide that the want is indeed worth the cost, we go through with it. Otherwise, we turn away.
Incentives enable a person to choose one product over the other. Whether it be peer-pressure, the efficiency of a product, the reputation of a product, or the popularity of a product, incentives ultimately affect our decision.
When we make a decision, we weigh the costs and benefits. We think, "Are the benefits really worth the cost of this want?" If we decide that the want is indeed worth the cost, we go through with it. Otherwise, we turn away.
Incentives enable a person to choose one product over the other. Whether it be peer-pressure, the efficiency of a product, the reputation of a product, or the popularity of a product, incentives ultimately affect our decision.
Fig. 1
