chapter 1- what is economics?

economics

the study of how individuals and societies make choices about ways to use scarce resources to fulfill their wants

scarcity

condition of not being able to have all of the goods and services one wants, because wants exceed what can be made from all available resources at any given time

economic model

a theory or simplified representation that helps explain and predict economic behavior in the real world

hypothesis

an assumption or prediction involving two or more variables that must be tested for validity

factors of production

the resources- including land, labor, and capital- that are needed to produce goods and services

land

natural resources and surface land and water

labor

Human effort directed toward producing goods and services

goods

tangible products that we use to satisfy our wants and needs

services

actions that can satisfy people's wants or needs

capital

previously manufactured goods used to make other goods and services

productivity

the amount of output (goods and services) that results from a given level of inputs (land, labor, capital, and entrepreneurship)

entrepreneuship

ability of risk taking individuals to develop new products and start new bussinesses in order to make profits

technology

advance in knowledge leading to new and improved goods and services and better ways of producing them

trade-off

sacrificing one good or service to purchase or produce another

opportunity cost

The value of the next best alternative that must be forgone as a result of a decision

production possibilities curve

graph showing the maximum combinations of goods and services that can be produced from a fixed amount of resources in a given period of time

microeconomics

branch of economic theory that deals with behavior and decision making by small units such as individuals and firms

macroeconomics

the branch of economic theory dealing with the economy as a whole and decision making by large units such as governments