chapter 1- what is economics?


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


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


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


natural resources and surface land and water


Human effort directed toward producing goods and services


tangible products that we use to satisfy our wants and needs


actions that can satisfy people's wants or needs


previously manufactured goods used to make other goods and services


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


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


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


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


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


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