Economics Chapter 1


something like air, food, or shelter that is necessary for survival


an item that we desire but that is not essential to survival. A luxury.


the study of how people seek to satisfy their needs and wants by making choices, the branch of social science that deals with the production and distribution and consumption of goods and services and their management


physical objects such as clothes or shoes. These can be purchased by consumers.


actions or activities that one person performs for another.


limited quantities of resources to meet unlimited wants.


a situation in which producers will not or cannot offer goods or services at the current prices.

factors of production

resources that are used to make all goods and services.


all natural resources that are used to produce goods and services.


the effort that people devote to a task for which they are paid.


any human-made resource that is used to create other goods and services.

physical capital

the human-made objects used to create other goods and services.

human capital

the knowledge and skills a worker gains through education and experience.


ambitious leader who decide how to combine land, labor, and capital to create and market new goods and services.


all alternatives that must be given up when we choose one course of action over another

guns or butter

a phrase that refers to the trade-offs that nations face when choosing whether to produce more or less military or consumer goods

opportunity cost

the most desirable alternative given up as the result of a decision

thinking at the margin

when you decide how much more or less to do

production possibility graph

A graph that shows alternative ways to use an economy's resources

production possibilities frontier

the line on a production possibilities graph that shows the maximum possible output


using resources in such a way as to maximize the production of goods and services


using fewer resources than an economy is capable of using


to an economist, the alternative that is given up because of a decision

law of increasing costs

As we shift factors of production from making one good or service to another, the cost of producing the second item increases