Ch.1

• What is the definition of scarcity in economics?


  A situation where people have unlimited wants but limited resources
• What are economic goods?


  Goods that are scarce
• What are free goods?


  Goods that are not normally regarded as being scarce
• What is poverty in economic terms?


  A situation where individuals lack basic necessities or have low incomes
• What is a firm in economics?


  An organization that produces output (goods or services)
• What is a positive statement?


  A statement about what is, based on facts
• What is a normative statement?


  A statement involving a value judgement about what ought to be
• What is value judgement in economics?


  A statement based on opinion or beliefs
• What are the factors of production?

  Resources used in the production process, including labour, capital, land, and enterprise
• What is opportunity cost?


  The value of the next-best alternative forgone in decision making
• What does a production possibility curve (PPC) represent?


  The maximum combinations of goods or services that can be produced given available resources
• What is a trade-off in economics?


  The willingness to give up one thing for another
• What are capital goods?


  Goods used as part of the production process, such as machinery or factory buildings
• What are consumer goods?


  Goods produced for present use (consumption)
• What is long-run economic growth?


  Expansion in the productive capacity of the economy
• What is the basic economic problem?


  • Balancing scarcity of resources with infinite wants
  • Making choices based on limited resources
  • Understanding opportunity costs associated with choices
• What is the role of economic agents in the economy?


  They are key groups involved in the economic problem, including households, firms, and government
• What are the two key roles of households in the economy?


  Consumers of goods and services, and providers of the workforce
• What are the two key roles of firms in the economy?


  Producers of goods and services, and purchasers of goods and services for production
• What are the roles of government in the economy?


  Using taxation and spending to influence the microeconomy and macroeconomy
• What is rationality in economic decision-making?


  The assumption that each economic agent acts in their own best interests
• How do households aim to maximize their satisfaction?


  By purchasing goods that provide value equal to or greater than their cost
• How do firms aim to maximize their profit?


  By employing workers who will generate more revenue than their wage cost
• How do governments aim to maximize welfare?


  By making decisions that promote public health and well-being
• What are the factors of production?

  Labour, capital, land, and entrepreneurship
• What is the reward for land in the factors of production?

  Rent
• What is the reward for labour in the factors of production?


  Wages
• What is the reward for capital in the factors of production?


  Interest
• What is the reward for entrepreneurship in the factors of production?


  Profit
• What is opportunity cost in decision-making?


  The benefit lost from the next best alternative when making a choice
• What is the significance of a production possibility curve (PPC)?


  It shows the maximum combinations of goods and services that can be produced
• What does a point on the PPC represent?


  Productively efficient production using all resources
• What does a point inside the PPC represent?


  Productively inefficient production with unused resources
• What does a point beyond the PPC represent?


  Impossible production levels with current resources
• What happens when a firm increases production of one good on the PPC?


  It incurs an opportunity cost of decreasing production of another good
• What causes a shift in the PPC?


  Anything that affects the quantity or quality of resources available
• What is the opportunity cost of going to university?


  The wages that could have been earned by working instead
• What is the significance of the shape of the PPC?


  It is typically convex due to economies of scale
• What does it mean if opportunity costs are constant on the PPC?


  The graph will be a straight line, indicating resources are not specialized
• What is productive efficiency?


  The combination of goods represented on the PPC, indicating maximum production