econ midterm 1 study guide - Chapter 1 Scarcity a lack of...

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Chapter 1 Scarcity – a lack of resources, limited quantities of land, capital, labor, and entrepreneurial ability that are never sufficient to satisfy people’s virtually unlimited economic wants. Scarcity restricts options and demands choices. Marginal analysis – comparisons of marginal benefits and marginal costs, usually for decision making. In making a decision, the marginal benefits and the marginal costs must be compared. Opportunity costs are present. Macroeconomics – examines either the economy as a whole or its basic subdivisions or aggregates, such as the government, household, and business sectors. It seeks to obtain an overview of the structure of the economy and the relationships of its major aggregates. It speaks of such economic measures as total output, total employment, total income, aggregate expenditures, and the general level of prices in analyzing various economic problems. Microeconomics – the part of economics concerned with individual units such as a person, a household, a firm, or an industry. The economist observes the details of an economic unit, or very small segment of the economy, under a figurative microscope. We look at decision making by individual customers, workers, households, and business firms. Production inputs – labor, capital, land, entrepreneurship Production Possibilities Curve – a curve showing the different combinations of two goods or services that can be produced in a full-employment, full-production economy where the available supplies of resources and technology are fixed. Each point on the curve represents some maximum combination of two products that can be produced if resources are fully employed. Points inside the curve are attainable, but they indicate that full employment is not being realized. The curve is bowed out from the origin because it reflects the law of increasing opportunity costs. All points on the curve represent full employment. Must – full employment, fixed resources, fixed technology, two goods
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