Midterm 1 Study Guide - CHAPTER 1(8 Questions What o o o is...

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CHAPTER 1 (8 Questions) What is scarcity ? o Scarce economic resources mean limited goods and services o Scarcity restricts options and demands choices o Because we “can’t have it all,” we must decide what we will have and what we must forgo What is economics ? o The administration of scarce resources to satisfy unlimited wants What is microeconomics ? o The study of one unit in the economy Individual units such as a person, a household, a firm, or an industry What is macroeconomics ? o The study of the economy as a whole Such as unemployment, inflation, banking system, interest rate What is positive economics ? o Focuses on “what is” o Focuses on facts and cause-and-effect What is normative economics ? o Focuses on “what should be” o Incorporates value judgments about what the economy should be like What are the resources ? o Land Natural resources used to produce goods and services o Labor Physical and mental talents that are used to help produce goods & services o Capital Human-made resources used to produce goods and services Such as buildings, machinery, and equipment o Entrepreneurial ability The human ability to make non-routine decisions, to innovate, to make strategic decisions, and to bear risks What is the production possibilities curve ? o It displays the different combinations of goods and services that society can produce in a fully employed economy Assumes fixed (constant) resources and fixed (constant) technology
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CHAPTER 2 (5 Questions) What are the economic systems ? o Market (capitalism) Characterized by private property and competition Allows for better quality, lower prices, and choice o Command (communism) Government owns most property and resources Economic decision making occurs through a central economic plan eg. North Korea & Cuba What is specialization ? What do you get from it? o The use of resources of an individual, firm, region, or nation to produce one or a few goods or services rather than the entire range of goods and services o Those goods and services are then exchanged for a full range of desired products o What do you get from it? Better quality, higher production, skilled labor Enhances efficiency and output by enabling individuals, regions, and nations to produce the goods and services for which their resources are best suited o Division of labor The specialization of workers The separation of the work required to produce a product into a number of different tasks that are performed by different workers o Specialization . . . Makes use of differences in ability Fosters learning by doing Saves time What is the “ invisible hand ?” o Developed by Adam Smith in 1776 novel “The Wealth of Nations” o The tendency of firms and resource suppliers that seek to further their own self-interests in competitive markets (as though guided by an “invisible hand”) and simultaneously, will promote the public or social interest o
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