Unformatted text preview: anguage 27 01 (002-029) EMC Chap 01 11/17/05 4:04 PM Page 28 Economics Vocabulary
Be sure you know and remember the following
key points from the chapter sections. Section 1
People have unlimited wants, but resources are
limited. The condition in which our wants are
greater than the limited available resources is
known as scarcity.
Because of scarcity, people must make choices,
which means they must incur opportunity costs.
A production possibilities frontier shows all
the possible combinations of two goods that
an economy can produce.
Rationing devices are needed to decide who gets
what portion of the available goods. Because
people compete for the rationing device, competition is a consequence of scarcity. Section 2
Economists often consider both the costs and
benefits of an activity.
Economists believe that people act as they do
in response to incentives.
Individuals and societies must deal with
Economists try to see “what would have been”
as well as “what will be.”
Decisions and actions often have important
Economics is divided into two branches:
microeconomics and macroeconomics.
Economists construct theories to answer
economic questions. Section 3
Utility means the same thing as satisfaction or
happiness; disutility means the same thing as
dissatisfaction or unhappiness.
Goods are tangible items; services are tasks
that people perform for others.
The four categories of resources, or factors of
production, are land, labor, capital, and
entrepreneurship. 28 Chapter 1 What Is Economics? To reinforce your knowledge of the key terms in
this chapter, fill in the following blanks on a separate piece of paper with the appropriate word or
1. The condition where wants are greater than the
resources available to satisfy those wants is
2. Things that we desire to have are called ______.
3. A(n) ______ represents the possible combinations of two goods that can be produced in a
certain time period.
4. ______ is the most highly valued, or next best,
alternative that is forfeited when a choice is
5. ______ is the science that studies the choices of
people trying to satisfy their wants in a world of
6. The branch of economics that deals with
human behavior and choices as they relate to
relatively small units is called ______.
7. A(n) ______ is an explanation of how something works, designed to answer a question that
has no obvious answer.
8. A good that can be touched is considered to be
9. A service is not tangible, but ______.
10. Another word for dissatisfaction or unhappiness is ______.
11. To an economist, another word for satisfaction
or happiness is ______.
12. A(n) ______ encourages a person to take action.
13. Produced goods used for further production are
referred to as ______.
14. People who have a special talent for taking
advantage of new business opportunities are
called ______. Understanding the Main Ideas
Write answers to the following questions to review
the main ideas in this chapter.
1. What is scarcity?
2. Explain this statement: Because scarcity exists,
choices must be made. 01 (002-029) EMC Chap 01 11/17/05 4:04 PM Page 29 3. Describe the connection between choices and
4. Explain the link between scarcity and
5. If you attend a public high school, you are not
charged admission fees or tuition. Does it follow, then, that you face no opportunity cost in
attending school? Explain your answer.
6. Why is it preferable to think in terms of costs
and benefits rather than in terms of benefits
7. Explain how scarcity is illustrated by a production possibilities frontier.
8. Why do the points on a production possibilities
frontier represent choices?
9. What lesson is to be learned from the story in this
chapter about the boy and the broken window?
10. What does it mean to think “at the margin”?
11. Suppose it is costly to build more schools in
your city or town. Does it necessarily follow that
the schools should not be built? Explain your
12. Suppose apples are currently selling for 50 cents
each. Someone says that apple sellers can’t make
a decent living if they sell their apples so
cheaply. He says there should be a law stating
that no one can sell an apple, and no one can
buy an apple, for less than 75 cents. He intends
for the law to raise the income of apple sellers.
What might be an unintended effect of this law?
Explain your answer.
13. Why is it better to judge theories by how well
they predict than by whether they sound right
or reasonable to us?
14. Identify some trade-off that you face.
15. How does entrepreneurship differ from labor? Doing the Math
Do the calculations necessary to solve the following
1. Bill decided to buy six books on history instead
of four books on politics. It follows, then, that
the opportunity cost of each history book was
______ books on politics.
2. The owner of a movie theater decides to raise
ticket prices from $10 to $12 a ticket. Since he sells an average of 789 tickets a day, he might
expect to collect ____ more per day in ticket
sales. Why might he be disappointed? Solving Economic Problems
Use your thinking skills and the information you
learned in this chapter to find solutions to the following problems.
1. Application. The person who developed
Music Television (MTV) said that today’s
younger generation particularly enjoys two
things: (1) television and (2) music, especially
rock music. His idea was to combine the two,
and MTV was born. Would you say that he was
exhibiting entrepreneurship? Explain your
2. Application. Think like an entrepreneur.
Identify a new product or service that you
believe many people will want to buy. List the
land, labor, and capital that will be needed to
produce this new product or service, and
explain why you think people will want to
3. Analysis. Explain how scarcity is related to
each of the following: (1) choice, (2) opportunity cost, and (3) a rationing device.
4. Cause and Effect. “Because we have to make
choices, there is scarcity.” What is wrong with
5. Writing. Write a one-page paper explaining
how the world would be different if scarcity did
6. Economics in the Media. Find an example
in your local newspaper of one effect of scarcity.
Your example may come from an article, editorial, or advertisement.
7. Analysis. What does a classroom full of college
students have to do with scarcity? Go to www.emcp.net/economics and choose Economics:
New Ways of Thinking, Chapter 1, if you need more help in
preparing for the chapter test. Chapter 1 What Is Economics? 29...
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