A production possibilities frontier shows all the

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Unformatted text preview: anguage 27 01 (002-029) EMC Chap 01 11/17/05 4:04 PM Page 28 Economics Vocabulary Chapter Summary 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 trade-offs. Economists try to see “what would have been” as well as “what will be.” Decisions and actions often have important unintended effects. 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 phrase. 1. The condition where wants are greater than the resources available to satisfy those wants is called ______. 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 made. 5. ______ is the science that studies the choices of people trying to satisfy their wants in a world of scarcity. 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 opportunity costs. 4. Explain the link between scarcity and competition. 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 only? 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 answer. 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 problems. 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 answer. 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 buy it. 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 this statement? 5. Writing. Write a one-page paper explaining how the world would be different if scarcity did not exist. 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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