chapter 1

Question 1

what is economics

Answer 1

• the study of how rational individuals, firms, societies make decisions in a world where resources are scarce

Question 2

resources

Answer 2

• divided into land, labour capital

Question 3

scarcity and choice

Answer 3

• relative to our desires, existing resources are scarce

- enough resources to produce only a faction of goods and services wanted

Question 4

opportunity cost

Answer 4

• what is given up when an alternative is chosen

Question 5

production possibilities boundary

Answer 5

• illustrates the different combinations of 2 products society can produce given a specific set of resources in a full employment, full production economy
• above curve: unattainable
• on curve: optimized
• under curve (and on): attainable, show choice
• negative slope shows increasing opportunity cost

Question 6

maximizing utility

Answer 6

• individuals make decisions to do the best for themselves

- weigh benefits and costs to maximize best decision

Question 7

incentives

Answer 7

• people respond well to incentives at all levels

- prices, wages, etc