Vocabulary Terms Chapter 1

Chapter 1: What is Economics? Section 1

Key Terms need: something essential for survival want: something that people desire but that is not necessary for survival goods: the physical objects that someone produces services: the actions or activities that one person performs for another scarcity: the principle that limited amounts of goods and services are available to meet unlimited wants

Key Terms, cont. economics: the study of how people seek to satisfy their needs and wants by making choices shortage: a situation in which consumers want more of a good or service than producers are willing to make available at particular prices entrepreneur: a person who decides how to combine resources to create goods and services factors of production: the resources that are used to make goods and services

Key Terms, cont. land: all natural resources used to produce goods and services labor: the effort people devote to tasks for which they are paid capital: any human-made resource that is used to produce other goods and services physical capital: the human-made objects used to create other goods and services human capital: the knowledge and skills a worker gains through education and experience

Chapter 1: What is Economics? Section 2

Key Terms trade-off: the alternatives that we give up when we choose one course of action over another(A1) “guns or butter”: a phrase expressing the idea that a country that decides to produce more military goods (“guns”) has fewer resources to produce consumer goods (“butter”) and vice versa(A2) opportunity cost: the most desirable alternative given up as the result of a decision(B1)

Key Terms, cont. thinking at the margin: the process of deciding how much more or less to do(B2) cost/benefit analysis: a decision-making process in which you compare what you will sacrifice and gain by a specific action marginal cost: the extra cost of adding a unit marginal benefit: the extra benefit of adding a unit

Chapter 1: What is Economics? Section 3

Key Terms production possibilities curve: a graph that shows alternative ways to use an economy’s productive resources production possibilities frontier: a line on a production possibilities curve that shows the maximum possible output an economy can produce efficiency: the use of resources in such a way as to maximize the output of goods and services

Key Terms, cont. underutilization: the use of fewer resources than an economy is capable of using law of increasing costs: an economic principle which states that as production shifts from making one good or service to another, more and more resources are needed to increase production of the second good or service