Chapter One Vocabulary Terms and Concepts

Economics the study of the choices people make about how to best use scarce resources to satisfy their wants and needs

Goods physical objects such as clothes or shoes Services actions or activities that one person performs for another such as haircuts or auto repair How do we satisfy our wants and needs? -- By buying goods & services

All goods and services are produced using resources. In economics these resources are known as the Factors of Production: the three groups of resources that are used to make all goods and services - land, labor, capital, and entrepreneurship

Land natural resources Labor the effort that people put into a task for which they are paid

Capital - any human-made resource used to create all other goods and services Physical capital - tools, equipment, software, factories, and buildings

Human capital – the skills and knowledge we gain through education and training (human-made)

Entrepreneur the person who organizes or combines land, labor and capital to create and market new goods and services.

Factors of Production Model LAND - cotton LABOR -seamstress CAPITAL – thread, sewing machine. ENTREPRENEUR –designer, business owner GOOD – t-shirt

I will produce _____________________ by using ____________, ____________, (land)(labor) and __________________. (capital)

Trade-offs the choices we have when faced with a decision (sleep or study) Opportunity Cost the most desirable alternative given up as the result of a decision (I chose sleep so my opportunity cost is studying) Guns or Butter the choices a country must make when choosing whether to produce more or less military or consumer goods

My ___________ is scarce so I had to choose between these trade-offs: ______ and __________. I chose _________, so my opportunity cost was _________.

Production Possibilities Curve a graph that shows alternative ways to use an economy’s resources Production Possibilities Frontier the line on the graph that shows the maximum output possible. military goods “guns” consumer goods “butter” 0 Production Possibilities Frontier The location of the frontier is determined by the amount of resources and technology available. These are scarce so our ability to produce is limited. Production Possibilities Curve A B C D

Q Q Consumer goods in hundred thousands Military goods in thousands. B. C A production possibilities curve shows the opportunity cost of producing more of one type of good or service. Opportunity Cost = 3 less military goods 1 more consumer good.. A D

Production Possibilities Curve Q Q Consumer goods Military goods.. A C. W E Any points (production) along the frontier line (A,B,C, D) is efficient and possible Any point (production) inside the frontier line (E) is possible but inefficient. Resources are underutilized. Any point outside of the frontier line (W) is not possible. We do not have the resources or the technology to produce it... B D

Consumer goods in hundred thousands Military goods in thousands By adding more resources (land, labor or capital) or using the ones we have more efficiently (technology), the curve can shift outward ECONOMIC GROWTH