 Economic Problem:  The problem of having unlimited wants, but limited resources to satisfy them  Scarcity  The limited nature of resources, which underlies the basic economic problem  Economic Resources  Basic items that are used in all types of production, including natural, capital and human resources CHAPTER 1: THE ECONOMIC PROBLEM 1.1 – How Economists Think

 Natural Resources  The resources from nature that are used in production, including land, raw materials, and natural processes  Capital Resources  The processed materials, equipment and buildings used in production; also known as capital  Human Resources  The efforts of people involved in production, including labour and entrepreneurship  Economics  The study of how to distribute scarce resources among alternative ends Definitions – Factors of Production

 Economic Models  Generalizations about or simplifications of economic reality; also known as laws, principles or theories  Hypothesis  A tentative principle of an observation of insight, to be tested for its validity  Economics is based on the scientific method More Definitions

 Variables  Factors that have measurable values  Independent Variables  The variables in a causal relationship that causes change in another variable  Dependent Variables  The variable in a causal relationship that is affected by another variable  Inverse Relationship  A relationship in which a change in the independent variable causes a change in the opposite direction of the dependent variable More Definitions

 Direct Relationship  A relationship in which a change in the independent variable causes a change in the same direction of the dependent variable  Ceteris Paribus  The assumption that all other things remain the same  Division of Labour  The extent to which jobs of different workers are specialized into separate task  Deduction  A type of reasoning in which one states a hypothesis before examining the facts  Induction  A type of reasoning in which one states a hypothesis after examining the facts More Definitions

 Positive Economics  The study of economic facts and how the economy operates as it does  Normative Economics  The study of how the economy ought to operate More Definitions