1. Economics:
    social science concerned with the way society chooses to use or employ its scarce resources, which have alternative uses, to produce, exchange, & allocate goods & sevices for present & future consumption.
  2. Scarcity:
    unlimited wants are greater than available resources can supply
  3. Scarce good:
    A good is scarce if the amount available is less than the amount people would want if it were free.
  4. Free good:
    A good is free if the amount available is greater than the amount people want at a zero price.
  5. Opportunity Cost:
    the value or benefit that you give up by choosing one alternative over another

    What did you give up?
  6. Scientific Method:
    • a process of formulating theories, collecting data, testing, & then revising/or tentatively confirming your theories using two mental processes:
    • induction
    • deduction
    • verification
  7. Induction:
    • process of reasoning from particular observations to general conclusions, leads to a theory or model
    • "theory"
  8. Deduction:
    • process of reasoning from general statements to particular observations
    • then try to verify conclusion by going back to facts
  9. Positive Economics:
    • "what is"
    • i.e. theories, facts
  10. Normative Economics:
    • "what ought to be"
    • usually the part of economics that focuses on policy
  11. Circular Flow:
    "invisible hand"

    • Firms - produce goods & services, sell to
    • Households - determine factors of production, circles back to firms
  12. 3 fundamental economic questions:
    What goods & services should society produce?

    How shall it be produced? How should the resources be organized for production?

    For whom shall the goods be produced? Who gets it?
  13. Factors of Production:
    Land - all natural resources

    Labor - mental & physical work that people contribute to production

    Capital - produced means of further production

    Entrepreneur - the factor that organizes the other factors
  14. Capital:
    an economic resource which is used to facilitate the production of consumer goods & services as well as capital goods
  15. Production Possibilities:
    Five assumptions:

    1. A choice is made between producing two goods.

    2. Resources are fully employed & in the most efficient way.

    3. The supply of resources is fixed.

    4. Technology is fixed.

    5. The same resources can be used to produce both goods.
  16. Production Possibilites Curve:
    illustrates the difference between production efficiency & allocative efficiency
  17. Fallacy of Composition:
    you assume that what is true or characteristic of the parts of a whole is also true of the whole in its entirety
  18. Fallacy of False Cause:
    you assume that because two events occur together, one event has caused the other. Correlation is not causation.
Card Set
Quiz 1