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Good

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Anything from which individuals receive utility or satisfaction

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Utility

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The satisfaction one receives from a good

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Bad

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Anything from which individuals receive disutility or dissatisfaction

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Disutility

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The dissatisfaction one receives from a bad

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Example of disutility

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Poor person getting ticket vs rich person getting same ticket

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Good can be tangible or intangible

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same object can have different satisfication

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partial list of some goods:

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a computer, a car, a watch, a television set, friendship, and love.

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for something to be a good (whether tangible or intangible),

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it only has to give someone utility or satisfaction.

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It takes ________ to produce goods

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resources

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Sometimes resources are referred to as

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inputs or factors of production

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economists divide resources into four broad categories:

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land, labor, capital, and entrepreneurship

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Define land

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All natural resources, such as minerals, forests, water, and unimproved land. For example, oil, wood, and animals fall into this category.

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Define labor

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The physical and mental talents that people contribute to the production process. For example, a person building a house is using his or her own labor.

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Define capital

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Produced goods that can be used as inputs for further production. Factories, machinery, tools, computers, and buildings are examples of capital. One country might have more capital than another; that is, it has more factories, machinery, tools, and the like.

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Examples capital

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Factories, machinery, tools, computers, and buildings are examples of capital. One country might have more capital than another; that is, it has more factories, machinery, tools, and the like.

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Define entrepreneurship

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The talent that some people have for organizing the resources of land, labor, and capital to produce goods. Seeking new business opportunities. Develop new ways of doing things.

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Scarcity is

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the condition in which our wants (for goods) are greater than the limited resources (land, labor, capital, and entrepreneurship) available to satisfy those wants.

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Other words for scarcity

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we want goods, but not enough resources are available to provide us with all the goods we want.

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Our wants (for goods) are ______, but our resources (which we need to produce the goods) are _____.

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are infinite; are finite

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Scarcity is the result of

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our infinite wants hitting up against finite resources.

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Economics

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the science of how individuals and societies deal with the fact that wants are greater than the limited resources available to satisfy those wants.

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Economics is the s_____________

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science of scarcity

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scarcity is the condition in which

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in which our wants for goods and services are greater than the resources available to satisfy those wants.

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Scarcity can exist at the same time

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same time that wealth does.

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Effects of Scarcity

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-the need to make choices, -the need for a rationing device -competition

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A rationing device is

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a means of deciding who gets what of available resources and goods.

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An example of a rationing device would be

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the dollar price

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True or false? Scarcity is the condition of finite resources. Explain your answer.

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It takes two things for scarcity to exist: finite resources and infinite wants. If people's wants were equal to or less than the finite resources available to satisfy their wants, scarcity would not exist. Scarcity exists only because people's wants are greater than the resources available to satisfy their wants. Scarcity is the condition resulting from infinite wants clashing with finite resources.

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How does competition arise out of scarcity?

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Because of scarcity, there is a need for a rationing device. People will compete for the rationing device. For example, if dollar price is the rationing device, people will compete for dollars.

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How does choice arise out of scarcity?

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Because our unlimited wants are greater than our limited resources—that is, because scarcity exists—some wants must go unsatisfied. We must choose which wants we will satisfy and which we will not.

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Opportunity costs

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The most highly valued opportunity or alternative forfeited when a choice is made

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Economists believe that a change in opportunity cost can change

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a person's behavior

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The higher the opportunity cost of doing something,

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the less likely it will be done

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the word marginal is a synonym for

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for additional.

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Marginal benefits

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additional benefits. The benefits connected to consuming an additional unit of a good or undertaking one more unit of an activity.

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Marginal costs

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Additional costs. The costs connected to consuming an additional unit of a good or undertaking one more unit of an activity.

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Decisions at the margin

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Decision making characterized by weighing the additional (marginal) benefits of a change against the additional(marginal) costs of a change with respect to current conditions.

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the right amount of anything is

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is the optimal or efficient amount

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the optimal or efficient amount

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the amount for which the marginal benefits equal the marginal costs.

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you have achieved efficiency when

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when the marginal benefits equal the marginal costs.

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efficiency, which is consistent with , is also consistent with

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maximizing net benefits.

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An incentive is

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something that encourages or motivates a person to undertake an action.

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Unintended effects

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A positive or negative outcome that was not anticipated

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Exchange/Trade

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The process of giving up one thing for another

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Economics is sometimes called the

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"science of exchange" because so much that is discussed in economics has to do with exchange.

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Give an example to illustrate how a change in opportunity cost can affect behavior.

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Every time a student is late to history class, the instructor subtracts one-tenth of a point from the person's final grade. Economists predict that, if the instructor raises the opportunity cost of being late to class by subtracting one point from the final grade, then fewer students will be late to class. In sum, the higher the opportunity cost is of being late to class, the less likely it is that people will be late to class.

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Studying has both costs and benefits. If you continue to study (say, for a test) for as long as the marginal benefits of studying are greater than the marginal costs, and you stop studying when the two are equal, will your action be consistent with having maximized the net benefits of studying? Explain your answer.

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Yes.

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You stay up an additional hour to study for a test. The intended effect is to raise your test grade. What might be an unintended effect of staying up another hour to study?

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You might feel sleepy the next day, you might be less alert while driving, and so on.

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When it comes to economic problems, the national debate usually proceeds along these lines:

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First, the problem is identified and defined or described. Second, individuals attempt to identify the cause of the problem. Third, individuals propose solutions to the problem.

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The term ceteris paribus means

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"all other things constant" or "nothing else changes."

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Ceteris paribus is

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an assumption used to examine the effect of one influence on an outcome while holding all other influences constant.

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a theory is

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an abstract representation of the world designed with the intent to better understand the world.

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abstract means that you

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omit certain variables or factors when you try to explain or understand something.

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Abstract is the process

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(used in building a theory) of focusing on a limited number of variables to explain or predict an event.

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What is the purpose of building a theory?

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The purpose of building a theory is to explain something that is not obvious. For example, the cause of changes in the unemployment rate is not obvious, so the economist would build a theory to explain changes in the unemployment rate.

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How might a theory of the economy differ from a description of it?

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A theory of the economy seeks to explain why certain things in the economy happen. For example, a theory of the economy might try to explain why prices rise or why output falls. A description of the economy is simply a statement of what exists in the economy. For example, we could say that the economy is growing or contracting or that more jobs are available this month than last month. A description doesn't answer questions; it simply tells us what is. A theory tries to answer a "why" question, such as, "Why are more jobs available this month than last month?"

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Why is it important to test a theory? Why not simply accept a theory if it sounds right?

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If you do not test a theory, you will never know whether you have accomplished your objective in building the theory in the first place. In other words, you will not know whether you have explained something accurately. We do not simply accept a theory if it sounds right, because what sounds right may actually be wrong. For example, no doubt during the time of Columbus the theory that the earth was flat sounded right to many people and the theory that the earth was round sounded ridiculous. The right-sounding theory turned out to be wrong, though, and the ridiculous-sounding theory turned out to be right.

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Your economics instructor says, "If the price of going to the movies goes down, people will go to the movies more often." A student in class says, "Not if the quality of the movies goes down." Who is right, the economics instructor or the student?

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Unless stated otherwise, when economics instructors identify the relationship between two variables, they implicitly make the ceteris paribus assumption. In other words, the instructor is really saying, "If the price of going to the movies goes down, people will go to the movies more often—assuming that nothing else changes, such as the quality of movies, and so on." Instructors don't always state "ceteris paribus," because if they did, they would be using the term every minute of a lecture. So the instructor is right, although a student who is new to economics might not know what the instructor is assuming but not saying.

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Economics is sometimes broken down into different categories according to the type of questions asked. Four common economic categories are

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positive economics, normative economics, microeconomics, and macroeconomics.

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Positive economics attempts to

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determine what is. (Cause and Effect)

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Normative economics addresses

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what should be. (Judgment and Opinion)

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Microeconomics is the branch of economics that deals with

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human behavior and choices as they relate to relatively small units: an individual, a firm, an industry, a single market.

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Macroeconomics is the branch of economics that deals with

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human behavior and choices as they relate to an entire economy.

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Intangible goods are

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those that have no concrete existence, such as friendship or an economics lecture

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Tangible goods are

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concrete goods that can be exchanged and reproduced more easily than intangible goods, such as a videotape of an economics lecture or a cell phone.

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Bads are

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goods that provide disutility. Examples are pollution, the noise produced by planes taking off at an airport, or the smell a skunk produces etc. See Section: Goods and Bads.

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S=

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W>R

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W=

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infinite

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R=

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finite

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