Economics Questions and Answers Graded A+

Economics Questions and Answers Graded A+ What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices. Economics is about solving the problem of scarcity. Scarcity All goods and services we produce are scarce. Scarcity implies quantities of resources to meet unlimited wants. Scarcity always exists because our needs and wants are always greater than our resource supply. Shortage Not the same as Scarcity. A shortage is a temporary situation. Occurs when a supplier cannot or will not offer goods or services at current prices. Goods Goods are physical objects such as food, clothing, cars, electronics, etc. Services Services are actions or activities that one person performs for another- for example, haircuts, tutoring, lawn mowing, etc. Scarce Resources All resources are scarce because the land, labor, and capitol used to create them are scarce. Factors of Production Economists call resources used to make all goods and services the Factors of Production or Factor Resources What are the Factors of Production? Land, Labor, and Capitol Land The term land is used to refer to all natural resources used to produce goods and services. Natural resources are found in nature for example land, water, trees, coal, etc. Labor The effort that a person devotes to a task for which he is paid. For example doctor services, factory and assembly line workers, retail sales people, mechanics, etc. Capitol Any human made resource used to produce other goods and services. There are two types of capitol: Physical and Human. An economy requires both physical and human capitol to produce goods and services. Physical Capitol Human made objects used to create other services. Human Capitol Knowledge and Skills- People investing in themselves Entrepreneurs People who decide how to combine land, labor, and capitol resources to create new goods and services. These people take risks to develop original ideas, start businesses, create new industries, and fuel economic growth. Trade Offs All the alternatives that we give up whenever we choose one course of action over another.Economists simplify the explanation of trade offs that countries face by using the example of guns and butter. A country that decides to produce more military goods ("guns") has fewer resources to devote to consumer goods ("butter"). Opportunity Costs The most desirable opportunity given up as a result of a decision (or trade off) For example the family bought a new computer but now there are no funds to take a vacation Production Possibilities Curve A curve that shows alternative ways use a country's resources. Production Possibilities Frontier The line drawn to show the combinations of the production of both choice. Represents an economy working at its most efficient level of production. Efficiency Using resources I such a way as to maximize the production or output of goods and services. Underutilization Using fewer resources than the economy is capable of using. Law of Increasing Costs as production switches from one item to another, more resources are necessary to increase production of the second item.