STUDY GUIDE FOR CHAPTER 1: AN ECONOMIC WAY OF THINKING

PART I DIRECTIONS:
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2.

Below is a list of terms pertaining to Chapter 1: AN ECONOMIC WAY OF THINKING?

In your notebook give the definition for each term.
Economics, economy, positive economics, scarcity, tradeoff, cost-benefit analysis, incentive,
wants, needs, goods, services, model, underutilization, consumers, producer, factors of
production, land, labor, capital, entrepreneurship, incentives, opportunity cost, marginal cost,
marginal benefit, production possibilities curve, efficiency, statistics, microeconomics,
macroeconomics, normative economics.
PART II DIRECTIONS:

1.
2.

Listed below are questions about AN ECONOMIC WAY OF THINKING.

Answer the following questions:
PLEASE WRITE ANSWERS IN YOUR NOTEBOOK!

1. Describe and discuss how economics is involved in many aspects of your everyday life.
2. Describe how people use limited resources to satisfy unlimited wants.
3. How does scarcity affect everyone?
4. Describe and discuss the three basic economic questions: what will be produced, how will it be
produced, and for whom will it be produced?
5. Describe the factors of production.
6. What is opportunity cost?
7. What is the theme no free lunch?
8. Explain the relationship between marginal cost and marginal benefit.
9. Describe a production possibilities curve.
10. Describe who was Adam Smith.
11. How do households, businesses, and government confront unlimited wants but limited resources?

STUDY GUIDE FOR CHAPTER 1: AN ECONOMIC WAY OF THINKING

12. What are the expected costs and benefits of being an entrepreneur?
13. What principles guide an economic way of thinking?
14. What is the scientific method?
15. Why do economists often choose to present statistics in charts, tables, or graphs?
16. What are the two branches of economics and list three units of study as well as four topics of
interest?
17. Identify five wants that you have right now. Describe how scarcity affects your efforts to meet
these wants.
18. Suppose you are moving into your first apartment. You have saved $1,200 to use for this purpose.
When you go shopping, you learn that these are the prices for things you had on your list of
furnishings. Use the following chart to decide how you will spend your budget for furnishings. Make
a list of the things you will buy. Describe what you have to give up for the things you chose? Why
did you decide to give those things up?
ITEM
Kitchen table and chairs
TV set
Dishes
Silverware
Towels
Couch
Desk & Chair
Bed
Tablet
Pots & Pans

PRICE
$200.00
$189.99
$49.99
$39.99
$39.99
$399.99
$159.99
$499.99
$399.99
$129.99

19. Oprah Winfrey once quoted that: Its much easier for me to make major life, multi-million dollar
decisions, than it is to decide on a carpet for my front porch. What makes some decisions easy and
some difficult?
20. What is the difference between a trade-off and an opportunity cost?

NAME _________________________________________ HOUR _____________

STUDY GUIDE FOR CHAPTER 1: AN ECONOMIC WAY OF THINKING

PART III DIRECTIONS:

Choose the key concept that best completes the sentence.
Not all key concepts will be used.
CONSUMER
EFFICIENY

ECONOMIC MODEL
FACTORS OF

ECONOMICS
INCENTIVE

MACROECONOMICS
PRODUCER

PRODUCTION
MICROECONOMICS
PRODUCTION

OPPORTUNITY COST
SCARCITY

POSSIBILITIES CURVE
TRADE-OFF

UNDERUTILIZATION

STATISTICS
WANTS

__________ is the fundamental economic problem. It arises because

human _____ are limitless, while resources are limited. It affects
what a ________ buys and what a __________ makes. It affects what is
produced, how it is produced, and who gets what is produced. It
affects how the four __________ are put to use.
Since people cannot have everything they want, they have to make
choices. Every choice, however, involves a __________, something
you have to give up to get what you want. When making an
economic decision, you need to consider the _________, the value of
the thing you gave up.
Economists often use an ________, a simplified representation of
reality, to clarify concepts. Economists use such tools in __________,
the study of the economic behavior of individual persons, families,

STUDY GUIDE FOR CHAPTER 1: AN ECONOMIC WAY OF THINKING

and businesses, and in _______, the study of the economy as a
whole. One useful model, the ________, shows the maximum
amount of goods that an economy can produce. It also shows
__________, when not all resources are put to full use.
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