CHAPTER 1 – PART 1

SUMMARY

1. The inputs, or factors of production, or resources, used to produce the goods and
services that people want. Resources consist of labour, capital, natural resources, and
entrepreneurial ability. (Good is a tangible item used to satisfy human wants. Service
is an activity used to satisfy human wants. Product market is a market in which a good
or service is bought and sold. Resource market is a market in which a resource is bought
and sold. Needs are things that we must have to survive, such as food, shelter, and
clothing. Wants are things that we would like to have but which are not necessary for our
immediate physical survival, such as televisions and mobile phones).
2. Labours earn wages. Capital earns interest. Natural resources earn rent.
Entrepreneurship earns profit.
3. Resources are scarce—there is not enough of the resources available to satisfy all the
various ways a society wants to use them. Therefore, it is always necessary to make
choices.
4. You can think about your choices as tradeoffs. A tradeoff is an exchange—giving up
one thing to get something else.
5. Your rational decision involves a trade-off—a comparison of costs and benefits. Benefit
is what you gain from something. Cost is what you must give up to get something.
Opportunity cost is what you must give up in order to get an item you want.
6. Decisions about whether to do a bit more or a bit less of an activity are marginal
decisions. (Marginal means additional, or extra. Marginal refers to a change in an
economic variable). People make rational choice by comparing marginal benefit and
marginal cost.
7. Economics is the social science that studies the production, distribution, and
consumption of goods and services. Economics is the study of how people use their
scarce resources to satisfy their unlimited wants.
8. Economics is studied on two levels.
Microeconomics examines the behaviour of individual decision-makers such as
consumers and firms.
Macroeconomics examines the economy as a whole, to obtain a broad or overall picture,
such as total income and output of the entire economy, as well as total employment and
the general price level.
9. In a central planning economy, the central planners decide what goods and services are
produced, how much are produced, and who produce and consume these goods and
services.
In a market economy, the decisions are made by millions of firms and households. Firms
decide whom to hire and what to make. Households decide which firms to work for and
what to buy with their incomes. These firms and households interact in the marketplace,
where prices and self-interest guide their decisions.
In reality, all economies are mixed economies.

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 MULTIPLE CHOICE QUESTIONS

1. Use the words in the box below to fill in the blanks in the following text:

limited not factors of production unlimited

Scarcity is the situation in which available resources, or factors of production

, are limited , whereas wants are . There are enough
resources to produce everything that human beings need and want.

2. Identify which of the following cost is the opportunity cost of starting up a

business:
- The cost of materials
- The cost of labours
- The cost of giving up the opportunity to be a CEO in another multinational company.

3. Match column A and B:

Column A Column B
Microeconomics studies national income
Macroeconomics studies why the price of gasoline increases
national growth rate

4. Which type of economy is described below?

Individuals make independent decisions about what products they would like to purchase at
given prices and producers then make decisions about whether they are prepared to provide those
products. The producers’ decisions are based upon the likelihood of profits being made.

5. Decide whether the following statements are TRUE or FALSE:

Statement 1: People can get something without giving up anything else.

(TRUE/FALSE)

Statement 2: People will choose an item or an activity if the marginal benefit they gain exceeds
marginal cost they must give up.

(TRUE/FALSE)

6. Choose the best answer for the following question:

Question: is traded in resource market.

A. Needs
B. Services
C. Capital

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D. Wages

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