Economics Unit 1 Test Review

Why is Scarcity is a basic economic problem?

Resources are Limited

\
What are some of the negative consequences of choices in a free market economy? 

\
**Decisions produce cost**

\
Who decides what to produce, how to produce, for whom to produce and how much to produce in a Free enterprise economy

\
**Consumers and producers**

Who decides what to produce, how to produce, for whom to produce and how much to produce in a communist economy

government

Who decides what to produce, how to produce, for whom to produce and how much to produce in a socialist economy

\
**Government, consumers and producers**

Explain Government Rationing and why they use it.

\
**Government controls the distribution of goods due to and emergency when shortages affect things like military operations.** 

\
 What role does consumer demand play in a free market economy? 

\
**Consumer demands drive what products will be produced and what prices will be charged.**

\
Make a list of capital needed to start a tailoring or garment making business.

\
**Sewing Machines, Cloth, Manufacturing Space, Thread, Patterns etc.…**

\
What is the role of entrepreneurs in a free market economy?

\
**Entrepreneurs are a driving force in an economy. They create new business and buy resources.**  

\
Make a list of items that would be considered “Land” in the Factors of Production.

**Land, resources like coal, iron, cotton, cattle  or anything that comes from or supported by the earth,** 

\
Explain what the opportunity cost may be when purchasing a new car.

**Since the average monthly payment for a new car is now nearly $600, having an expensive monthly payment means that a decent cut of your paycheck can't go to other things like investing for retirement.**

\
\

\
What is distribution of goods and services

\
 **Distribution is** **the activity of both selling and delivering products and services from manufacturer to customer**.

What are the main differences between the U.S. free enterprise system the economy and China’s communist economy?

In a Free Enterprise economy, consumers have choices on many products that are produced based on demand and the Government has less control over these decisions. In a Communist economy, the government makes the decisions on what and how to produce products limiting choices for consumers.

List several positive aspects of competition in a free enterprise system.

\
 

\
**More Choices, lower prices, better quality, well-paying jobs, and entrepreneur opportunities.** \n

Adam Smith-

**Scottish philosopher, widely considered as the “Father of Economics”. Smith defined economics and wrote the “The Wealth of Nations.” Invisible Hand of economics**

\
 

John Maynard Keynes-

\
**Keynesian economics argues that demand drives supply and that healthy economies spend or invest more than they save. To create jobs and boost consumer buying power during a recession, Keynes held that** __**governments should increase spending**__**, even if it means going into debt.**

Milton Friedman

\
**American economist Milton Friedman developed the doctrine as a theory of business ethics that states that “an entity's greatest responsibility lies in the satisfaction of the shareholders.” Therefore, the business should always endeavor to maximize its revenues to increase returns for the shareholders.**

Friedrich Hayek

**Hayek, an Austrian economist, is considered a major social theorist and political philosopher of the 20th century. His theory is what led him to the Nobel Prize in 1974. He was a Strong advocate of free market capitalism, Author of The Road to Serfdom,  and a** __**strong believer in Laissez Faire**__ **Capitalism**

\
 

\
List the benefits of the free enterprise system.

**More Choices, lower prices, better quality, well-paying jobs, and entrepreneur opportunities.**

\
 What characteristics of the U.S. free enterprise system creates the incentive to work, save, and invest?

**The opportunity to own private property, obtain wealth and create a better life.**

\

\
How has global economic interdependence hurt US workers?

**Global interdependence, also known as Globalization, shifted manufacturing jobs to areas with cheaper labor. When that happened, American manufacturing jobs were cut and many people lost their jobs and were forced to find other work.** 

\

Explain the role of Consumers and Producers in a Free Enterprise economy.

Consumers drive a Free Enterprise economy with their demand for specific, high quality products. Producers make high quality products in line with the demand of consumers. What consumer want, producers make. When shortages occur, the prices increase and where surpluses occur prices drop.