Honors Economics Midterm Study Guide

Scarcity

Resources are limited, forcing individuals and societies to make trade-offs.

Opportunity Cost

The value of the next best alternative forgone when making a decision.

Production Possibilities Frontier (PPF)

A curve that shows potential production combinations and illustrates efficiency, opportunity cost, and economic growth.

Marginal Analysis

Decision-making process where individuals weigh additional benefits vs. additional costs.

Economic Systems

Comparison of market, command, traditional, and mixed economies.

Circular Flow Model

Illustrates how households and firms interact in product and resource markets.

Law of Diminishing Marginal Utility

Each additional unit of a good provides less additional satisfaction.

Comparative Advantage

When a country produces a good at a lower opportunity cost than another.

Specialization & Division of Labor

Enhances efficiency by allowing individuals or nations to focus on what they do best.

Trade-offs & PPF Movements

Movements along the PPF demonstrate trade-offs in production.

Functions of Money

Medium of exchange, store of value, and unit of account.

Characteristics of Money

Durability, portability, divisibility, uniformity, acceptability, and limited supply.

Monetary Policy

How central banks manage money supply and interest rates to stabilize the economy.

Inflation Control

Governments and central banks use monetary tools.

Fiscal vs. Monetary Policy

Fiscal policy involves government spending and taxation, while monetary policy involves controlling the money supply.

Expansionary vs. Contractionary Fiscal Policy

Used to either stimulate or slow down the economy.

Budget Deficits & National Debt

Occurs when government spending exceeds revenue.

Automatic Stabilizers

Programs like Social Security and unemployment insurance that help stabilize the economy without direct government intervention.

Economic Values in Different Systems

Market economies prioritize economic freedom, while command economies prioritize economic equity and security.

Stock Market Terms

Bull vs. bear markets, short selling, and investment strategies.

Investment and Interest Rates

Understanding compound interest and the rule of 72.

GDP & Globalization

Measures of economic growth and international trade dynamics.