Economics Unit 1 Test

Scarcity

Unlimited human wants in world of limited resources

Natural Resources

Materials from nature used in production process

Ex: forests, oil, minerals

What productive resource is often referred to as “land?”

natural resources

Human Resources

Physical and mental efforts people use to produce goods/services

Ex: nurse, contractor, teacher

Capital Resources

Tools, machinery, equipment, and buildings used to make other goods/services

Ex: ovens, computers, delivery trucks

Entrepreneurship

Creativity and risk-taking ability to combine other resources to create new goods/services

Trade-off

giving up one thing to gain something else

Oppportunity Cost

Value of the next best alternative that you give up when making a decision

How many levels do trade-offs exist at?

MULTIPLE

personal: buying a car

Government Policy: spending on education

What are the three basic economic questions?

1. What to produce?

2. How to produce it?

3. For whom to produce?

Traditional Economy

Decisions based on customs, traditions, beliefs

Where are Traditional Economies typically found?

rural, undeveloped areas

Strengths and Weaknesses of a Traditional Economy

Strengths= stable, sustainable

Weakness= Resistant to change, low productivity

Market Economy

Individuals and businesses make economic decisions with little government interference (HANDS OFF)

Strengths and Weaknesses of a Market Economy

Strengths= High efficiency, consumer choice, innovation

Weaknesses= Lead to inequality and market failures

Command Economy

Government makes ALL economic decisions and owns most resources

Strengths and Weaknesses if a Command Economy

Strengths= Ensure basic needs are met, centralized planning

Weaknesses= inefficiency, lack of consumer choice, potential for shortages

Mixed Economy

Combination of market and command economy

Balances private enterprise with some government regulation

Which economy category is where most modern economies fall?

Mixed Economy

Productivity

Measures the efficiency of production-how much output is produced with given amount of input

Increased Productivity often leads to what?

Higher standard of living

Physical Capital

Tools, equipment, and infrastructure that help increase output

Ex: Machinery on a farm

Human Capital

Education, skills, and experience of workers

Investing in human capital leads to what?

More skilled workers who can perform complex tasks and adapt to technological changes

Circular Flow Model

Visual representation of how money, goods, services, and resources flow through an economy

Key participant one of a Circular Flow Model and the definition?

Households: Own factors of production (land, labor, capital) and consume goods and services

Key participant two of a Circular Flow Model and the definition?

Businesses: Produce goods and services and hire resources from households

Key market one of a Circular Flow Model and the definition?

Product Market: Businesses sell goods/services to households

Key market two of a Circular Flow Model and the definition?

Factor Market: Households provide resources to businesses and receive income in return

What is the role of the government in regard to a mixed economy?

Government collects taxes, provides public goods/services, and regulates economic activity

How does the government participate in the product and factor market within the Circular Flow Model?

By hiring workers and purchasing goods

How society answers economic questions depends on what?

On its economic system

Example of a country that leans more communist and a pure planned economy (command economy)

North Korea

Example of a country that leans purer competition ((Free) Market economy)

United states or Japan