Honors Economics Midterm Study Guide

Based on Chapters 1, 2, 17, and 30 of OpenStax Principles of Economics

Scarcity and Choices – Resources are limited, forcing individuals and societies to make trade-offs (Ch. 1).
Opportunity Cost – The value of the next best alternative forgone when making a decision (Ch. 1).
Production Possibilities Frontier (PPF) – A curve that shows potential production combinations and illustrates efficiency, opportunity cost, and economic growth (Ch. 1).
Marginal Analysis – Decision-making process where individuals weigh additional benefits vs. additional costs (Ch. 1).
Economic Systems – Comparison of market, command, traditional, and mixed economies (Ch. 1).
Circular Flow Model – Illustrates how households and firms interact in product and resource markets (Ch. 1).

Law of Diminishing Marginal Utility – Each additional unit of a good provides less additional satisfaction (Ch. 2).
Comparative Advantage – When a country produces a good at a lower opportunity cost than another (Ch. 2).
Specialization & Division of Labor – Enhances efficiency by allowing individuals or nations to focus on what they do best (Ch. 2).
Trade-offs & PPF Movements – Movements along the PPF demonstrate trade-offs in production (Ch. 2).

Functions of Money – Medium of exchange, store of value, and unit of account (Ch. 17).
Characteristics of Money – Durability, portability, divisibility, uniformity, acceptability, and limited supply (Ch. 17).
Monetary Policy – How central banks manage money supply and interest rates to stabilize the economy (Ch. 17).
Inflation Control – Governments and central banks use monetary tools (Ch. 17).

Fiscal vs. Monetary Policy – Fiscal policy involves government spending and taxation, while monetary policy involves controlling the money supply (Ch. 30).
Expansionary vs. Contractionary Fiscal Policy – Used to either stimulate or slow down the economy (Ch. 30).
Budget Deficits & National Debt – Occurs when government spending exceeds revenue (Ch. 30).
Automatic Stabilizers – Programs like Social Security and unemployment insurance that help stabilize the economy without direct government intervention (Ch. 30).