ECON chapter 1 test (study guide)

1. What is the difference between needs and wants?

   1. Needs are necessary to live with, wants are extra, unnecessary

2. What are goods and services?

   1. Goods → The physical objects someone produces
   2. Services → The actions or activities that one person performs for another

3. Explain why scarcity and choice are the basis of economy?

   1. “Scarcity forces all of us to make choices by making us decide which options are most important to us… the principal of scarcity states that there are limited goods and services for unlimited wants. thus, people need to make choices in offer to satisfy the wants that are most important to them”

4. Explain the differences between scarcity and shortages

   1. shortages are temporary while scarcity always exists

5. What do entrepreneurs do?

   1. They take risks to make a profit; a person who decides how to combine resources to create goods and services.

6. Describe the factors of production and differences between physical and human capital.

   1. Factors of production → The resources that are used to make goods and services
   2. Physical capital → the human-made objects used to create other goods and services
   3. Human capital → The knowledge and skills a worker gains through education and experience

7. What are the benefits of capital?

   1. It can save time and money

      1. Increase efficiency
      2. Increase knowledge
      3. better time management
      4. increased productivity

8. Explain how scarcity affects the factors of production.

   1. All goods and services are scarce because the resources used to produce the are scarce.

9. Why does every decision involve trade-offs?

   1. There is always something you chose and give up

   2. How do individuals, businesses, and governments make trade-offs?

   3. They make trade-offs when thy decide hoe to use their factors of production

   4. Explain opportunity cost

   5. The most desirable alternative when someone makes a trade-off

   6. How do people make decisions by thinking at the margin?

   7. Compare opportunity cost and benefit; when you decide how much more or less to do, you are thinking at the margin

   8. What is the purpose of a cost/benefit analysis?

   9. Show you cost and benefit and chose from there

   10. Why is it necessary to compare marginal coast and marginal benefits?

   11. Make a good decision

   12. What is a production possibilities curve and production possibilities frontier?

   13. PPC → the chart

   14. PPF → the line on the chart showing you how to efficiently use your resources

   15. Explain why a country’s production possibilities frontier shift to the right and left?

   16. When an economy grows, the curve shifts to the right, when the economy’s production capacity decreases, the economy slows and the curve shifts to the left

   17. When does underutilization occur?

   18. When the economy uses fewer resources than it is capable of using

   19. What is the law of increasing costs?

   20. As we move along the curve, the trade of more and more for less and less output

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