2025_Econ_Unit_1_Test_REVIEW+(2)

Economics Unit 1 Summative Assessment Review

Objectives

1. Define Economics: Study of how individuals allocate limited resources to fulfill unlimited wants. Scarcity is critical as it necessitates choices.

2. Opportunity Cost: Value of the next best alternative forgone when making a decision.

Factors of Production

3. Four Factors of Production:

   • A. Land: Natural resources

   • B. Labor: Human effort

   • C. Capital: Tools and machines

   • D. Entrepreneurship: Innovation and risk-taking

Fundamental Questions of Economics

4. Three Fundamental Questions:

   • A. What to produce?

   • B. How to produce?

   • C. For whom to produce?

Economic Goals

5. Six Economic Goals:

   • A. Economic efficiency

   • B. Economic freedom

   • C. Economic security

   • D. Economic equity

   • E. Economic growth

   • F. Economic stability

Standard of Living

6. Determining Factors: Income, access to goods/services, education, and overall quality of life.

Production Possibilities Curve (PPC)

7. PPC Concepts:

   • A. Illustrates scarcity and opportunity cost

   • B. The line is called the PPC frontier

   • C. Categories: Capital and consumer goods

   • D. Production capabilities: On or inside the curve is attainable; outside is not.

   • E. Movements: Outward shift indicates growth; inward shift indicates decline.

Specialization

8. Specialization: Focus on efficient production of specific goods increases productivity and trade.

Adam Smith

9. Adam Smith Details:

   • A. Economic System: Free-market capitalism

   • B. Book: The Wealth of Nations

   • C. Most Important Goal: Economic freedom

   • D. Private Property: Permitted

   • E. Government Role: Minimal intervention (laissez-faire)

   • F. Economic Questions: Consumers and businesses answer them

   • G. Laissez-Faire Meaning: Limited government in markets

   • H. "Invisible Hand": Self-interest + Competition

   • I. Example Country: United States

Karl Marx

10. Karl Marx Details:

• A. Economic System: Communism

• B. Book: The Communist Manifesto

• C. Most Important Goal: Economic equality

• D. Private Property: Not allowed

• E. Government Role: Controls production/distribution

• F. Economic Questions: Government answers all

• G. Example Country: Soviet Union

Economic Systems

11. Traditional Economic System: Based on customs, bartering, limited tech, and defined roles.

12. Mixed Economic System: Combination of free market and government intervention.

Key Definitions

• Economics: Study of resource allocation.

• Goods: Physical products.

• Services: Intangible activities.

• Scarcity: Limited resources vs. unlimited wants.

• Needs: Essentials for survival.

• Wants: Desirable non-essentials.

• Opportunity Cost: Next best alternative forgone.

• Choice: Selecting among alternatives.

• Competition: Private ownership of production.

• Capitalism: System of private ownership of production.

• Communism: Government-controlled economy.

• Socialism: Some level of government ownership mixed with private ownership.