econ review

Topic 1 & 2: Basic Economic Concepts Review

Answer all questions on a separate sheet of paper. Please use your classroom notes and the textbook as resources.

Topic 1.1: Scarcity

1. What is scarcity? (pg. 5)

Limited amounts of good and services are available to meet unlimited wants

2. What is economics (classroom definition)? (pg. 5)

The study of how people satisfy their needs and wants by making choices

3. Understand the factors of production. (pg. 5)

The resources used to make all goods and services

4. What is land? (pg. 6)

All natural resources used to produce goods and services ( oil, minials, trees)

5. What is labor? (pg. 6)

All human time, effort and talent (workers, skills)

6. What is capital? (pg. 6)

Any human made resources used to produce goods( equipment, factory, tools )

7. What is an entrepreneur? (pg. 5)

Individuals who use the other factors of production to produce a produce ( risk takers and indavative)

Topic 1.2 Opportunity Costs and Trade-Offs

8. What are trade-offs? (pg. 9)

The act of giving up one benefit in order to gain another benefit, a better one

9. What is an opportunity cost? (pg. 10)

The next best alternative given up when a choice was made( most desirable rejection

10. What is marginal cost? (pg. 11)

The extra cost of adding one unit, like sleeping in one more hour

11. What is marginal benefit? (pg. 12)

Extra benefits of adding the same units, as long as it outweighs the cost it is worth adding the extra units

Topic 1.3 Production Possibilities

12. Understand Production Possibilities Curve (Frontier). (pg. 13)

Illustrates the economic concept of opportunity cost

13. What is efficiency? (pg. 14)

The use of resources in such a way to maximize the output of goods and services

14. What is underutilization? (pg. 15)

The use of fewer resources than the economy is capable of using

15. What economic concept does the PPC represent? (pg. 14)

Current production possibilities

16. What does a point on the PPC represent? (pg. 14)

All resources are being fully utilized

17. What does a point inside the PPC represent? (pg. 15)

Underutilization of the resources

18. What does a point outside the PPC represent? (pg. 15)

An unattainable production point with curant resources

19. Why is the PPC bowed out? (pg. 15)

Economy is growing

20. What is the law of increasing opportunity cost? (pg. 15)

As production shifts to making one item or another more and more resources are needed to increase production on the second item.

Topic 2.1: Three Basic Economic Questions

21. Name the three key economic questions. (pg. 22)

What goods to produce, how should they be produced, and who is consuming the goods

22. What is a traditional economy? (pg. 25)

Based on traditions, beliefs, and customs to determine the goods and products that are created

Topic 2.2: Free Markets

23. What is specialization? (pg. 27)

Situation in which people concentrate their efforts in the activities they do best

24. What is a market economy? (pg. 27)

An arrangement where buyers/sellers determining prices for goods and services

25. What is capitalism? (pg. 28-29)

Based on private citizens using their resources for private gain

26. What is the role of government in capitalism? (pg. 28-29)

U.S and most other countries have a system where the government plays a target role in the economy.

27. What are incentives? (pg. 30)

The hope of reward or fear of penalty that encourages a person to behave in a certain way

28. Who was Adam Smith? (pg. 30)

Provided insightful analysis to elevate economic to the status of science, father of economics

29. Describe Adam Smith’s Invisible Hand Theory. (pg. 31)

the interaction and exchange between the different members in terms of goods and services traded

30. What is competition? How does it change depending on the economic system? (pg. 31)

Struggle among producers to get the dollars of the consumers, it changes based on who the consumers are and whos making the decisions

31. What is consumer sovereignty? (pg. 32)

Consumers have the power to decide what gets produced

Topic 2.3 Centrally Planned Economies

32. What is a centrally planned economy? (pg. 33)

The government answers the three basic questions

33. What is a command economy? (pg. 33)

Oppose private property, free market pricing, competition, and consumer choice

Topic 2.4 Mixed Economies

34. What is a mixed economy? (pg. 39)

Economic system that has some market based elements and some government involvements

Topic 2.5 Benefits of Free Enterprise

35. What does voluntary exchange mean? (pg. 46)

Allows consumers and producers to decide what, when and how they buy and sell

36. What is private ownership of goods? (pg. 46

Gave people the rights to control their possessions and use them as they wish

37. What are property rights? How does it change depending on the economic system? (pg. 46-47)

Outside Resources Needed for Following Content:

38. What does utility mean?

Something being of use

39. What do the letters TINSTAAFL represent? What does it mean?

There's no such thing as free lunch, everything cost money, if its you buying the products or someone else

40. How does a country promote economic growth?

By using incentives to get producers to sell

41. What does it mean if something is of mutual benefit?

It works for everyone

42. What is the most important factor in choosing a good or service for a consumer?

Pricing and value for money