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Date:
Hour:
Fundamentals of Economics
Unit One Review Guide:
1) What is economics?
Study of choices people make to satisfy needs and events
2) What are the factors of production?
Natural resources, human resources, capital resources, and entrepreneurship
3) What is the goal of entrepreneurship?
To take a financial risk and start or improve a product
4) Why is scarcity a basic problem of economics?
Resources are limited, but wants are unlimited. Forces decisions on allocation of
resources.
5) What issues must producers address to distribute/allocate resources?
What to produce, how to produce, and for whom to produce.
6) Why do producers study productivity?
To see if resources are being used wisely.
7) Why is sacrifice an important element of economic choice?
For each decision we make, there is a certain opportunity cost. We are sacrificing the
next best alternative each time. In production, resource causes opportunities sacrificed.
8) What assumptions are involved in creating a PPC?
Show all the possible combinations of two goods/services that can be produced
Assumes that available resources/technology is constant and that all resources are used in
most efficient manner possible.
9) Why might future production possibilities differ from current production
possibilities?
Increase in technology, change in resource availability, more efficient processes.
10) What are the difficulties associated with barter?
It is hard to give specific monetary values to each item. Therefore, money.
11) Why is true self sufficiency rare?
One would have to make everything one usesclothes, meals, food, shelter, computers,
any other materials. It is very difficult to provide all this for oneself.
12) What are the economic benefits of interdependence? What are the negatives?
Interdependence means that people can specialize and increase the efficiency and
productivity of processes. Negatives: everything is linked, so when something crashes,
everything crashes.
13) How are the three basic economic questions answered in traditional, command, and
market economies?
Traditional Economies: rural, non-developed countries. Customs govern economic
decisions. Tech not used widely. Farming, hunting/gathering. Focused on family unit.
For: family. What: basics. How: simple methods.
Command Economies: government makes decisions, allocates resources. Less individual
freedom, no competition, but not profit central (USSR). For: consumers: What: not
multiple brands. How: extensive regulation.
Market Economies: Resources are used and controlled by individuals. Decisions are
motivated by profit. More individual freedoms, competition. For: consumers. What:
everything, many types. How: profit-incentivized.
14) What are the roles of self-interest and incentives in a market economy?
Invisible hand: People will want to maximize their profits, and they usually get more
money by serving other people by producing the best products. It is in the best interest of
both producers and consumers. Incentive: maximize utility
15) What types of mixed economies exist today?
Mixed: government regulation in market economy. Individuals own means of production.
Protect from unfair things. Most effective. US and China.
16) What are the basic principles of free enterprise in the United States?
Resources, products, and money are exchanged.
17) What are the two markets of the circular flow model?
Resource and product markets
18) List and explain the 5 sectors of the circular flow model discussed in class.
Homes: pay taxes, get products/services
Businesses: pay taxes, sell goods and services
Government: employer, exchanges money for labor. Consumer, purchases goods. Firm:
offers goods/services
Financial institutions: borrowing/lending money
International sector: global, makes an economy open
19) How does the circular flow model reflect exchange?
Each of the five sectors acts as both a resource and product consumer/seller. There is
constant exchange between the markets.
20) How do nations decide how to use scarce resources?
Allocation lol
21) What are the major goals of U.S. economic policy?
Freedom, efficiency, equity, security, stability, growth
22) Why do economic goals sometimes conflict?
Because different parties have different interests that get in the way of each other. No
growth without loss of stability and security. No equity with freedom.
23) Discuss the determinants of Supply and Demand
Demand: Price, income, Price of related goods, Tastes, Expectations
Supply: Price, Input costs, Technology, Expectations
1. Economics: Study of choices to satisfy needs and wants
2. Economist: studies economics
3. Microeconomics: Study of choices in households, companies, and individual markets.
4. Macroeconomics: Entire economy, like uneployment.
5. Consumers: buy things
6. Producers: make things
7. Goods: things people purchase
8. Services: actions for fees
9. Resources: things needed for production
10. Factors of Production: natural/human/capital resources, entrepreneurship
11. Natural Resources: minerals, ore
12. Human Resources: labor
13. Capital Resources: infrastructure, machines, plants
14. Capital goods: machines for production
15. Consumer goods: things bought for consumption
16. Technology: increases supply, PPC.
17. Entrepreneurship: willingness/ability to take financial risk and start/improve a product
18. Entrepreneur: someone who does above
19. Scarcity: lack of resources (limited), but wants unlimited
20. Allocate: setting resources to certain uses
21. Productivity: Level of output from given input.
22. Efficiency: How effectively resources are being used.
23. Division of labor: Increases productivity, makes people do specific job
24. Specialization: people do specific job, increases productivity
25. Trade-off: if resource is used for certain thing, cant be used for something else
26. Opportunity cost: next best alternative that is given up for preferred item
27. Production possibilities curve (PPC): plots levels of two resources that can be produced.
28. Exchange: something given for something else
29. Barter: exchange of goods or services for other goods/services
30. Money: used as monetary value for goods/services, in exchange.
31. Utility: happiness
32. Self-sufficiency: producing everything one uses
33. Interdependence: everyone in world is dependent on products/goods from other places
34. Demand: how much of something is wanted
35. Supply: how much is available
36. Law of Supply: more price = more supply
37. Law of Demand: more price = less demand
38. Law of Supply and Demand: natural force of market pushes quantity supplied and
demanded to an equilibrium condition
39. Equilibrium: quantity supplied and demanded are equal.