Econ Test 1 – Study Guide Answers



Econ Test 1 – Study Guide Answers

1. A want is a desire that can be met by a product or service: bigger house, sports car, boat, etc.

2. A deed is a necessary item needed to sustain life: food, shelter

3. Economizing is choosing the product/service that has the best combination of cost and benefit.

|CHOICE |BENEFIT |COST |

|STUDYING FOR TEST |IMPROVED GRADE |SOCIAL TIME |

| | | |

| | | |

4. Decision Making Grid (also known as cost-benefit analysis)

5. Factors of Production needed for new gourmet jellybean line:

a) Land – sugar cane, water

b) Labor – production workers, chemist,

c) Capital – factory, cooker, packaging

d) Entrepreneurship: investors, retailers

6. PPC Graph: production frontier – point where production and use of materials are at the optimum level (all resources are being used – points along the production curve), underutilization – products are being made at the fullest capability (point inside the curve); production impossibility – point outside the realm of the production curve – cannot be reached with given resources.

7. People enter into voluntary trade relationships when they believe they will GAIN from the trade.

8. Continued investment in education, technology and equipment will lead to a positive shift in the PPC and economic growth

9. Interdependency occurs when the economic decisions made by one person in one part of the country/world -economy affect people in other parts of the country/world –economy.

10. economic underutilization results when producers are not using all of their resources to produce at their maximum capacity or at the production frontier (production possibility curve)

11. a decision making grid is used to analyze the costs and benefits of our economic choices

12. capital is all of a producer’s physical resources – warehouses, machinery, tools, - known as “real capital”

13. so that they can control the economy of the country.

14. scarcity is the result of unlimited wants/needs matched against limited resources

15. Adam Smith in “Wealth of the Nations” challenged the idea of mercantilism (government controlled trade with colonies) and supported the idea of “free trade” believing that people behaved in ways that satisfied their own needs and the “invisible hand” of balance between producers and consumers would benefit the overall economy.

16. When resources (land, labor, capital, etc.) are increased, a shift in the PPC occurs and economic growth results.

17. marginal benefit is the benefit of using one more unit of a good or service.

18. a trade-off is giving up one thing in exchange for another…

19. an entrepreneur is someone who is willing to risk everything to start a new business

20. In the U.S. consumers and producers decide what will be produced.

21. a producer is someone who makes/renders goods/services.

22. normative economics is the description of the economy as it should be… not as it actually is.

23. a point inside the PPC indicates an underutilization of resources

24. The PPC is also known as the Production Frontier

25. economic efficiency is the point where resources are being used at their optimum to produce the greatest amount of goods possible

26. cost-benefit analysis is a way of comparing the costs and benefits of selected economic choices

27. everything has a price/cost… nothing is free

28. the four factors of production are: Land, Labor, Capital, and Entrepreneurship

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