Ms. Brown's Economics Classes



Unit 1 Study Guide

Standards/Elements addressed by this quiz:

SSEF1 The student will explain why limited productive resources and unlimited wants result in scarcity, opportunity costs, and tradeoffs for individuals, businesses, and governments.

a. Define scarcity as a basic condition that exists when unlimited wants exceed limited productive resources.

b. Define and give examples of productive resources (factors of production) (e.g., land (natural), labor (human), capital (capital goods), entrepreneurship).

c. List a variety of strategies for allocating scarce resources.

d. Define opportunity cost as the next best alternative given up when individuals, businesses, and governments confront scarcity by making choices.

SSEF2 The student will give examples of how rational decision making entails comparing the marginal benefits and the marginal costs of an action.

a. Illustrate by means of a production possibilities curve the trade offs between two options.

b. Explain that rational decisions occur when the marginal benefits of an action equal or exceed the marginal costs.

SSEF3 The student will explain how specialization and voluntary exchange between buyers and sellers increase the satisfaction of both parties.

a. Give examples of how individuals and businesses specialize.

b. Explain that both parties gain as a result of voluntary, non-fraudulent exchange.

SSEF6 The student will explain how productivity and economic growth are influenced by investment in factories, machinery, new technology, and education and training of people.

a. Define productivity as the relationship of inputs to outputs.

b. Give illustrations of investment in equipment and technology and explain their relationship to economic growth.

Specific content/skills covered:

Assessment of this domain will focus on the following:

- importance of scarcity to the study of economics

- limited vs. unlimited resources

- differences between economic wants and economic needs

- importance and characteristics of natural, human, and capital resources

- role of entrepreneurs in production and distribution

- reading and interpreting scenarios, tables, production possibility curves, and graphs related to opportunity costs (trade offs)

- reasons for and significance of specialization

- identifying and analyzing examples of specialization

- reasons for and benefits of voluntary exchange

- effects of investments in capital and human resources on productivity, economic Growth

Additional content assessed on quiz:

- Micro vs. Macro

- Intermediate Goods

- Final Goods

SSEF1 The student will explain why limited productive resources and unlimited wants result in scarcity, opportunity costs, and tradeoffs for individuals, businesses, and governments.

1. What is scarcity?

2. Why does scarcity exist?

3. Why is scarcity the fundamental problem of Economics?

4. Define and give an example of each of the four factors of production:

|Factor of Production |Definition |Example |

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5. What is the difference between human capital and physical capital?

6. Define the word allocation:

7. Give an example of each of the following allocation strategies:

|Allocation Strategy |Example |

| | |

|Everyone Shares | |

| | |

|Price | |

| | |

|Authority | |

| | |

|Democracy | |

| | |

|Merit/Personal Characteristic | |

| | |

|First Come, First Serve | |

| | |

|Random Selection | |

8. Describe which allocation strategy you think is most fair? Most efficient (uses resources wisely)?

9. What is the definition of opportunity cost?

10. Imagine that this morning you had a choice between riding the bus to school or driving your car. You chose to ride the bus. What benefits of driving the car did you give up by taking the bus? (This represents the value of your next best alternative.)

SSEF2 The student will give examples of how rational decision making entails comparing the marginal benefits and the marginal costs of an action.

a. Illustrate by means of a production possibilities curve the trade-offs between two options.

b. Explain that rational decisions occur when the marginal benefits of an action equal or exceed the marginal costs.

1. Use the production possibilities curve below to answer the questions.

What is the maximum number of cakes this country can make?

What is the maximum number of pies this country can make?

What combination of cakes and pies can be produced at Choice D?

What is the opportunity cost of choosing Choice E over Choice D?

What is the marginal benefit of choosing Choice E over Choice D?

What does the production possibilities curve represent for this country?

4. How do economists use the Ceteris Paribus assumption?

Use the production possibilities curve below to answer the questions.

How would you describe Spiderman’s production at each of the following points?

Point A?

Point B?

Point C?

What could have caused Spiderman to produce at point B?

What must Spiderman do to produce at Point C?

2. Use the production possibilities curve below to answer the questions. Assume you are starting with Curve BB’ each time.

How can this country shift its production possibilities from BB’ to BD’?

What would cause a shift from BB’ to CC’?

What would cause a shift from BB’ to AA’?

What phase of the business cycle would this economy be experiencing at Point Y?

3. Answer the following questions about marginal benefits and marginal costs.

a. What does marginal mean?

b. Why do economists make choices at the point where marginal benefits are equal to the marginal costs?

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