Economics Study Guide
If you are able to explain these concepts, and answer the questions below, you will be in great shape for
the test tomorrow!
Scarcity
What is it? Write an example.
Tradeoffs
What are they? Write an example.
Opportunity Cost
A friend offers you a Coke, a Pepsi, or a Sprite. You don’t like Sprite, so after some thought, you take a
Coke. What is the opportunity cost of your choice?
a) Sprite
b) Pepsi
c) The cost of the Coke
What is the definition of opportunity cost?
Factors of Production
Define and provide an example of the following terms:
Capital
Entrepreneurship
Land
Labor
Economic Systems - Be able to describe each system and how it addresses the three essential
economic questions. Be able to provide an example of each system.
Traditional
Market
Command
Mixed
Marginal cost and benefit
Refer to the table below to answer the following questions.
Options
Benefit
Cost
Practice guitar for 1 hour per
week
Learn 1 new song
Practice guitar for 2 hours per
week
Learn 2 new songs
One lawn mowing job for $20
Practice guitar for 3 hours per
week
Learn 3 new songs
Two lawn mowing jobs for $40
Practice guitar for 4 hours per
week
Learn 4 new songs
Two lawn mowing jobs for $40
One lawn mowing job for $20
What is the marginal benefit of practicing guitar for 2 hours instead of 1 hour?
a. Learn 1 new song
b. Learn 2 new songs
c. One lawn mowing job for $20
d. Two lawn mowing job for $40
What is the marginal cost of practicing guitar for 3 hours?
a. Learn 2 new songs
b. learn 3 new songs
c. One lawn mowing job for $20
d. Two lawn mowing job for $40
Production Possibilities Frontier
Along with answering the questions below, make sure you understand the graphic representation of the
production possibilities frontier!
Table: Production Possibilities Schedule 1
Consumer
Goods
0
1
2
3
4
Capital Goods
30
28
24
18
10
1. (Table: Production Possibilities Schedule 1) If the economy produces 10 units of capital
goods per period, it also can produce at most _______ unit(s) of consumer goods per
period.
A) 5
B) 4
C) 3
D) 2
2. (Table: Production Possibilities Schedule 1) The opportunity cost of producing the
fourth unit of consumer goods is _______ units of capital goods.
A) 2
B) 4
C) 6
D) 8
Use the Production Possibilities Curve above to answer the following question.
1. What point(s) is/are attainable? Inefficient? Unattainable?
2. Why might an economy be producing at point X? Provide a real life example.
3. What would cause economic growth, allowing us to reach point Y? What would this look like on
the graph?
4. What would cause an economy to shrink? What would that look like on the graph? Provide a real
life example.