CHAPTERS 2 & 3 ECONOMIC DECISION MAKING/ECONOMIC SYSTEMS REVIEW SHEET
Name:___________________________________
1.
Define “scarcity” and “shortage.” What is the difference between the two?
2.
Why are tradeoffs necessary/unavoidable?
3.
What are the 4 factors of production?
4.
Can you give ONE example of EACH factor of production if the product in question is a…
Ticonderoga #2 pencil?
Land Labor Capital Entrepreneurship
A Ford Mustang?
An iPhone?
5.
Define “renewable resource” and “non-renewable resource”. Give an example of each.
(Use the graph on the right for #6 - 11)
6.
Which variable is on the x-axis? Which variable is on the y-axis?
7.
Define “opportunity cost.” Rephrase it in your own words.
8.
What is the opportunity cost of moving from A to B on the graph?
X
9.
What does “X” represent on the graph? What does “Z” represent?
10.
What would cause the line to shift inward?
11.
What would cause the line to shift outward?
Z

CHAPTERS 2 & 3 ECONOMIC DECISION MAKING/ECONOMIC SYSTEMS
12.
What is “utility?” What does it mean to “maximize utility?”
13.
What does “diminishing marginal utility” mean? Can you think of an example?
14.
What are the 6 “Economic Goals”? Can you define each one?
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15.
What are the 3 “Fundamental Economic Questions” that any economy has to answer?
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REVIEW SHEET
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16.
What are the primary goals of a “traditional economy?” What is less important in a traditional economy?
17.
What are the primary goals of a “command economy?” What is less important in a command economy?
18.
What are the primary goals of a “market economy?” What is less important in a market economy?
19.
What did Adam Smith mean by “the invisible hand?”

CHAPTERS 2 & 3 ECONOMIC DECISION MAKING/ECONOMIC SYSTEMS REVIEW SHEET
Name:__ANSWER SHEET_________________________________
1.
Define “scarcity” and “shortage.” What is the difference between the two?
Scarcity is the condition that results because people have limited resources but unlimited wants; a longterm issue involving limited supply of a good/service that is desirable, limited in quantity, and has multiple uses.
Shortage is a lack of something that is desired; when there is less of a good/service available than people want at a current price; a short-term problem when demand exceeds supply. Shortage is a short-term, solvable problem when demand temporarily exceeds supply. Scarcity is a long-term, unsolvable problem of permanently limited resources.
2.
Why are tradeoffs necessary/unavoidable?
Resources are scarce, therefore not all wants can be satisfied.
3.
What are the 4 factors of production?
Land, Labor, Capital, and Entrepreneurship
4.
Can you give ONE example of EACH factor of production if the product in question is a…
Ticonderoga #2 pencil?
A Ford Mustang?
An iPhone?
Land
Lumber
Rubber
Silicone
Labor
Graphite Miner
Assembly-line
Worker
Factory Worker
Capital
Lumber Mill
Robot
Assembly-Line
Entrepreneurship
Owner of Ticonderoga
Henry Ford
Steve Jobs
5.
Define “renewable resource” and “non-renewable resource”. Give an example of each.
Renewable – a natural resource that can be replaced as it is used
Non-renewable – a natural resource that cannot be replaced as it is used
(Use the graph on the right for #6 - 11)
6.
Which variable is on the x-axis? Which variable is on the y-axis?
X: Tractors, Y: Bread
7.
Define “opportunity cost.” Rephrase it in your own words.
What you give up to get more of something else.
8.
What is the opportunity cost of moving from A to B on the graph?
2 Bread
X
Z
9.
What does “X” represent on the graph? What does “Z” represent?
X: Inefficient, Z: Impossible
10.
What would cause the line to shift inward?
Loss of resources, workers, or capital
11.
What would cause the line to shift outward?
Increase in resources, worker efficiency, or capital

CHAPTERS 2 & 3 ECONOMIC DECISION MAKING/ECONOMIC SYSTEMS
12.
What is “utility?” What does it mean to “maximize utility?”
REVIEW SHEET
Utility is the degree of satisfaction or usefulness that you receive from a particular product or service.
When you maximize your utility you find the highest utility in every tradeoff/alternative.
13.
What does “diminishing marginal utility” mean? Can you think of an example?
Getting less satisfaction/usefulness out of “one more” of a service or product.
14.
What are the 6 “Economic Goals”? Can you define each one?
 Freedom – no restrictions on buying/selling/producing
 Efficiency – maximizing resources
 Equity – fair/just distribution of society’s wealth
 Growth – continually producing more and better goods
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Security – providing for the basic needs of those who can’t care for themselves
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Stability – ensuring goods and services are always available
15.
What are the 3 “Fundamental Economic Questions” that any economy has to answer?
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What to produce?
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How to produce it?
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For whom to produce?
16.
What are the primary goals of a “traditional economy?” What is less important in a traditional economy?
Traditional economies value Stability and Security. Less important is Freedom.
17.
What are the primary goals of a “command economy?” What is less important in a command economy?
Command economies value Equity and Security. Less important is Freedom.
18.
What are the primary goals of a “market economy?” What is less important in a market economy?
Market economies value Freedom and Efficiency. Less important is Equity.
19.
What did Adam Smith mean by “the invisible hand?”
Adam Smith’s “invisible hand” says that buyers and sellers can successfully satisfy their wants in a free market without intervention by a third party. Markets coordinate trade!