Economics Final Review
Basic Concepts and Terms
Identify entrepreneur.
• Willing to take risk
• Looking for financial gain
• Creates a new business or product or
improves an existing one
Define scarcity
• fundamental condition of economics that
results from the combination of unlimited
wants and limited resources.
Identify the three questions of
production.
• What
• How
• For Whom
Identify benefits of interdependence
• specialize
• efficiency
• Access to unavailable or limited resources
Identify the following descriptions
as either macro or micro economics
•
•
•
•
•
•
•
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Assessing the natural resources available on the island
_____MACRO_________________
Sun deciding what to grow in her garden
____MICRO____________________
Comparing the amount of food produced by Jin and John
_______MACRO________________
Sawyer taking an inventory of his suitcase supplies
__________MICRO______________
What do the points on a production
possibility curve represent?
• Possible combinations of two products
Fish Caught
v
Hours Taught
What do points on the inside and
outside of a possibility curve
indicate?
• Inside – inefficiency
• Outside – impossibility
Fish Caught
Hours Taught
What does a possibility curve
assume?
• Resources are used efficiently and don’t
change
Fish Caught
Hours Taught
Identify the three factors that
determine value.
• desirability
• scarcity
• utility
Identify the three systems of
exchange
• barter
• money
• credit
Identify three ways businesses try
to increase efficiency.
• Division of labor
• Specialization
• Allocation of resources
The next best choice you can make
describes?
• Opportunity Cost
Investing in education, training,
morals, values, health and skills
are examples of?
• Human capital
To focus on one area of production
is an example of:
• specialization
Command
• Model economic
systems in which
production questions
are decided by the
government.
Command
• Resources are owned
by the government in
this model system.
Traditional
• Tribes like Mbuti,
Navajo, the Amish
and Intuits of Alaska
would belong to this
model economic
system.
Market
• In this model
economic system
individuals make
decisions about what,
how, and for whom to
produce.
Market
In this model economy
factors of production
are owned by
individuals
Identify the five features of the U.S.
free enterprise system.
1. Private property &
contracts
2. Individual choice
3. competition
4. Self-interest &
voluntary exchange
5. Limited government
Voluntary Exchange
• The unconditional
and mutually
beneficial transfer of
products between
producers and
consumers
Self-interest
• Adam Smith’s theory:
The impulse that
encourages people to
satisfy their wants
and needs which
consequently benefits
society.
Money loaned to a business or the
government for a moderate, fixed
rate of return, but with little
liquidity.
• bond
The idea that money is worth more
now than it will be in the future.
• Present value
1990
1990
2010 / less $
2010 / more $
A share of ownership in a corporation
• Stock
The purchase of something of
value with the expectation that
over time it will increase in
value and produce a profit
• investment
Whether an investment is easy
to sell, how quickly you can
access your money.
• Liquidity
Buying a number of
investments to reduce risk and
to balance out the high and low
performers
• Diversification
Identify eight different types of
investments
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•
•
•
•
•
•
•
Savings account
Money market
Certificate of deposit
Bond
Blue-chip stock
Growth stock
Real estate
Commodities / Precious
metals, oil, crops, etc.
Identify the four things to consider
when making an investment.
•
•
•
•
rate of return
risk/ diversification
liquidity
tax benefit.
compound interest
• money earned on a sum of money that is
invested plus the interest paid on that money
over time.
capitalist
In which mixed
economy does the
Individual have the
most freedom?
Democratic socialist
In which mixed
economy does the
government own key
industries?
Authoritarian socialist or
communist
In which mixed
economic system
does the government
control resources?
Identify the three economic actors
in the U.S. free enterprise system.
1. Consumers
2. Producers
3. Government
Circular Flow Model
1. visually
demonstrates the
flow of resources,
products (goods and
services) and money
payments between
the economic actors.
Income Effect
• Any increase or
decrease in
consumers’
purchasing power
caused by a change
in price
Law of Demand
• The inverse
relationship in which
consumers will buy
more of a product at
a lower price and less
of a product at a
higher price.
Demand Schedule
• A list which shows
the relationship
between the price of
a good or service and
the quantity that
consumers demand.
Demand Curve
• A graph reflecting the
relationship between
the price of a good or
service and the
quantity that
consumers demand
Elastic demand
• Exists when a small
change in a good’s
price has a large
impact on the
quantity demanded
Inelastic demand
• When a change in
price has little impact
on quantity
demanded
Law of supply
• The idea that
producers will supply
more product at
higher prices and less
product at lower
prices.
supply
• All of the product a
company makes at
various prices in a
given period of time
Market equilibrium
• The price at which
both producers and
consumers are
satisfied.
The term that refers to the tendency of
consumers to buy products of similar quality at
a lower price?
Substitution effect
The concept which states that as more units of
a product are consumed, the satisfaction from
consuming each additional unit decrease is
called?
diminishing marginal
utility
A demand curve only displays a
“snapshot” of a market because…
Demand changes over time
The two conditions which make up
demand
• Willing & able
• Specific time period
Three things that can affect the
demand for a product are:
1. Income effect
2. Substitution effect
3. Diminishing marginal utlity
What are the three qualities of
elastic demand?
1. necessity
2. substitutes
3. cost
Two things that can affect the
supply for a product are:
1. Profit motive
2. Market trends
What are the qualities of elastic
supply?
• time
• money
• Availability of resources
Examples:
Elastic: sports memorabilia, paper clips, toys,
Inelastic: gold, oil, nuclear weapons
Why do Governments set prices?
• Minimize supply and demand swings
• To balance inequalities in the market
place.
• To address unaccounted for costs
like pollution.
price ceiling
• maximum price for a product
• Can cause shortages
• Rent control is an example
price floor
• It is a minimum price
for a product.
• can cause a surplus
• Minimum wage is an
example