ECONOMICS
STUDY GUIDE
FINAL EXAM
The final exam is a cumulative exam covering all the
material we have learned since the beginning of the
semester. In addition to reviewing your notes, I would
recommend emphasizing:
 Reviewing the vocabulary from each chapter
 Seven Economic Principles (Chapter 1, summary
on p. 11)
 The Factors of Production (Chapter 2: land, labor,
capital, and entrepreneurship)
 How to determine opportunity cost on a
production possibilities frontier (Chapter 2)
 Bead-making activity for economic systems
(Chapter 3: Traditional, Command, and Market
Economies)
 How to calculate absolute and comparative
advantage (Chapter 4)
 The Law of Supply, Law of Demand, and Supply
& Demand Shifters (Chapter 5)
 The different Market Structures (use note sheet
and Chapter 7)
 The different Business Organizations (Chapter 9)
ECONOMICS
STUDY GUIDE
FINAL EXAM
1.What is “scarcity?”
The condition that results because people have limited
resources but unlimited wants; a long-term issue
involving limited supply of a good/service that is
desirable, limited in quantity, and has multiple uses.
2.What is “shortage?”
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.
3.What is the difference between scarcity and shortage?
Shortage is a short-term, solvable problem when
demand temporarily exceeds supply. Scarcity is a longterm, unsolvable problem of permanently limited
resources.
4.Why are tradeoffs necessary/unavoidable?
Resources are scarce, therefore not all wants can be
satisfied.
5.What are the 4 factors of production?
Land, Labor, Capital, and Entrepreneurship
ECONOMICS
STUDY GUIDE
FINAL EXAM
6.What is “utility?”
The degree of satisfaction or usefulness that you receive
from a particular product or service
7.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.
(Use the graph on the right for
#’s 8-11)
8.Which variable is on the x-axis?
Which variable is on the y-axis?
X- axis: Tractors, Y-axis: Bread
Z
X
9.Define “opportunity cost.”
Rephrase it in your own words.
What you give up to get more of something else.
10. What is the opportunity cost of moving from A to B
on the graph?
2 Bread
ECONOMICS
STUDY GUIDE
FINAL EXAM
11. What does “X” represent on the graph? What does
“Z” represent?
X represents an inefficient point, Z represents an
impossible point
C
12. If the country is producing 3,000 bicycles, what is
the maximum number of shoes it could produce with
current resources?
40,000 shoes
13. Estimate the opportunity cost of increasing shoe
production from Point A by 10,000 pairs. Estimate
the opportunity cost of increasing shoe production
from point B by 10,000 pairs.
Opportunity cost from Point A by 10,000 pairs is
about 250 bicycles.
ECONOMICS
STUDY GUIDE
FINAL EXAM
Opportunity cost from Point B by 10,000 paits is
about 2,000 bicycles.
14. Suppose the country is producing 2,000 bicycles
and 30,000 pairs of shoes. Mark that point on the
graph and label it C. Is the country reaching
maximum efficiency at this point?
The country is producing at an inefficient level at
Point C.
15. What are the primary goals of a “traditional
economy?” What is less important in a traditional
economy?
Primary: Stability and Security
Less: Freedom
16. What are the primary goals of a “command
economy?” What is less important in a command
economy?
Primary: Equity and Security
Less: Freedom
17. What are the primary goals of a “market economy?”
What is less important in a market economy?
Primary: Freedom and Efficiency
Less: Equity
ECONOMICS
STUDY GUIDE
FINAL EXAM
18. What did Adam Smith mean by “the invisible
hand?”
Buyers and sellers can successfully satisfy their wants
in a free market without intervention by a 3rd party
Markets coordinate trade
19. What is specialization? What are the benefits of
specialization? What is its impact on trade?
Become an expert (or more efficient) in one particular
field or area. Benefits included improved efficiency,
decreased cost, improved quality of output. Allows
for areas to specialize on a particular product,
maximize their output, and then trade with others that
are doing the same thing with other products.
20. How does specialization lead to economic
interdependence? Come up with your own example.
Specialization means that you only produce one good
or service, so you are unable to do all the other things
that are necessary for survival. This means that you
must trade in order to get what you need if you are
specializing.
ECONOMICS
STUDY GUIDE
FINAL EXAM
21. How does voluntary exchange relate to
“coincidence of wants”?
A coincidence of wants is often found in barter
economies where specific products are traded. In a
market economy, voluntary exchanges involve the use
of money to allow both sides to get what they want.
22. What is a “barter system”?
Specific products are traded for other specific
products (no money is used in the exchange).
23. Define absolute advantage. What gives you an
absolute advantage over someone else?
When someone can produce more of a good or
service using fewer resources or in less time. When
you can produce more than someone than else with all
other things remaining equal.
24. Define comparative advantage. What gives you a
comparative advantage over someone else?
When you can produce something at a lower
opportunity cost than someone else. When you can
produce something more cheaply per item, even if the
other person can produce more.
ECONOMICS
STUDY GUIDE
FINAL EXAM
25. How does trade increase the value of a good? Give
an example.
Trade increases the value of a good because it gets
products to those who want them most. Value is
determined by each individual, so when a good is in
the hands of the individual who wants it most its
value has increased.
26. In the following scenario…
Tables Chairs Opportunity Opportunity
Cost to
Cost to
produce 1
produce 1
Table
Chair
Roger 20
40
2 chairs
½ tables
Simon
25
75
3 chairs
1/3 tables
a. Who has the absolute advantage? Simon
b.Who has the comparative advantage in making
Tables? Roger
ECONOMICS
STUDY GUIDE
FINAL EXAM
c. Who has the comparative advantage in making
Chairs? Simon
27. What is GDP? What is the equation for GDP?
GDP measures the total output of a nation. The
equation for GDP is C+I+G+NX
28. What is the Law of Demand? What is the slope of
the demand curve?
The inverse relationship between price and quantity
demanded. As price goes up, quantity demanded
goes down. As price goes down, quantity demanded
goes up. Negative slope.
29. What is the Law of Supply? What is the slope of the
supply curve?
The direct relationship between price and quantity
supplied. As price goes up, quantity supplied goes
up. As price goes down, quantity supplied goes
down. Positive slope
ECONOMICS
STUDY GUIDE
FINAL EXAM
30. What is a Complementary Good?
A product that is used or consumed jointly with
another product. (ex.: cheeseburgers and buns, tennis
rackets and tennis balls)
31. What is a Substitute Good?
A product that may be used in place of another
product. (ex.: Toms and Bobs shoes, iPod and Zune)
32. List the Demand Shifters: (have these memorized
for the test!)
 Tastes and preferences
 Related goods
 Income
 Buyers (# of)
 Expectations of consumers
33. List the Supply Shifters: (have these memorized for
the test!)
 Resources
 Opportunity cost of alternative production
ECONOMICS
STUDY GUIDE
FINAL EXAM
 Technology
 Taxes and subsidies
 Expectations of future profits
 Number of sellers
34. What is Equilibrium and how do you find it?
Equilibrium is the point at which the quantity of a
product demanded by consumers in a market equals
the quantity supplied by producers. You find it by
locating where the supply and demand curves
intersect.
35. What is a shortage and what causes you to have
one?
A shortage is when the quantity demanded is higher
than the quantity supplied. This occurs when the
price is set too low, such as with a price ceiling.
36. What is a surplus and what causes you to have one?
A surplus is when the quantity supplied is higher than
the quantity demanded. This occurs when the price is
set too high, such as with a price floor.
ECONOMICS
STUDY GUIDE
FINAL EXAM
37. Give an example of a positive externality and one
example of a negative externality.
When I get a flu shot I provide a positive externality
to people I encounter who won’t be exposed to me
with the flu. Pollution from a factory is a negative
externality to neighbors of the factory.
38. What is a public good?
A public good is a good or service that is not provided
by the market system because of the difficulty of
getting people who use them to pay for their use.
39. Characteristics of a sole proprietorship? (explain
what each characteristic means)
Easily started, unlimited liability to the
entrepreneur, easy to shut down, profits are “pure”
personal income
40. Characteristics of a partnership? (explain what each
characteristic means)
Fairly easily started, fairly easily managed, each
partner has limited liability
ECONOMICS
STUDY GUIDE
FINAL EXAM
41. What are some of the characteristics of a
corporation? (explain what each characteristic means)
Attracts talent, no liability to the officers, stock shares
must be specified
42. Foundations and land trusts are examples
of__nonprofit organizations