Econ: Chapter 1 Test Review
What is Economics?
The Big Idea: Scarcity is the basic economic problem that requires
people to make choices about how to use limited resources.
Why it Matters: Have you ever wanted to buy something or to
participate in an activity, but you couldn’t because you didn’t have enough
income or time? How do scarce resources like time and income affect you
and everyone around you? In this chapter, read to learn about what
economics is and how it is part of your daily life.
Chapter 1 Section 1 Learning Target:
-in this section, students will learn that the driving forces behind
economics are scarcity and choices.
*define the following:
1. economics:
2. microeconomics:
3. macroeconomics:
4. scarcity:
5. factors of production:
6. land:
7. labor:
8. goods:
9. services:
10. capital:
11. productivity:
12. entrepreneurship:
13. technology:
*Wants, Needs, and Choices:
-main idea: the basic problem in economics is how to satisfy
unlimited wants with limited resources
-economics is the study of how individuals, families, businesses, and
societies use limited resources to fulfill their unlimited wants
-economics has two parts:
1.
2.
-how societies make choices about the utilization of their resources is the
focus of economics
*The Problem of Scarcity:
-main idea: scarcity exists because people’s incomes and time are
limited
-choices arise because everything that exists is limited. At the same time,
people have competing uses for the available resources resulting in
scarcity
-
*The Factors of Production:
-main idea: scarce resources require choices about uses of the
factors of production: land, labor, capital, and entrepreneurship.
-when economists talk about scarce resources, they are referring to the
factors of production:
-
-
-how much of each of these factors of production an individual has
determines his or her wealth.
?About what percentage of US households have an income between
$25,000 and $49,000? Which income group represents the largest
percentage of US households?
Chapter 1 Section 1 Comprehension:
1. Wants and needs are not always easy to separate. Identify each of the
following as a want or a need, and tell why you made that choice.
Choices
Food
Want or Need
Reason
Car
Yearly physical
exam
Cell Phone
2. Explain why scarcity and choice are basic problems in economics.
Chapter 1 Section 2 Learning Target:
-in this section, students will learn about the relationship between tradeoffs and opportunity costs, and how a production possibilities curve can
help people make informed economic choices
*define the following:
1. trade-off:
2. opportunity cost:
3. production possibilities curve:
*Trade-offs:
-main idea: economic decisions always involve trade-offs that have
costs
-the cost of a trade-off is what you give up in order to get or do something
else
-
?When making an economic choice, what question could you ask yourself
to help identify the opportunity cost of your choice?
*Production Possibilities Curve:
-main idea: a production possibilities curve shows the maximum
combinations of goods and services that can be produced with a given
amount of resources
-
?What is the opportunity cost of making 3 pairs of earrings in a 20 hour
workweek?
?If a nation wanted to produce $5 billion in civilian goods, what would be
the approximate cost in military goods?
Chapter 1 Section 2 Comprehension:
1. Individuals, families, and businesses make trade-offs. In the chart
below, and for each example given, add a likely opportunity cost.
Individual
Economic Decision
Gets second job
Family
Purchases car
Business
Paves parking lot
Likely Opportunity Cost
2. A politician promises to increase funding for both the space program
and education. Knowing about opportunity costs, what questions should
you ask as a citizen?
Chapter 1 Section 3 Learning Target:
-in this section, students will learn about how economists use models to
explain and predict economic behavior, and that economists may not
always agree on which model or theory is the best one.
*define the following:
1. economy:
2. economic model:
3. hypothesis:
*Economic Models:
-main idea: economists construct models to investigate the way
that economic systems work
-
-economy refers to all activity in a nation that together affects the
production, distribution and use of goods and services
-
-economists test these economic models, and the solutions that result
from these tests often become the basis for factual decisions by private
businesses or government agencies
-
-economists assume that some factors remain constant in order to focus
on the basic factors needed to analyze the problem at hand
-
?If an economist’s data supported the model in Graph A, what would
happen if the federal minimum wage was raised?
*Schools of Economic Thought:
-main idea: competing economic theories are supported by
economists from different schools of thought
-
-over the years, economists have stressed the importance of both laissezfaire (hands-off) government and a government that intervenes in the
economy
-
-whether you think the results are good or bad will be based on your
values
-
Chapter 1 Section 3 Comprehension:
1. In the diagram below, show how economists use models to study the
real world.