Review for Test over chapters 1 and 2
20. Underutilization
41. Adam Smith
21. Cost
42. Self-interest
22. Law of increasing costs
43. Competition
1. Need
23. Economic system
44. Incentive
2. Want
24. Factor payments
45. Invisible Hand
3. Economics
25. Patriotism
46. Consumer sovereignty
4. Goods
26. Safety net
47. Socialism
5. Services
27. Standard of living
48. Communism
6. Scarcity
28. Traditional economy
49. Authoritarian
7. Shortage
29. Market economy
50. Collectives
8. Factors of Production
30. Centrally Planned Economy/Command
51. Laissez faire
Terms to know
9. Labor
Economy
52. Private property
10. Land
31. Mixed Economies-
53. Free enterprise
11. Physical Capital
32. Market
54. Privatized
12. Human Capital
33. Specialization
Do I understand this?
13. Entrepreneur
34. Free market economy
14. Trade-off
35. Circular Flow Model
1. Why do we have to make choices?
15. Guns or butter
36. Households
2. What is the study of economics about?
16. Opportunity cost
37. Firms
17. Thinking at the margin
38. Factor Market
18. Productions possibilities curve
39. Product Market
19. Efficiency
40. Profit
(hint: not money)
3. What is the difference between scarcity
and shortage?
4. Why is physical capital an important
resource?
5. Why are all goods and services scarce?
6. Who owns the factors of production in a
free market economy? In a command
economy?
7. What is the difference between trade-offs
and opportunity costs?
8. What does the metaphor “guns or butter”
mean?
9. What does it mean to make decisions at
the margin?
10. What does the production possibilities
represent?
11. What are some reasons for the constant
changing of a PPC?
12. What are the three economic questions?
13. What are the three factor payments?
18. Who answers the three economic
questions in a free market economy?
19. Who are the players in the circular flow
model?
20. What are the arenas in the circular flow
model?
21. Why do firms and households cooperate
so smoothly without any planning?
22. Why is Adam Smith important?
23. Why do consumers have incentive?
24. Why don’t firms just charge more money
to make more profit?
25. What are the advantages of the free
market?
26. Who answers the three economic
questions in a centrally planned economy?
27. What are the differences between
communism and socialism?
14. What are the goals of economic system?
28. Describe the rise of the Soviet Union.
15. Why do we have a safety net?
29. What two things were the Soviet Union
16. Why do we need markets?
planners most concerned with building?
17. Why do we specialize?
What does this lead to?
30. What type of farms was created?
31. What did most of the economic
framework of the Soviet Union miss that
free market systems have?
32. What are the disadvantages of a centrally
planned economy?
33. What system are most modern
economies?