Economics Chapter 2 Study Guide Directions: Answer all of the following questions in complete sentences. Be sure to answer all parts of each question. 1. List the three key economic questions every society must answer. 2. List the 5 economic goals every society tries to achieve. 3. Can these goals ever be in conflict? Explain and give an example. 4. How does innovation lead to economic growth? (see p. 26-27). What does this have to do with competition? 5. How are the three basic economic questions answered in a traditional economy? 6. Why are traditional economies slow to change? 7. Why do markets exist? 8. List and explain two advantages of a market system. 9. What is specialization? Give an example from a traditional economy and a market economy. 10. Review the circular flow model. Who buys and sells things in the factor market? What do they buy and sell? 11. Who buys and sells things in the product market? What do they buy and sell? 12. Write a brief paragraph (3 sentences minimum) to review what you know about Adam Smith. 13. Explain what Adam Smith meant by the “invisible hand.” 14. Review the sweaters example on p. 35-36 (last paragraph under ” How Central Planning Works.” Summarize how sweaters go from producers to consumers in a command economy. 15. List three main ideas about communism that we get from Karl Marx. (see your notes as well as the book) 16. List and explain three disadvantages of a centrally planned economy. 17. What is laissez faire economics? 18. Adam Smith favored laissez faire economics, but government intervention in the economy has increased since his time. List three reasons why. 19. How is government involved in the factor market? Give a specific example. 20. how is government involved in the product market? Give a specific example. 21. Review all the vocabulary terms for the chapter. They are listed on p. 45 22. Look over all the section review questions and be sure you can answer each one thoroughly. You may see similar questions on the test!