Chapter 1 Study Guide

Question 1

The situation in which some necessities have little value while some non-necessities have a much higher value is known as _____

Answer 1

Paradox of Value

Question 2

Manufactured goods needed to produce other goods and services are called _____

Answer 2

Capital Goods

Question 3

To arrive at an economic decision, a decision-making grid may be used to evaluate _____

Answer 3

Alternative Choice of Action

Question 4

Division of labor is a characteristic of _____

Answer 4

Assembly Line Production

Question 5

The study of economics is important because it enables us to _____

Answer 5

Become Better Decision Makers

Question 6

The dollar value of all final goods and services and the most comprehensive measure of a country’s total production output is _____

Answer 6

Gross Domestic Product (GDP)

Question 7

A popular model used to illustrate the concept of opportunity cost is _____

Answer 7

The Production Possibilities Frontier

Question 8

An economy at its production possibilities frontier is operating _____

Answer 8

At Full Potential

Question 9

The money used to buy the tools and equipment needed for production is known as _____

Answer 9

Financial Capital

Question 10

Actions in one part of the country or world that have an economic impact on what happens elsewhere are examples of _____

Answer 10

Economic Interdependence

Question 11

_____ describes the concept that everything we do has a cost

Answer 11

TINSTAAFL

Question 12

WHAT, HOW, and FOR WHOM to _____ are the three basic economic questions

Answer 12

Produce

Question 13

The _____ include land, labor, capital, and entrepreneurs

Answer 13

Factors of Production

Question 14

_____ is a key measure of a nation’s economic health

Answer 14

Gross Domestic Product

Question 15

The study of _____ helps all of us to become more informed citizens and better decision makers

Answer 15

Economics

Question 16

A _____ grid can be used to evaluate alternatives

Answer 16

Decision-Making

Question 17

The opportunity cost of doing something is the next best alternative, or _____, that you give up

Answer 17

Trade-off

Question 18

A production possibilities frontier shows the various possible combinations of output than can be produced when all _____ are fully employed

Answer 18

Resources

Question 19

When economic growth takes place, the _____ shifts outward, showing that more products are produced than before

Answer 19

Production Possibilities Frontier

Question 20

The study of economics helps people make better _____

Answer 20

Decisions

Question 21

_____ is worth that can be expressed in dollars and cents

Answer 21

Value

Question 22

_____ is the study of how people try to satisfy their needs and wants through the use of limited resources

Answer 22

Economics

Question 23

_____ are the tools, equipment, machinery, and factories used in the production of goods and services

Answer 23

Capital

Question 24

_____ is the condition of not having enough resources to produce all the things people want

Answer 24

Scarcity

Question 25

_____ is the cost of the next best alternative use of money, time, or resources when one choice is made rather than another

Answer 25

Opportunity Cost

Question 26

_____ is the sum of those economic products that are tangible, scarce, useful, and transferable

Answer 26

Wealth

Question 27

_____ includes people with all their efforts, abilities, and skills

Answer 27

Labor

Question 28

_____ are the alternative choices made by consumers in the marketplace

Answer 28

Trade-offs

Question 29

_____ is the quality of life based on the possession of the necessities and luxuries that make life easier

Answer 29

Standard of Living

Question 30

_____ is the item that is economically useful or that satisfies an economic want

Answer 30

Good

Question 31

What factor of production would Adam Smith be most likely to identify as the source of a nation’s wealth? Do you concur? Explain.

Answer 31

In The Wealth of Nations, Adam Smith argued that the abilities and skills of a nation are its sources of wealth. In other words, he would likely identify labor or entrepreneurship rather than land or capital as the most important factor of production

Question 32

How is it possible for a good to be both a capital good and a consumer good?

Answer 32

Some goods are used by both consumers and by companies to produce more goods. An example of this might be a small tractor. Used in a home garden, it is a consumer good, but used on a small farm, it is a capital good

Question 33

Why is prediction an important element of economics?

Answer 33

People and society often need to know how their decisions will affect the well-being of people and businesses in the future. Prediction enables people to evaluate the consequences of different choices

Question 34

Why is cost, measured in dollars alone, an insufficient measure of value? What concept do economists use to better evaluate a decision? Why is it important?

Answer 34

You cannot put a monetary value on everything. You can, however, identify one or more things which must be given up in order to acquire or achieve something else. This is the concept referred to by economists as opportunity costs. The concept encourages a more comprehensive analysis if every decision

Question 35

What is the difference between a factor market and a product market? Explain how these markets are dependent on each other.

Answer 35

Individuals earn their income in factor markets and spend their income in product markets. Businesses receive payments in product markets when they sell goods to individuals. This income pays for land, labor, and capital bought in the factor markets. These resources are then used to manufacture additional products that are sold in the product markets

Question 36

Why is the study of economics important, even for people who are not going to be business owners or investors?

Answer 36

Everyone in some way is involved in economics. Employees are involved in the economic process, which directly affects their wages and employment possibilities. Voters are often asked to vote on issues affecting the economies of their communities. Consumers are affected by the factors of production that determine the prices of goods and services