Unit 1

Question 1

Scarcity

Answer 1

Having limited resources to meet everyone’s unlimited wants and needs.

Question 2

Factors of Production

Answer 2

Land - any natural resource used: Land, minerals, oil, water, etc.
Labor - Human effort performing a task to produce the good or service: professor teaching a topic or a construction worker hitting a nail.
Capital - Human Capital, Physical Capital
Entrepreneurship

Question 3

Physical Capital

Answer 3

All human-made goods that are used to produce other goods and services.

Question 4

Human Capital

Answer 4

The knowledge and skills a worker gains through education and experience

Question 5

Positive vs. Normative Economics

Answer 5

Positive Economics: economics that focuses on factual statements and scientific methods.

Normative Economics: economics that focuses on value judgments, opinions, and suggestions on how the economy should work.

Question 6

Trade Offs

Answer 6

Trade-offs are all lost choices

Individual: spending more time on one activity instead of another
Firm: deciding how to use land, labor, and capital for one good or service over another
Societal: guns or butter, does the economy support consumers or the military

Question 7

Consumer vs. Capital Goods

Answer 7

Consumer Goods: goods that are made for the direct consumption by consumers
Capital Goods: goods made for indirect consumption. The goods needed to create other goods

Question 8

Opportunity Cost

Answer 8

the most desirable or valuable outcome given up as the result of a decision for a different outcome

Question 9

marginal cost and marginal benefit

Answer 9

Marginal cost: the additional cost of that additional effort or resource
Marginal benefit: additional benefit we receive from consuming the next unit of the good or service

Question 10

Production Possibilities Curve

Answer 10

PPC (or frontier) is a model that shows alternative ways that an economy can use its scarce resources to produce goods

Question 11

Straight Line PPC

Answer 11

Constant Opportunity Cost- Resources being used are easily adaptable for producing either good, therefore the opportunity remains constant (the same).

Question 12

Types of efficiency

Answer 12

Productive Efficiency: products are being produced in the least costly way. any point on the PPC
Allocative Efficiency: the products being produced are the ones most desirable by society, optimal on the PPC depends on the desires of society

Question 13

What changes the PPC?

3 Shifters of the PPC

Answer 13

1. changes in resources quantity or quality
2. change in technology
3. change in trade

Question 14

Economic system

Answer 14

the method used by a society to produce and distribute goods and services.

Question 15

Centrally Planned (Command) Economy:

Answer 15

the government owns all the resources and answers the three economic questions.
No Competition keeps the quality of goods poor, Cannot respond to meet new desires or needs, and no incentive, everyone equal pay

Question 16

Free Market (Capitalism)

Answer 16

buyers and sellers consider only their own self-interest and their personal gain from the action (motivating force in the free market), Competition and Self-Interest work together to regulate the economy
little government involvement

Question 17

Mixed Economies

Answer 17

Mixed economies blend the free market with government intervention and regulation.

Question 18

Comparative Advantage

Answer 18

the ability to produce a good/service at a lower opportunity cost than someone else,

it is the basis for the economic argument in favor of specialization and how trade can benefit two separate parties.

Question 19

Absolute Advantage

Answer 19

ability to produce more of a good or service than a competitor with the same number of inputs, or can also be seen as the ability to make a unit of output with fewer units of inputs than their competitor

Question 20

Product Market

Answer 20

the place where goods and services produced by businesses are sold to consumers

Question 21

The Resource (Factor) Market

Answer 21

The “place” where resources (land, labor, capital, and entrepreneurship) are sold to businesses (firms).

Question 22

Private Sector

Answer 22

part of the economy that is run by individuals and businesses

Question 23

Public Sector

Answer 23

part of the economy that is controlled by the government

Question 24

Factor Payments

Answer 24

payments for the factors of production (rent, wages, interest, profit)

Question 25

Transfer Payments

Answer 25

When the government redistributes income ( welfare, social security)

Question 26

leakage

Answer 26

when funds exit the circular flow model

Question 27

injection

Answer 27

when funds re-enter the circular flow model

Question 28

Circular Flow Model