Economic Study Guide Unit 1: Fundamental Economic Concepts

Define Opportunity Cost

A benefit, profit, or value of something that must be given up to acquire something else.

Define Transfer Payments

A payment made or a income received in which no goods or services are being payed for.

Is "The right to make production and distribution decisions based on political power" traditional, command, or market economy?

Command Economy

Is "Wages and distribution system are controlled by government planners" traditional, command, or market economy?

Command Economy

What is a Market economy?

Economic decisions and pricing of goods and services are guided solely by the market or interactions of consumers and businesses.

What is important in each economic system?

Economic freedom, efficiency, equity, security, growth, sustainability, full employment, and stable prices.

What are productive resources/factors of production used for?

Factors of production is used in the production of goods or services in order to make an economic profit.

Is the "oil you put in your car" a good or a service?

Good

Is the "scissors the barber uses on your hair" a good or a service?

Good

What is Scarcity?

Having seemingly unlimited human wants in a world of limited resources.

Is an "employee knowing how to make the dough for the pizza" a land, labor, physical capital, or human capital?

Human Capital

Is an "employee taking an order over the phone" a land, labor, physical capital, or human capital?

Human Capital

Is an "employee training someone else on how to work the cash register" a land, labor, physical capital, or human capital?

Human Capital

Why does the government redistribute income?

IN order to pursue the social economic goal of equity.

What is the difference between a Marginal Cost and a Marginal Benefit?

Marginal Cost: The value of what is given up in order to produce the additional unit. Extra amount given up when a choice is made. *Marginal Benefit: Extra amount gained when a choice is made.

Is "No central planning occurs" traditional, command, or market economy?

Market Economy

Is "Profit motivate drives sellers; Self-interest drives buyers" traditional, command, or market economy?

Market Economy

Is "The goods and services available for consumption are determined by the voluntary interaction of procedures and consumers" traditional, command, or market economy?

Market Economy

Is "Inhaling second hand" a negative or positive externality?

Negative Externality

Is "Your neighbor's large SUV polluting the air" a negative or positive externality?

Negative Externality

Is a sign that says "No Parking: Violators Will be Towed" a positive or negative incentive?

Negative Incentive

Define Market Failure

Occurs when the private market is unable to produce goods and services in a way that the marginal benefit to society from the production of the good is equal to or greater than the marginal cost to society for producing the good.

Is a "Oven" a land, labor, physical capital, or human capital?

Physical Capital

Is a "Pizza Box" a land, labor, physical capital, or human capital?

Physical Capital

Is the "Building" a land, labor, physical capital, or human capital?

Physical Capital

Is "Free music from an outdoor concert you're walking by" a negative or positive externality?

Positive Externality

Is "You buy an electric car" a negative or positive externality?

Positive Externality

Is a "$1000 bonus for whoever sells more paper at Dunder Mifflin" a positive or negative incentive?

Positive incentive

Is "Nike" shoes a public or private good?

Private good

Is "South Cobb High School" a public or private good?

Private good

Is a "PlayStation" a public or private good?

Private good

Is a "cellphone" a public or private good?

Private good

What are the motivations that influence entrepreneurs to take risk?

Profit, Job creation, Innovation, and Improving society.

Is "Atlanta Public Library" a public or private good?

Public good

Is "Piedmont Park" a public or private good?

Public good

You decide to spend your money on an expensive dress instead of buying new tires for your car. As a result of this decision, you can't drive yourself to school or work anymore. Was this a rational decision?

This was not a rational decision because you spent money on a dress that you are probably only going to wear once, so now you can get to work or school.

Is "production techniques are handed down to family members from generation to generation" traditional, command, or market economy?

Traditional Economy

Is the "barber giving you a haircut" a good or a service?

Service

Is the "mechanic fixing your car" a good or a service?

Service

How does Specialization and Division of Labor increase productivity?

Specialization increases productivity because when a person knows how to do a certain thing they can get it done faster and Division of Labor gives everyone a job and gets everything done quicker.

Define Productivity.

The effectiveness of productive effort, especially in the industry (measured in terms of the rate of output per unit of input).

Darrell owns a business making clothes. He used to sew everything by hand, but he just invested in a sewing machine. How will this investment increase his productivity?

The sewing machine will help him make clothes faster.

List and define the 4 productive resources.

*Land: Anything that comes from land. *Labor: Those that make up the workforce of an organization, business sector, or economy. *Capital: Factor of production (or input into the process of production) ex.:Machinery, buildings, computers, etc. *Entrepreneurship: The capacity and willingness to develop, organize, and manage a business venture along w/ any of its risk in order to make a profit.

What are 3 economic questions every society has to answer and who answers these questions in a Command, Traditional , and Market economy?

*What goods and services will be produced? *How will the goods and services be produced? *Who will consume the goods and services? The government, the market or the consumers and businesses, and the Tribe or Family.

Is "Change comes slowly, often with opposition" traditional, command, or market economy?

Command Economy

Define Tradeoff

A sacrifice that must be made to get a certain product or experience.

What is a Traditional economy?

An original economic system and traditions, customs, and beliefs that help shape goods, services, rules, and manners of distribution. ex. hunting, gathering, fishing, and tribal or family based.

On the PPC which point is considered inefficient?

Any point on the inside of the line.

On the PPC which point is considered efficient?

Any point on the line.

On the PPC which point is considered impossible?

Any point outside of the line.

Why does the government protect property?

Because it is essential in a market economy, and consumers and businesses are more likely to invest and purchase goods if they have protections.

Is "All decisions involving production and consumption of goods and services are made by the government" traditional, command, or market economy?

Command Economy

What is an economic system?

Is a system of production, resource allocation, and distribution of goods and services within a society or a given geographic area.

Define Copyrights

Is the legal fight to the owner of intellectual property.

Define Patents

Is the legal right to the owner of physical property.

If I own a coffee shop. Brenda is terrible at making coffee. If I decide to send Brenda to get training on how to be better at making coffee, is this an investment in human or physical capital? How will my investment increase productivity?

It is human capital. It will help increase productivity because if she can make coffee better and quicker than more people will want to buy it, increasing profit.

What is a positive incentive?

It is something that is good, helpful, often a reward and makes you want to do it.

What is a negative incentive?

It is something that make people NOT want to do something. These might mean making people pay money or fines.

What is an incentive?

It is something that motivates an individual to perform an action.

Why does the government provide public goods and services?

It is usually when the private sector cannot provide them on a level that is beneficial to society.

What is the purpose of the Production Possibility Curve?

It shows all the possible combinations of two goods when an economy is producing at full potential.

Is an "employee who just came back from a delivery" a land, labor, physical capital, or human capital?

Labor

Is "Flour" a land, labor, physical capital, or human capital?

Land

Is "Pepper, Olives, and Pineapples" a land, labor, physical capital, or human capital?

Land

What is a Command economy?

The government owns and operates the factors of production.

What does it mean for the government to regulate the economy? What are the positive and negative effects?

The government regulates the economy to help protect citizens from corporate abuse and to help businesses recover from their problems. *Pros: Looks out for consumers, looks after stability of the economy. *Cons: Harms innovation by over regulating, Difficult to calculate success of operations.

You just won $1000 from a scratch off lottery ticket. You decide to either buy a new IPhone or spend it on the senior trip this year. You decide to buy the IPhone. What is you opportunity cost? How do you know?

Your opportunity cost is the senior trip because you gave it up in order to buy an IPhone.