1.06: Exam Preparation & Exam

How many millions of rollerblades and skateboards are produced at Point B on the graph?

15 million rollerblades, 8 million skateboards

How many millions of rollerblades and skateboards are produced at Point A on the graph?

18 million rollerblades, 3 million skateboards

Why is Adam Smith called the father of economics?

Adam Smith is the founder of economics because he wrote the first modern work on economics called The Wealth of Nations. In this book, he talks about the "invisible hand" that guides people to do what is best for them. Smith believed that these actions would lead to an efficient use of resources.

List one economic right and one economic responsibility that you have as a consumer.

An economic right might be the ability to choose to purchase a want over a need. An economic responsibility might be that you should spend your money wisely, first purchasing those things you need for survival.

What is the definition of economics?

Economics is defined as the study of the production and distribution of goods and services. It is the study of human efforts to satisfy unlimited wants with limited resources.

Provide an example of scarcity and one of shortage.

Example of scarcity: No one can have an endless supply of everything. You might own hundreds of basketballs but sooner or later, a limit is reached. Example of shortage: The shelves in your local sporting goods store have no basketballs on them, yet, three days later they are full of basketballs. Both of these concepts imply that you want something that is not available; the supply of resources is not limitless.

Describe an item that you recently purchased. Name the item and give a brief description. Then describe each of the factors of production that went into making the item.

For example, you describe a sweatshirt you recently purchased. Then describe each factor of production: land (cotton and the land used to grow the cotton), labor (people who turned the cotton into material and then sewed the sweatshirt), capital (physical: sewing machines; human: skills and knowledge needed to run the sewing machines).

You take $40.00 shopping to buy a new skirt. You see one cotton skirt that sells for $20.00 and a leather skirt that sells for $40.00. You would like to purchase the leather skirt, but that would force you to spend all of your money. What are the drawbacks and positive aspects in deciding to purchase each skirt?

If you purchase the cotton skirt, you will still have $20 left over to buy something else, maybe even a second skirt. But you will not be as fashionable as if you purchased the leather skirt. If you purchase the leather skirt, you will be more fashionable, but you will also have no more money to spend.

Why must individuals make choices?

Individuals cannot have everything they want and resources are limited.

Provide an example of each of the factors of production.

Land - trees, soil, oil, anything from nature; labor - farmer, teacher, beautician; capital - sewing machine, backhoe, blackboard

What point on the graph shows that when 10 million rollerblades are produced, 14 million skateboards are produced?

Point C

What point on the graph shows growth in the economy?

Point F

What point on the graph shows an underutilization of resources?

Point G

What did Adam Smith say motivates producers to provide goods for sale?

Producers are motivated by self-interest.

Describe the four common methods used by countries to allocate resources.

Rule of force: There are no rules, and people simply take what they want by force. First come-first served: Shoppers arrive when the store opens so they can buy all the goods on sale at low prices. This rule causes people to compete by waiting in line, with the competition favoring those who get in line first and wait the longest. Government rules: The government decides who receives goods. Markets: Firms compete for more customers and higher profits, workers compete for better jobs and larger incomes, and consumers compete by being willing to pay more for the products they value most.

Why must business decisions involve trade-offs?

To make decisions that provide the greatest possible return from the resources available, people and organizations must weigh the benefits and costs of using their resources to do a little more of some things, and a little less of others.

You are shopping for school clothes with your birthday money, and you would like to buy a pair of suede boots for $130, but you also need a new pair of sneakers that are on sale for $80. You don't have enough money to buy both the boots and the sneakers. Create a decision-making grid to help you decide which to buy.

You should have two columns. One titled boots, the other titled sneakers. Then you should have four rows for your grid titled respectively: benefits, decision, opportunity cost, and benefits forgone. The following information might be found in your grid: Benefits: Boots - Stylish, durable, what you really want; Sneakers - More comfortable, cheaper, what you really need Decision: Boots - Buy the $130 boots; Sneakers - Buy the $80 sneakers Opportunity Cost: Boots - Giving up sneakers; Sneakers - Giving up boots Benefits Forgone: Boots - Benefits of owning sneakers, such as items that could have been bought with extra $50; Sneakers - Benefits of owning boots, such as happiness in owning something that you really wanted and wearing a more stylish shoe

List the factors of production.

land, labor, capital