Answers for Fundamentals of Economics Review Sheet

Economics G:                                                                                               

Review Sheet for “Fundamentals of Economics”

Key Terms:

Economics- the study of human efforts to satisfy seemingly unlimited wants with scarce resources

Scarcity- the condition of not being able to satisfy seemingly unlimited wants with scarce resources

Utility- the measure of satisfaction from consuming a good or service

Specialization- division of labor of tasks to maximize quantity produced: the industrial revolution changed the way products were made 

Trade-offs- sacrificing one good or service to purchase or produce another

Opportunity cost- the principle that in order to have more of one thing, you must have less of another

Factors of production- Resources of land, labor, capital and entrepreneurship used to produce goods

Production Possibilities Frontier Curve (PPF)- a diagram representing various combinations of goods and/or services an economy can produce when when all factors of production are fully employed

Adam Smith- Wrote the book “Wealth of Nations” stating the measure of national wealth is production rather than land or gold. Also considered the “father of economics”

Entrepreneurs- the risk taking individuals who start new businesses to make a profit

3 Basic economic questions: 1. What to produce 2. How to produce  3. For whom to produce

Traditional economy- N/A

Command economy- govt owns the means of production. No individual profit, i.e communism

Free – market economy (capitalism). Means of production are privately owned by individuals for personal profit

Circular Flow of the Economy- The flow of money and goods/services in the economy between producers and consumers

Key Ideas:

1.      What is economics and why is it important?

Ultimately, it is the study of human decision making. Important to understand how humans satisfy their needs and wants. And how wealth is created and distributed.

2.      What tools do economists use and what are their limitations?

Economists use data, graphs and formulas.  Data may be incomplete or inaccurate, graphs are only 2 dimensional, formulas may not accurately capture variables at work in the real economy

3.      What gives things value? What is a market?

The worth of a good or service that can be expressed in dollars and cents

4.      What is the difference between a good and a service?

Goods are concrete products, service is work performed for someone else

5.      What are the factors of production?

Land, labor, capital, entrepreneurship

6.      What are the basic questions every economic system must decide?

What to produce, how to produce, for whom

7.      What are the advantages and disadvantages of different economic systems?

   N/A – not on quiz

8.       What are the goals of a free market economy?

Personal profit, the “pursuit of happiness”

9.      What does a PPF curve measure? 

Opportunity costs.  How much you give up of one good to produce more of another.

Reading information off a PPF curve (N/A)

10.  How does the circular flow of the economy economists understand a free market economy?

It’s circle, the economy is always in flux. It is either expanding (going up), or contracting (going down).