Econ: Chapter 1 Test ReviewWhat is Economics?

The Big Idea: Scarcity is the basic economic problem that requires people to make choices about how to use limited resources.

Why it Matters: Have you ever wanted to buy something or to participate in an activity, but you couldn’t because you didn’t have enough income or time? How do scarce resources like time and income affect you and everyone around you? In this chapter, read to learn about what economics is and how it is part of your daily life.

Chapter 1 Section 1 Learning Target:-in this section, students will learn that the driving forces behind economics are scarcity and choices.

*define the following:1. economics:

2. microeconomics:

3. macroeconomics:

4. scarcity:

5. factors of production:

6. land:

7. labor:

8. goods:

9. services:

10. capital:

11. productivity:

12. entrepreneurship:

13. technology:

*Wants, Needs, and Choices:-main idea: the basic problem in economics is how to satisfy

unlimited wants with limited resources

-economics is the study of how individuals, families, businesses, and societies use limited resources to fulfill their unlimited wants

-economics has two parts:

1.

2.

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-how societies make choices about the utilization of their resources is the focus of economics

*The Problem of Scarcity:-main idea: scarcity exists because people’s incomes and time

are limited

-choices arise because everything that exists is limited. At the same time, people have competing uses for the available resources resulting in scarcity

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*The Factors of Production:-main idea: scarce resources require choices about uses of the

factors of production: land, labor, capital, and entrepreneurship.

-when economists talk about scarce resources, they are referring to the factors of production:

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-how much of each of these factors of production an individual has determines his or her wealth.

?About what percentage of US households have an income between $25,000 and $49,000? Which income group represents the largest percentage of US households?

Chapter 1 Section 1 Comprehension:1. Wants and needs are not always easy to separate. Identify each of the following as a want or a need, and tell why you made that choice.

Choices Want or Need ReasonFood

Car

Yearly physical exam

Cell Phone

2. Explain why scarcity and choice are basic problems in economics.

Chapter 1 Section 2 Learning Target:-in this section, students will learn about the relationship between trade-offs and opportunity costs, and how a production possibilities curve can help people make informed economic choices

*define the following:1. trade-off:

2. opportunity cost:

3. production possibilities curve:

*Trade-offs:-main idea: economic decisions always involve trade-offs that

have costs

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-the cost of a trade-off is what you give up in order to get or do something else

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?When making an economic choice, what question could you ask yourself to help identify the opportunity cost of your choice?

*Production Possibilities Curve:-main idea: a production possibilities curve shows the maximum

combinations of goods and services that can be produced with a given amount of resources

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?What is the opportunity cost of making 3 pairs of earrings in a 20 hour workweek?

?If a nation wanted to produce $5 billion in civilian goods, what would be the approximate cost in military goods?

Chapter 1 Section 2 Comprehension:1. Individuals, families, and businesses make trade-offs. In the chart below, and for each example given, add a likely opportunity cost.

Economic Decision Likely Opportunity CostIndividual Gets second job

Family Purchases car

Business Paves parking lot

2. A politician promises to increase funding for both the space program and education. Knowing about opportunity costs, what questions should you ask as a citizen?

Chapter 1 Section 3 Learning Target:-in this section, students will learn about how economists use models to explain and predict economic behavior, and that economists may not always agree on which model or theory is the best one.

*define the following:1. economy:

2. economic model:

3. hypothesis:

*Economic Models:-main idea: economists construct models to investigate the way

that economic systems work

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-economy refers to all activity in a nation that together affects the production, distribution and use of goods and services

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-economists test these economic models, and the solutions that result from these tests often become the basis for factual decisions by private businesses or government agencies

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-economists assume that some factors remain constant in order to focus on the basic factors needed to analyze the problem at hand

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?If an economist’s data supported the model in Graph A, what would happen if the federal minimum wage was raised?

*Schools of Economic Thought:-main idea: competing economic theories are supported by

economists from different schools of thought

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-over the years, economists have stressed the importance of both laissez-faire (hands-off) government and a government that intervenes in the economy

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-whether you think the results are good or bad will be based on your values

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Chapter 1 Section 3 Comprehension:1. In the diagram below, show how economists use models to study the real world.