Name_____________________
Unit 1: Basic Economics Study Guide chapters 1-3
Key Economic Concepts
Chapter 1 Define the following key terms:
Scarcity—
Economics—
Key term practice:
1. John quit is $15,000 job to go to school full-time. He
pays $5000 in tuition and books, $2000 in food and
$7000 in room and board.
What is John’s opportunity cost to his decision to
attend college?_________________
Opportunity Cost—
2.
Marginal Thinking—
Incentive—
Market—
Chapter 1 Definitions use pages 9-10 to answer
How does a communist country allocate its resources?
You are selling your 1996 Mustang. You have already
spent $1000 on repairs. Your transmission dies. You
can pay $600 to have it repaired or sell the car "as is."
The car's Blue book value is $6500 if the transmission
works and $5,700 if it doesn't. Should you fix
it?__________
What if Blue book value is $6000 if transmission
works and $5500 if it doesn’t?___________
3. Based on the chart below and what you know about
marginal thinking, how many times should you see
this movie?_________
How does a market economy make allocation decisions?
Explain Adam Smith’s Invisible Hand theory
Mixed Economies—
Chapter 2 Define the following key terms
Positive Statements—
Chapter 2 Definitions use Appendix pgs 38-42 to answer
X-coordinate—
Y-coordinate—
Example:
Positive correlation—
Normative statements—
Positively related curve—
Example:
Negative correlation—
Negatively related curve—
Circular Flow Diagram—add arrows and labels showing the movement of resources and goods
Define the 4 factors of production:
Land—
Labor—
Capital:
Human capital—
Physical capital—
Entrepreneur—
Production Possibilities Curve (PPC)
Use the chart to create a PPC to the right
Label the following three points on the graph:
X = Unemployment/Inefficiency
Y = Efficient
Z = Impossible given current resources
Define the following terms
Consumer goods—
Capital goods—
Shifting the PPC
Identify the three shifters of the PPC
1.
2.
Constant opportunity cost PPC—
Law of Increasing Opportunity Costs PPC—
Productive efficiency—
Allocative efficiency—
3.
On the graph to the right show the effects of:
1. an increase in
demand for guns and
label it “A”
2. a new technology in
the making of butter
label it “B”
3. a decline in working
age population label “C”
Chapter 3 Trade: Absolute and Comparative Advantage
Absolute Advantage (AA)—
Who has AA in sugar?
_________
Who has AA in cars?
Comparative Advantage (CA)—
_______
Who has CA in
CA Input vs Output problems—
sugar?_______
Who has CA in cars?_____________
Terms of trade—
An agreeable term of trade would be 1 car for
_____sugar