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PRIZE WARS
Economics Review
Rules
•
Teams of three
•
1 Whiteboard and Marker Needed per team.
•
Make a notecard with your team name; return to me.
•
For each question, you will be given a set amount of time. When time
expires, I will draw one team’s card at random. That team then gets an
opportunity to answer.
•
BE PREPARED TO EXPLAIN YOUR ANSWER. Simply having the right
answer may not be enough if you can’t tell me why it’s right.
•
Correct answer: put your team name under one of the four prize numbers.
•
Since there are only four prizes, each correct answer AFTER question 4
will displace one team.
– NO PICKING ON ONE GROUP!
Chapter 16
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Q1
• What is the fundamental problem of economics?
Chapter 16
Section
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A1
• Scarcity: There are unlimited wants and needs and
limited resources
Chapter 16
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Q2
• Why are resources scarce?
Chapter 16
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A2
• Because there is ALWAYS a greater demand than there
is a supply.
– Even if you have a trillion Twinkies, you’ll prefer
having two trillion over that.
Chapter 16
Section
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Q3
• What are the three productive resources?
Chapter 16
Section
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A3
• Land, Labor, Capital
Chapter 16
Section
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Q4
• Of the following, which is an example of LAND?
• 1) A wooden table
• 2) A steel building
• 3) A shovel
• 4) iron ore
• 5) A machine made from iron ore
Chapter 16
Section
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A4
• Iron Ore
– LAND refers to any resource that comes from the
Earth (including, ironically, water). All the other
options are man-made and, thus, CANNOT be land.
Chapter 16
Section
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Q5
• What does it mean (in terms of supply/quantity
supplied and demand/quantity demanded) for there to
be a shortage?
Chapter 16
Section
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A5
• The quantity demanded must be GREATER than the
quantity supplied.
Chapter 16
Section
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Q6
• What are the two forces that make up Adam Smith’s
“Invisible Hand” of the marketplace?
Chapter 16
Section
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A6
• Self-interest and Competition
Chapter 16
Section
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Q7
• Who assumes the risks and uncertainties that go along
with owning a business?
Chapter 16
Section
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A7
• Entrepreneurs
Chapter 16
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Q8
• 1) A demand curve is a demonstration of the
relationship between what two things?
• 2) What is that relationship?
Chapter 16
Section
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A9
• 1) Price and Quantity Demanded
• 2) As price decreases, quantity demanded increases.
This is called the LAW OF DEMAND
Chapter 16
Section
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Q10
• If you’re on a fixed income, are you MORE or LESS
concerned about high inflation than a normal person?
Be prepared to explain WHY
Chapter 16
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A10
• MORE concerned.
• People on fixed incomes make the same dollar amount
regardless of how much the dollar is worth. As a result,
people on fixed incomes will have lower real income if
inflation is high.
– In plain English: Inflation shrinks fixed incomes
faster because fixed incomes don’t adjust for
inflation.
Chapter 16
Section
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Q11
• What do we call the Federal Governments use of taxing
and spending to influence the economy?
Chapter 16
Section
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A11
• Fiscal policy
Chapter 16
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Q12
• When do two countries benefit from trade?
Chapter 16
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A12
• When they both produce the goods that they are most
efficient at producing; i.e. when they SPECIALIZE
Chapter 16
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Q13
• A tax on imported goods
Chapter 16
Section
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A13
• Tariffs
Chapter 16
Section
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Q14
• What is NAFTA and what effect did it have?
Chapter 16
Section
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A14
• The North American Free Trade Agreement is a trade
agreement between the US, Mexico, and Canada. It
lowered trade restrictions between all three countries.
Chapter 16
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Q15
• What are the three key economic questions?
Chapter 16
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A15
• 1) What to produce
• 2) How to produce it
• 3) Who gets it?
Chapter 16
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Q16
• Who answers those three key questions in a centrallyplanned economy?
Chapter 16
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A16
• The government
Chapter 16
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Q17
• Why are property rights important in a free-market
system?
Chapter 16
Section
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A17
They provide an incentive for conserving scarce
resources (remember the rhino game!)
Chapter 16
Section
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Q18
• Calculate GDP given the following information:
• Consumer goods: $12,500
• Business goods: $8,000
• Government Goods: $700
• Imports:
$400
• Exports:
$700
Chapter 16
Section
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A19
• C+G+I+X-M= $21,500
Chapter 16
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Q20
• 1) The circular flow model in a mixed market economy
shows the interaction between whom?
• 2) Draw the circular flow model in a mixed economy
Chapter 16
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A20
• 1) Firms, Households, the Government
• 2) See whiteboard
Chapter 16
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Q21
What two actions could the government take to reduce
the National Debt?
Chapter 16
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A21
• 1) Raise Taxes
• 2) Cut Spending
Chapter 16
Section
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Q22
• Why is the government reluctant to take measures to
reduce the debt?
Chapter 16
Section
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A22
• Because raising taxes/cutting spending are examples
of CONTRACTIONARY fiscal policy. Any actions to
reduce the debt will also reduce GDP in the short run.
Chapter 16
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Q23
Suppose that a new study found that eating apples
reduced the risk of contracting all types of cancer.
1) What would happen to the demand for apples?
2) What would happen to the price of apples?
Chapter 16
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A23
• 1) D increases
• 2) P increases
Chapter 16
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Q24
• 1) What do you call a tax that takes a higher percentage
of income from low-income earners than it takes from
high-income earners?
• 2) Give an example of such a tax
Chapter 16
Section
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A24
• 1) Regressive
• 2) Sales tax
Chapter 16
Section
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Q25
• A country that can produce more of a good than
another country at a lower cost and with fewer
resources has what?
Chapter 16
Section
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A25
• An ABSOLUTE ADVANTAGE
Chapter 16
Section
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Q26
• 1) When the Federal Reserve raises the discount rate,
this is an example of what type of monetary policy?
• 2) What is the Fed trying to accomplish when it enacts
a policy like that?
• 3) What is the downside to this policy?
• 4) How does that downside demonstrate the concept of
opportunity costs?
Chapter 16
Section
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A26
• 1) Tight Money
• 2) Fight Inflation
• 3) It will decrease GDP
• 4) The Fed cannot fight inflation without harming GDP
and can’t help GDP without raising inflation. The
opportunity cost to fighting inflation is harming
economic growth.
Chapter 16
Section
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Q27
1) What does “Laissez Faire” mean?
2) How does this relate to the free-market system?
Chapter 16
Section
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A27
• 1) “Let them do as they please”/ hands-off
• 2) It is the driving idea behind the free-market system;
that individuals decide what to produce, how to
produce it, and who gets what is produced.
Chapter 16
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Q28
• What effect does inflation have on purchasing power?
Chapter 16
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A28
• Inflation diminishes purchasing power
Chapter 16
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Q29
• What happens to a nation’s balance of trade when its
currency depreciates (“weakens”)? Why?
Chapter 16
Section
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A29
• The country will tend toward having a trade surplus.
The weakened currency makes its exports cheaper to
foreign countries (increasing exports) and makes
foreign goods more expensive (decreasing imports).
Chapter 16
Section
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Q30
• Which of the following would be changed by a good
advertising campaign. Explain what the effect(s) would
be (would the curve(s) shift to the right or to the left?)
– 1) Supply
– 2) Demand
– 3) Both
Chapter 16
Section
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A30
• 2: DEMAND would shift to the right.
• Supply would be unchanged.
Chapter 16
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Q31
• Suppose you hear a rumor that the price of Twinkies is
going to increase dramatically in 4 months.
• 1) Suppose you’re the only one who knos about this.
How can you use this information to your advantage
today?
• 2) Suppose that the rumor is well-known. Why might
you not be able to use this information to your
advantage today?
Chapter 16
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A31
• 1) Buy Twinkies before the price increases.
• 2) Because the news of a higher expected future price
will increase demand and decrease supply. Both of
these shifts will drive up the price of Twinkies, making
it difficult to find a “cheap” Twinkie today.
Chapter 16
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Q32
Product
Country A
Country B
Wands
500
400
Brooms
250
100
•What is Country A’s opportunity cost for
making one wand?
Chapter 16
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A32
• ½ of a broom
Chapter 16
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Q34
•What are the equilibrium price and quantity on
this graph?
Chapter 16
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A34
• Price: $1.50; Quantity: 200
Chapter 16
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Q35
•Suppose every pizza
place decided to
charge $2.50. What
would happen?
•2: What is this
called?
Chapter 16
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A35
• Quantity supplied would exceed quantity demanded by
200.
• 2: This is a SURPLUS
Chapter 16
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Q36
• What is the difference between Medicare and Medicaid?
Chapter 16
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A36
• Medicare: Benefits for the elderly; purely Federal, FICA
• Medicaid: Benefits for low-income, partly State, nonFICA
Chapter 16
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Q37
• Workers compensation and Food Stamps are both
examples of the government filling what role?
Chapter 16
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A37
• Redistribution of Income
Chapter 16
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Q38
• 1) What happens to the demand for labor when
aggregate demand (demand for all goods and services)
drops?
• 2) What effect does this have on employment?
Chapter 16
Section
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A38
• Demand for labor decreases
• 2) Employment decreases; this is CYCLICAL
unemployment
Chapter 16
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Q39
• Where does the buying and selling of currency take
place?
Chapter 16
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A39
• Foreign Exchange Markets
Chapter 16
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Q40
• 1) What does the Federal Reserve do to taxes in
response to a recession?
• 2) What does the Federal Reserve do to government
spending levels?
• 3) What does the Federal Reserve do to the Required
Reserve Ratio?
Chapter 16
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A40
• 1: THE FED DOES NOTHING
• 2: THE FED DOES NOTHING
The Fed has ZERO control over FISCAL POLICY.
3: The Fed will lower the RRR
Chapter 16
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Q41
• How do consumers benefit from competition in a free
or mixed-market system?
Chapter 16
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A41
• Competition Better products and lower prices
Chapter 16
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Q42
• What is a mutual fund?
Chapter 16
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A42
• An investment that pools the money of individuals to
buy stocks, bonds and other financial assets
Chapter 16
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Q43
• Of the following, which is/are NOT benefits of using
credit?
• 1) Credit allows the consumer to spread payments out
over time instead of buying something all at once
• 2) Credit allows the consumer to defer payment until a
later date rather than paying upfront
• 3) Consumers must pay a finance charge to use credit
• 4) Using credit improves a consumers’ credit score
• 5) Consumers tend to spend more responsibly when
using credit
Chapter 16
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A43
• 3 and 5
Chapter 16
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Q44
• A market structure dominated by a handful of large
firms
Chapter 16
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A44
• Oligopoly
Chapter 16
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Q45
• What is the Federal Deposit Insurance Company and
why was it created?
Chapter 16
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A45
• The FDIC insures customer deposits in member banks
up to the first $250,000.
• The government created the FDIC during the Great
Depression to restore consumer confidence in the
banking system.
Chapter 16
Section
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Q46
• Which of the following would improve a nation’s
standard of living?
• 1) Increase GDP
• 2) Increase Capital Investment
• 3) Increase Technology
• 4) Acquire more land
• 5) A plague
Chapter 16
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A46
• All but 5
Chapter 16
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Q47
• How does the government borrow money?
Chapter 16
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A47
• It issues bonds
Chapter 16
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Q48
• You are invited out to a party on Friday night, but your
parents have also offered to take you out to dinner that
night. Alternatively, you could blow off both choices
and spend the night in a dark room muttering the
phrase “Zalgo is coming soon” repeatedly, but that
doesn’t seem as appealing to you as the other two.
• 1) Assume that you choose to go to the dinner with
your parents: what were the tradeoffs to this decision?
• 2) What was the opportunity cost of this decision?
Chapter 16
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A48
• 1) The tradeoffs were going to the party or the Zalgo
thing.
• 2) The opportunity cost was going to the party.
Chapter 16
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Q49
• Which of these decisions best exemplifies thinking at
the margin?
• 1) Deciding whether spending an extra 2 hours
studying for your final is worth the cost of lost sleep
• 2) Deciding between spending your paycheck on a case
of Crystal Pepsi from eBay or a dune buggy.
• 3) Deciding to put your money in a CD to capture
higher interest rates
• 4) Deciding to buy car you don’t like because it’s
cheaper than the car that you do like
Chapter 16
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A49
• Deciding to spend an extra two hours studying.
Chapter 16
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Q50
A
B
C
D
E
Pizzas
0
1
2
3
4
Robots
25
23
19
13
0
•Suppose that the chart above represents a
country’s production possibilities.
•1) If the country chooses point A, what is it
devoting all of its resources towards doing?
•2) Which is the most efficient allocation of
resources: Point A, Point C, or Point E?
Chapter 16
Section
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A50
• 1) All productive resources are being devoted to
making robots
• 2) All points are equally efficient.
Chapter 16
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