Benchmark #1 Study Guide
1. Explain the difference between opportunity costs and tradeoffs – An opportunity is the next best
decision (what you gave up). A tradeoff is when you gain something, but you also lose something (what
you lose/gave up, is the opportunity cost).
2. Give an example of opportunity cost – You can spend $20 to purchase a ticket to a concert or spend
$20 to purchases a jacket. You choose the ticket to the concert. Your opportunity cost is the jacket.
3. Give five examples of the resource land – trees, oil, real estate on the land, water, all minerals in the
land.
4. Explain regulation and deregulation – a regulation is the government intervening in a market that
affects the production of a good. – Deregulation is the government removing the regulation
5. Regulation/Deregulation – which government intervention helps consumers and which government
intervention helps businesses. Regulation is usually for the safety of consumers; deregulation helps
businesses – makes it less costly to produce. Ultimately, the cost savings can be given to consumers.
6. Explain how an economy becomes more efficient. Specialization, productivity, innovation of new
technology.
7. What is the difference between a rational economic decision and an irrational economic decision? – a
rational economic decision is when marginal benefit exceeds marginal cost. An irrational economic
decision is when the marginal costs are greater than the marginal benefit.
8. What is the difference between a price ceiling and a price floor? – A price ceiling is government
intervention into a market telling producers what the highest price is they can charge for the product,
and price ceiling prices are BELOW equilibrium. Price floors is when the government tell an industry the
lowest price that can be charged for the produce – price floors are priced ABOVE equilibrium/
9. Differentiate between an entrepreneur and human capital – Entrepreneurs are willing to take a risk
and go in business for themselves. An example of human capital is a highly educated or skilled
individual who contributes to the business through their expertise.
10. What is the difference between a laborer and an entrepreneur? The entrepreneur is the one who
starts the business; a laborer is one who works, performs tasks, for the business.
11. What is another name for equilibrium? Market Clearing Price
12. What is the difference between equilibrium and market clearing price. They are the same.
13. The U.S. is a market economy, a mixed market economy or a command economy. The U.s. is a Mixed
Market Economy
14. Explain the difference between a mixed market economy, a market economy and a command
economy. A market economy is truly government hands off. Mixed Markets have some government
intervention, and command economies are totally government influenced.
15. What is a traditional economy? Customs are passed down to generations and often children have the
same occupation as the parents.
16. What does a production possibilities curve show? – Alternative ways to use an economy’s resources.
17. Give two examples of public goods. Library and city, state, or national park. What makes them a public
good? They are paid for by taxes collected from individuals and businesses.
18. What is the product market? – A product market is a market where households purchase the goods
and services that firms produce.
19. What is a factor market? A market where income is received for supplying lands, labor, or capital.
20. Is a factory an example of land, labor, or capital? A factory is an example of capital
21. What is an advantage of a market economy? Operates more efficiently
Benchmark #1 Study Guide
22. What is a disadvantage of a market economy? Based on supply and demand in the market, therefore
unemployment can exist.
23. What is an advantage of a command economy?
24. Why did Communist governments use a command economic system? To distribute the wealth and
attempt to create a society where everyone was equal.
25. List two examples of goods that are elastic. Elastic goods are goods that have good substitutes. What
makes them elastic? When the price goes up, there is little or no demand for the product.
26. List two examples of goods that are inelastic. Medicine and gasoline. What makes them inelastic?
When the price goes up, there is still a demand for the product.
27. Who pays for public goods? Paid for through tax dollars collected from individuals and businesses.
28. How is productivity defined? The degree to which resources are being used efficiently
29. How do you calculate productivity? Output divided by input
30. What is division of labor. Specialization (Assembly line)
31. Who first developed the concept of specialization and how. Developed through assembly line
32. What is a market failure? When an business comes into a community and is earning a profit and
employing people, but has a negative impact on the economy. Give one example. Pollution
33. Explain the difference between a complementary good and a substitute. A substitute can be used in
the place of a good. A complement is used with a good.
34. Why would a price ceiling be implemented by the government. The government may decide that a
particular industry/sector of the economy is priced to high for the consumer. The government would
intervene and set a price that is below equilibrium. The unintended consequence would be that it
would lead to shortages.
35. Why would a price floor be implemented by the government? The government may be protecting a
certain industry from closing. The government would intervene and require a minimum price be set,
which would be above equilibrium. Unintended consequence would be a surplus.
36. Price ceilings and Price floors offset the law of supply and demand