Understanding Basic Terms in Economic Systems

1. Unit 1 Review Basic Terms Economic Systems Capitalism & Free Enterprise Economic Goals Government Roles Business Forms

2. The universal condition affecting all societies and economies requiring decisions and trade offs about production: • Scarcity

3. A good used by consumers as an end product • Final good

4. A good used to produce a final good • Capital good • Physical capital

5. What are the 4 factors of production? • Land • Capital • Labor • Entrepreneur

6. What are the 3 types of capital? • Physical • Financial • Human

7. Which would NOT be considered “land”? (write the number only) • A river that is dammed for energy production • Wind used to power a windmill to grind wheat into flour • Concrete used to lay the foundation for a manufacturing plant • An iron ore deposit mined and used to create steal beams for the new World Trade Center • #3

8. Nothing of value is free: • TINSTAAFL

9. What term suggests that making something free only shifts the burden of the cost to other shoulders? • TINSTAAFL

10. What says that all resources are limited, but have relatively unlimited wants and needs fro them? • Scarcity

11. What is the worth of a product as measured by its price? • Value

12. What are the 4 ways to increase productivity? • Division of labor • Specialization • Invest in workers’ human capital (training) • Invest in technology

13. Where are the factors of production purchased? • Factor market

14. A way of improving productivity by organizing labor so that each worker has fewer tasks than before: • Division of labor

15. A specific representation of a need is called: • A want

16. Which is NOT a need? • House • Food • Clothing • Health • #1

17. Other uses of a resource are sacrificed when one use is decided on. These are called: • Trade-offs

18. The capacity of a product to provide its purchaser or user with usefulness and/or satisfaction: • Utility

19. What does a production possibilities frontier demonstrate? • The opportunity cost between two products (or areas of production)

20. Due to this, decisions about what to produce, how to produce it, and how to allocate it must be made: • Scarcity

21. Which is LEAST likely a capital (physical) good? • An extension ladder • A taxi cab • An industrial oven • A factory • An intercom system • A CD player • #6

22. When labor is arranged to improve productivity by assigning those better at a task the responsibility of performing that task: • Specialization

23. Where are productive resources (such as labor) bought and sold? • Factor market

24. The term that describes the benefit received from the use of a product: • Utility

25. The cost of the next best alternative use of a resource is called: • Opportunity cost

26. What term best describes the federal government decision to cut military spending under President Clinton to increase federal funding of various social programs? • Opportunity cost • Trade-off

27. What best describes Henry Ford’s use of the assembly line to increase productivity? • Division of labor

28. Which basic economic system is LEAST able to adapt, change, and improve standards of living for its people? • Traditional

29. Which econ system deals with scarcity by relying on central planning by government agencies? • Command

30. Which system provides the most ineffective incentives to work hard, save and invest? • Command

31. Which system provides least for its unproductive members? • Market

32. Which system satisfies consumers most? • Market

33. Which system requires the largest bureaucracy? • Command

34. Which is an example of a market system? • N. Korea • Australia’s aborigines • China • England • #4

35. Which BEST describes the U.S.? • Pure market economy • Command economy • Mixed traditional economy • Mixed market economy • Centrally planned economy • #4

36. The private ownership of the factors of production: • Capitalism

37. What characteristic of a free enterprise system acts as collateral for entrepreneurs to access financial capital to start businesses? • Private property rights

38. Which free market characteristic acts as the motor to the economy and as an incentive for workers to work hard, save, and invest in hopes of improving their economic conditions? • Profit motive

39. What 4 benefits to consumers does competition tend to produce? • Lower prices • Better products • Greater variety of goods and services • Improved use of resources to cut costs

40. What is the condition of a free market that suggests that all transactions benefit both seller and buyer? • Voluntary exchange

41. When productive resources are privately owned and operated: • Capitalism

42. What characteristic of a free enterprise system allows for experimentation and innovation within the market? • Economic freedom

43. At about what percent of unemployment do economists consider an economy to be functioning at full employment? • 5%

44. Which economic goal do most Americans share that provides the elderly with Social Security and the poor with a variety of welfare services? • Economic security

45. What is a general rise in prices throughout the economy? • Inflation

46. Who does inflation hurt most? • Those on fixed incomes

47. “Equal pay for an equal day’s work” is best reflected in which economic goal? • Economic equity

48. What is the necessary result of not being able to have absolute economic freedom and, at the same time, absolute economic equity or security? • Trade-offs among competing goals

49. What role is the government playing when it passes public disclosure laws requiring companies to post nutrition information? • Providing a legal/social framework

50. What role is being played when the government passes and enforces anti-trust laws? • Enforcing competition