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Learning Outcomes • This assignment is worth 30 test points and will be turned in the day of the EOC. • The purpose of this activity is to review concepts and focus on the aspects of each concept that will be emphasized on the EOC. • On your own paper, you will write down the correct term/terms to complete each sentence • If you answer a question incorrectly, you must circle the number of the question on your study guide and write the correct answers in the margin of your paper. choices 1. Economics is the study of how individuals make _______________ to scarcity satisfy their wants in a world of _________________. land labor 2. The four factors of production are ________________, ________________, capital ________________, and entrepreneurship. entrepreneur is a person who combines the other factors of 3. An _________________ production to make a profit. Production _______________ Possibilities Curve 4. The _______________ _______________ shows all possible combinations of goods an economy can produce in a given amount of time (when producing at full capacity). what how 5. The three economic questions are __________ to produce, ___________ for _______________ whom to produce, and _______ goods should be produced. 6. In a __command__ economy, the government decides what to produce, how to produce, and for whom to produce. 7. In a _free market/capitalist__ economy, individuals and firms decide what to produce, how to produce, and for whom to produce. 8. Scarcity is the basic economic problem of unlimited human _wants_ and limited _resources__. 9. __Scarcity__ forces people to make choices. 10. Opportunity cost is the most valued __alternative__ you give up to do something else (next best option). For example, if Cynthia stays home from the football game to finish her collage for English, her opportunity cost is __the football game__. 11. When you can get more of one good, but only by getting less of another good, it is called a __trade-off__. For example, a city government might cut spending on public parks in order to hire more police officers while maintaining the budget. 12. _Adam Smith__ is known as the father of Capitalism (free enterprise). 13. _Karl Marx__ is known as the father of Communism (and Socialism). 14. The law of __demand__ states that as the price of a good increases, the quantity demanded of the good decreases (and vice versa). 15. The law of _diminishing marginal UTILITY_ states that the more additional units of a good a person consumes, the less satisfaction he/she gains from each additional unit. 16. Factors that cause a shift in the demand curve include: changes in _income__, preferences, prices of _complements_ and _substitutes_, number of _buyers_ in the market, and anticipated future prices. 17. Market _equilibrium_ occurs when quantity supplied equals quantity demanded. 18. The law of _supply_ states that as the price of a good increases, the quantity supplied of the good also increases (producers are willing to make more when goods cost more!). As the price of a good decreases, the quantity supplied of a good _decreases_. 19. When _resource_ prices go up, the supply curve shifts to the left (quantity supplied decreases); when _resource_ prices go down, the supply curve shifts to the right (quantity supplied increases). 20. Anything that causes the cost of production to increase will cause the quantity supplied to _decrease_. Anything that causes the cost of production to _decrease_ will cause the quantity supplied to increase. 21. A _surplus_ occurs when quantity supplied > quantity demanded. 22. A _shortage__ occurs when quantity supplied < quantity demanded. 23. Minimum wage is an example of a _price floor_ —a price set by the government below which buyers and sellers cannot legally buy or sell a good or service. In this case, the result is a _surplus_ of workers, since the price is set above equilibrium. 24. An advantage of a _sole proprietorship_ is that one has total control of the decision-making process. 25. A disadvantage of a sole proprietorship is that one has unlimited _liability_. 26. A _partnership_ is a business owned by two or more people who share profits and liability. 27. Shirking is bad. Don’t shirk. 28. The major advantages of corporations are that they can raise large amounts of _revenue_, have limited _liability_, and continue to exist no matter what happens to the owners. 29. _Externalities_ are positive or negative side effects of business activities. 30. If a monopoly were broken up into several smaller businesses, the result would likely be _increased_ output and _decreased_ prices. 31. Wages are determined, in large part, by the _supply_ of workers and the _demand_ for their work. For example, professional athletes are paid high wages because their talents and abilities are _scarce_, and therefore in high demand. 32. Unions use _collective bargaining_ to negotiate wages, hours, rules and working conditions. 33. A free rider is a person who benefits from a good he/she did not pay for. For example, a visitor from California enjoys a leisurely bike ride on the greenbelt. 34. Public goods are goods of which one person’s consumption does not take away from another person’s consumption. 35. The law of diminishing marginal RETURNS states that as a business hires additional workers, there will be a point at which the new worker’s marginal output (additional units produced) will be less than the previous worker. For example, in the chart below, the LDMR kicks in upon hiring the 4th worker, because the marginal output of worker 4 was less than the marginal output of worker 3. Number of Workers Output Marginal Output 0 1 2 3 4 0 units 5 11 18 23 0 units 5 6 7 5 36. The Better Business Bureau is an organization that gathers and publishes information on the trustworthiness/credibility of businesses and charities. 37. Credit unions differ from banks in that they are member-owned and non-profit. 38. Banks can use checking account deposits to create loans for other customers. 39. The three types of tax withholdings (money that comes out of a person’s gross income) are federal income tax, state income tax, and FICA (Federal Insurance Contributions Act—this includes Social Security and Medicare). 40. When a person invests in stocks he/she becomes part owner of the company in which he/she invested. 41. There are two ways to profit from investing in stocks— capital gains and dividends. 42. The FDIC (Federal Deposit Insurance Corporation) was created to restore consumer confidence in the wake of the Great Depression. The FDIC insures bank deposits up to $250,000. 43. If a person has bad credit, he/she will have to pay higher interest rates on loans than a person with good credit. 44. Principal is the actual amount of the loan, separate from the interest. 45. Interest is the charge for the privilege of borrowing money. It is the amount paid above the initial amount borrowed. 46. Rate of return is the gain or loss on an investment over a specific period of time. 47. Stocks have higher rates of return than savings accounts, in part because they are more risky investments. In general, the riskier the investment, the higher the rate of return. 48. The highest source of revenue for the federal government comes from individual income taxes. 49. A progressive tax system is one in which higher income earners pay more than those who earn less. 50. Regressive taxes take a higher percentage of income from low income people than high income people. A gas tax, for example, it the same no matter a person’s income—however, it takes up a higher percentage of income from the low income earner because he/she has less total income. 51. A business cycle refers to the fluctuating levels of economic activity that occur over a period of time (typically, 3-5 years). 52. Business cycles include 5 stages: expansion (growth), peak, contraction (recession), trough (end of the decline), and recovery. 53. The ability-to-pay principle holds that the amount of taxes individuals pay should be based on the level of burden it will place on individual wealth. In other words, if a person has more income, he/she should be able to pay more than a person with a low income (think: progressive tax system). 54. The benefits-received principle holds that people should pay taxes based on the benefit they receive from the government. 55. Inflation is the rate at which prices of goods and services rise. When inflation rises too quickly, consumers experience less purchasing power (people can buy less with the money they earn). 56. GDP (gross domestic product) is the sum of a nation’s consumer spending, government spending, investments, and net exports (exports minus imports). GDP is a useful indicator of a country’s overall economic wellbeing and standard of living. 57. GDP per capita is the GDP per person in a nation. 58. Keynesian Economic Theory (John Maynard Keynes) in a nutshell: The government may help stimulate the economy in times of recession by spending more and decreasing taxes. 59. Expansionary policies seek to grow the economy by increasing government or consumer spending, tax rebates, and/or tax cuts. 60. Contractionary policies seek to combat inflation by decreasing spending and/or increasing taxes. 61. Fiscal policies are set by the federal government, while monetary policies are set by the central bank (Federal Reserve). 62. The national budget deficit is when government expenditures exceed revenue. 63. The national debt is the accumulated total of all past government deficits. Ours is currently more than $18,000,000,000,000. 64. Absolute advantage is when a business or individual is able to produce a good/service at a lower cost per unit than any other business or individual. 65. Comparative advantage is when a business or individual is able to produce a good/service at a lower opportunity cost than other businesses or individuals. 66. Comparative advantage is extremely valuable for a country in deciding which goods to produce. For example, in the chart below, Countries A and B are trading partners. Country A has the clear absolute advantage for producing both wheat and TVs. • However, neither country can produce both their full capacity of wheat and their full capacity of TVs—they must choose to produce one or the other, or a combination of both goods. • In order to find out which country should specialize in which good, we must find their comparative advantage. Let’s break it down: Production Possibilities Country A Country B Wheat 200 50 TVs 100 50 When Country A produces 1 unit of wheat, they give up producing ½ of a TV. In other words, Country A’s opportunity cost for producing wheat is ½ a TV. When Country A produces 1 TV, the opportunity cost is 2 units of wheat. Country B has the same opportunity cost no matter which good they decide to produce—if they make one unit of wheat, they give up one TV, and vice versa. • Based on the above information, we can conclude that Country A has the comparative advantage in wheat, because it only costs them half a TV to produce one unit of wheat, while it costs Country B one TV. • Country B has the comparative advantage in TVs, because it only costs them one unit of wheat to produce a TV, while Country A gives up two units of wheat. • Therefore, Country A should specialize in wheat, while Country B should specialize in TVs. 67. Protectionism includes government policies that attempt to restrict international trade in order to protect domestic businesses and jobs from foreign competition. Import taxes and quotas are two examples of protectionism. 68. Tariffs are taxes imposed on imported goods or services. 69. Quotas are government-imposed trade restrictions that limit the number of goods or services imported from another country. 70. NAFTA (North American Free Trade Agreement) and EU (European Union) are examples of trade organizations. The goal of free trade organizations is to eliminate tariffs and encourage economic activity between member nations. 71. Foreign currency exchange rates measure how many units of one country’s currency can be exchanged for another. 72. Currency values impact trade according to the law of demand. For example, if the US dollar decreases in value, American goods will be cheaper (relative to other countries) and the demand for American goods will increase.