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Name:____________________________ Date:___________ Class Period:_____________
SEOCT Economics Review Guide
Fundamental Economic Concepts
1. *Explain why limited productive resources and unlimited wants result in scarcity,
opportunity costs and trade offs for individuals, businesses and governments.
2. Define scarcity as a basic condition which exists when unlimited wants exceed limited
productive resources
3. Define and give examples of productive resources (Factors of Production) as land (natural),
labor (human), capital (capital goods), entrepreneurship
4. Identify strategies for allocating scarce resources
5. Define opportunity cost as the next best alternative given up when individuals, businesses
and governments confront scarcity by making choices.
6. *Provide examples of how rational decision making entails comparing the marginal
benefits and the marginal costs of an action.
7. Illustrate by means of a production possibilities curve the trade offs between two options
Production Possibilities Curve
A table or graph that shows the full employment capacity of an economy in the form of possible
combinations of two goods, or two bundles of goods, that could be produced with a given
amount of productive resources and level of technology. Explain what happens when moving
along the curve: A-D; D-A
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8. Explain that rational decisions occur when the marginal benefits of an action equal or
exceed the marginal costs.
9. Explain how specialization and voluntary exchange between buyers and sellers increase the
satisfaction of both parties. Provide examples of how individuals and businesses specialize
10. Explain that both parties gain as a result of voluntary, non-fraudulent exchange.
11. Compare and contrast different economic systems, and explain how they answer the three
basic economic questions of what to produce, how to produce and for whom to produce.
Every society must contend with the problem of scarcity. Every society, regardless of its
political structure, must develop an economic system to determine how to use its limited
productive resources to answer the three basic economic questions.
Three types of economic systems exist to answer these questions.
12. Compare command, market, and mixed economic systems with regard to private
ownership, profit motive, consumer sovereignty, competition, government regulation
Economic systems are characterized by how they answer the three basic economic questions
a. Command (centralized) Economy -
b. Market (decentralized) Economy -
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c. Mixed Economy -
d. Profit Motive -
e. Consumer Sovereignty -
f. Competition -
g. Governmental Regulation 14. Evaluate how well each type of system answers the three economic questions and meets the
broad social and economic goals of freedom, security, equity, growth, efficiency and
a. Economic Freedom b. Economic Security c. Economic Equity d. Economic Growth e. Economic Efficiency f. Economic Stability 15. * Describe the roles of government in a market economy.
16. Explain why government provides public goods and services, redistributes income, protects
property rights and resolves market failures.
a. Public Goods and Services b. Income Redistribution –
c. Property Rights –
d. Market Failures –
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17. Provide examples of government regulation and deregulation and their effects on
consumers and producers.
18. * Explain how productivity, economic growth and future standards of living are influenced
by investment in factories, machinery, new technology and the health, education and
training of people.
19. Define productivity as the relationship of inputs to outputs
20. Provide illustrations of investment in equipment and technology and explain their
relationship to economic growth
21. Provide examples of how investment in education can lead to a higher standard of living.
Microeconomic Concepts
22. Describe how households, businesses, and governments are interdependent and interact
through flows of goods, services, and money.
a. Illustrate by means of a circular flow diagram, the Product market; the Resource (factor)
market; the real flow of goods and services between and among businesses, households, and
government; and the flow of money.
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b. Explain the role of money as a medium of exchange and how it facilitates exchange.
1. Money
23. Explain how the Law of Demand, the Law of Supply, prices, and profits work to determine
production and distribution in a market economy.
Define the Law of Supply and the Law of Demand.
1. Law of Supply
2. Law of Demand
b. Describe the role of buyers and sellers in determining market clearing price.
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c. Illustrate on a graph how supply and demand determine equilibrium price and quantity.
d. Explain how prices serve as incentives in a market economy.
24. Explain how markets, prices, and competition influence economic behavior.
25. Identify and illustrate on a graph factors that cause changes in market supply and demand.
a. Factors that cause changes in market supply
1. Cost of inputs
2. Productivity
3. Technology
4. Taxes and Subsidies
5. Expectations
6. Government regulations
7. Change in the number of sellers
8. Weather/natural disasters
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Increase in Supply
Decrease in Supply
b. Factors that cause changes in market demand
1. Consumer income/wealth
2. Consumer tastes and preferences (advertising)
3. Change in the price of substitute goods
4. Change in the price of complementary goods
5. Change in expectations
6. Change in number of consumers
Increase in Demand
Decrease in Demand
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b. Explain and illustrate on a graph how price floors create surpluses and price ceilings create shortages.
Price floor
Price ceiling
c. Define price elasticity of demand and supply.
Price elasticity of demand
Price elasticity of supply
26. Explain the organization and role of business and analyze the four types of market
structures in the U.S. economy.
a. Compare and contrast three forms of business organization—sole proprietorship,
partnership, and corporation.
b. Sole proprietorship
i. Advantages-
ii. Disadvantages-
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c. Partnership
i. Advantages-
ii. Disadvantages-
d. Corporation
i. Advantages-
ii. Disadvantages-
b. Explain the role of profit as an incentive for entrepreneurs.
27. Identify the basic characteristics of monopoly, oligopoly, monopolistic competition, and pure
a. Monopoly
b. Oligopoly
c. Monopolistic competition
d. Pure competition
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Macroeconomic Concepts
Illustrate the means by which economic activity is measured.
28. Explain that overall levels of income, employment, and prices are determined by the spending
and production decisions of households, businesses, government, and net exports.
29. Define Gross Domestic Product (GDP), economic growth, unemployment, Consumer Price
Index (CPI), inflation, stagflation, and aggregate supply and aggregate demand.
a. Gross Domestic Product (GDP)
b. Economic Growth
c. Unemployment
d. Consumer Price Index (CPI)
e. Inflation
f. Stagflation
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g. Aggregate Supply (AS)
e. Aggregate Demand (AD)
30. Explain how economic growth, inflation, and unemployment are calculated.
31. Look at the Bureau of Economic Analysis- (economic growth) & Bureau of
Labor Statistics- (inflation, unemployment)
32. . Identify structural, cyclical, and frictional unemployment.
a. Structural Unemployment
b. Cyclical Unemployment
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c. Frictional Unemployment
33. Define the stages of the business cycle, include peak, contraction, trough, recovery, expansion
as well as recession and depression.
a. Business cycle
b. Peak
c. Contraction
d. Trough
e. Recovery
f. Expansion
g. Recession
h. Depression
34. Describe the difference between the national debt and government deficits.
a. National Debt
b. Government Deficits
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35. Explain the role and functions of the Federal Reserve System.
a. Describe the organization of the Federal Reserve System.
b. Define monetary policy.
i. Monetary Policy
Describe how the Federal Reserve uses the tools of monetary policy to promote price
stability, full employment, and economic growth.
i. Open Market Operations
ii. Discount Rate
iii. Federal Funds Rate
iv. Reserve Requirements
36. Explain how the government uses fiscal policy to promote price stability, full employment,
and economic growth.
a. Define fiscal policy.
i. Fiscal Policy
b. Explain the government’s taxing and spending decisions.
i. Government taxation
ii. Government expenditures
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Fundamental Economic Concepts
37. Explain how specialization and voluntary exchange between buyers and sellers increase the
satisfaction of both parties.
38. Provide examples of how individuals and businesses specialize
39. Explain that both parties gain as a result of voluntary, non-fraudulent exchange.
40. Explain why individuals, businesses and governments trade goods and services.
41. Define and distinguish between absolute advantage and comparative advantage
a. Comparative Advantage
b. Absolute Advantage
42. Explain that most trade takes place because of comparative advantage in the production of
a good or service
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43. Explain the difference between balance of trade and balance of payments
a. Balance of Trade
b. Balance of Payments
44. Explain why countries sometimes erect trade barriers and sometimes advocate free trade
a. define trade barriers as tariffs, quotas, embargoes, standards and subsidies
i. Tariff
ii. Quotas
iii. Embargoes
iv. Standards
v. Subsidies
45. Identify costs and benefits of trade barriers over time
46. List specific examples of trade barriers
47. List specific examples of trading blocks such as the EU, NAFTA, ASEAN
EU – European Union
NAFTA – North American Free Trade Agreement [US/Canada/Mexico
ASEAN – Association of Southeast Nations
MERCOSUR – Common Market of the South [Latin America]
Other players on the world stage:
BRIC – Brazil, Russia, India, China
GATT – General Agreement of Tariffs and Trade
WTO – World Trade Organization
IMF – International Monetary Fund
World Bank
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48. Evaluate arguments for and against free trade.
a. The arguments most often heard AGAINST free trade…
b. The argument FOR free trade….
49. Explain how changes in exchange rates can impact the purchasing power of individuals in
the United States and in other countries.
50. Define exchange rate as the price of one nation’s currency in terms of another nation’s
a. Exchange Rate
51. Locate information on exchange rates – process skill
52. Interpret exchange rate tables – process skill
53. Explain why, when exchange rates change, some groups benefit and others lose.
Personal Finance Concepts
54. Apply rational decision making to personal spending and savings choices.
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55. Explain that people respond to positive and negative incentives in predictable ways
56. Use a rational decision making model to select one option over another
P – What is the PROBLEM?
 What decision are you trying to make?
 What is the issue at hand?
A – What are the ALTERNATIVES?
 What actions are you considering?
 What options are available to you in this decision?
C – What are the CRITERIA important to the decision?
 What goals do you hope to accomplish in making your
 What characteristics are you looking for in your result?
 Which criteria are more important than others? How do
you rank them?
E – EVALUATE each alternative.
 Evaluate each alternative on the basis of each criterion.
 Give each alternative a plus (+) or a minus (-) according
to how well it meets each criterion.
D – Make a DECISION.
 Calculate the net value of each alternative; which alternative
best meets your highest-ranking criteria?
 What do you gain with each alternative?
 What do you give up with each alternative?
57. Decision-Making Grid
A graph-like form into which people may enter notations about the costs and benefits of various
alternatives; used for assistance in making decisions.
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58. Using the decision grid below, evaluate each option and then decide which choice you would
have made.
Evaluate each alternative as:
+ = Greater benefit than cost
? = Equal or questionable benefit
and cost
- = Greater cost than benefit
Criterion A
Criterion B
Criterion C
Criterion D
Ranking ___
Ranking ___
Ranking ___
Ranking ___
Option #1
Option #2
Option #3
Using the decision grid, rank the candidates in order of preference
Create a savings or financial investment plan for a future goal.
59. Explain that banks and other financial institutions are businesses which channel funds
from savers to investors.
a. compare services offered by different financial institutions
b. explain reasons for the spread between interest charged and interest earned
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c. give examples of the direct relationship between risk and return
60. Evaluate a variety of savings and investment options, including stocks, bonds and mutual
a. Stock
b. Bond
c. Mutual Fund
61. Explain how changes in monetary and fiscal policy can impact an individual’s spending
and savings choices.
62. Provide examples of who benefits and who loses from inflation
63. Define progressive, regressive and proportional taxes
a. Progressive Tax
Regressive Tax
c. Proportional Tax
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64. . explain how an increase in sales tax affects different income groups.
a. Sales Tax
65. Evaluate the costs and benefits of using credit
a. List factors that affect credit worthiness
b. Compare interest rates on loans and credit cards from different institutions
66. Explain the difference between simple and compound interest rates.
Simple Interest – Year 1 - $100 at 10% interest = $10 in interest earned.
Year 2 - $100 at 10% interest = $10 in interest earned.
Year 3 - $100 at 10% interest = $10 in interest earned.
– Year 1 - $100 at 10% interest = $10 in interest earned.
Year 2 - $110 at 10% interest = $11 in interest earned.
Year 3 - $121 at 10% interest = $12 in interest earned.
67. Describe how insurance and other risk-management strategies protect against financial loss.
a. List various types of insurance such as automobile, health, life, disability and
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Type of
Examples of Coverage
Provides financial protection
from losses due to an auto
accident or other damage to a
Provides payment for certain
health-care costs.
Provides financial protection
in case of loss of personal
possessions in a rental unit.
Protects against financial loss
from damage to your home or
its contents, as well as injury
to others on the property.
Collision: provides for the repair or replacement of the
policy owner’s car damaged in an accident
Liability: covers the cost of property damage or injuries to
others caused by the policy owner
Comprehensive: covers the cost of damage to an auto as a
result of fire, theft, or storms
Basic Health: covers office visits, laboratory, hospital
costs and routine care
Major Medical: protects against large bills from
catastrophic illness or injury
Dental and Vision: covers some cost of routine exams and
specific services
Reimburses policy owner for loss of possessions in a
rental unit due to fire, theft, water damage, etc.
Provides income over a
specified period when a
person is ill or unable to work
Provides financial protection
to dependents of policy owner
when policy owner dies.
Physical Damage: reimburses for fir or water damage to
house or other structures on the property
Loss or Theft: reimburses for personal property damaged
or stolen
Liability: Protects against loss from a lawsuit for injuries
to invited or uninvited guests
Policy owner selects a replacement income for lost wages
if an illness or accident presents the person from working.
Disability income is paid for a specified time after a
waiting period.
Term Life: Offers protection for a specified period of time
Whole Life: Offer protection that remains in effect during
the lifetime of the insured and acquires cash value
68. Explain the costs and benefits associated with different types of insurance
69. Describe how the earnings of workers are determined in the marketplace
70. Identify skills which are required to be successful in the workplace
Competent workers in the high-performance workplace need:
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71. Explain the significance of investment in education, training and skill development.
Sample Resource Allocation Strategies
resource goes to those
great for those who
who use market
have money or a job
mechanisms such as trade, with income
barter, or price
not good for those who
have little or no income
majority rule
resource goes to those
who win an election;
voting; consensus; largest
number of people are
great for those who are
popular and those who
have many members
not good for the
unpopular; those who
don’t have the skills to
form alliances
resource goes to the most
competitive – winner of a
race or arm wrestle;
survival of the fittest
great for those who are
talented and skillful
not good for those who
aren’t competitive;
resource goes to the one
great for those who are
who is strongest (physical, strong, powerful,
mental, political); most
not good for those who
are weak, small, easily
resource goes to multiple
parties by dividing the
great in that everyone
gets an equal part; no
one is left out
not good in that some
resources can’t be
divided; no party may
get enough; not
everyone wants some of
every resource
resource goes to the
luckiest; random; fair
great for those who are
lucky and win things;
everyone has an equal
chance; random
not good for those who
are unlucky or who
“never win anything”
resource goes where
directed, ordered, told by
another person
great for those who are
liked by the commander
or if the planner is
always fair
not good if the planner
isn’t fair
resource goes to the early
bird; first in line
great for those who are
quick, willing to get
ahead of the crowd
not good for the
procrastinator; those
who are late in
planning/ preparing
resource goes to the one
with the greatest tenure,
the longest hair, the
oldest, the youngest, the
bluest eyes, etc.
great for those who are
able to set the personal
characteristic to be
awarded the resource
not good for those
unable to influence the
selection of the
characteristic category
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