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Transcript
Unit I Study Guide* – Introduction to Economics Unit Summary: The concepts that are essential to understanding Economics include scarcity and choice, trade-offs and opportunity cost, productivity, money and exchange, interdependence, and markets. These concepts have special relevance within the U.S. free-market system, whose main features and goals answer the 3 basic economic questions that individuals, business, and societies must address when deciding how best to allocate scarce resources: what to produce, how to produce, and for whom to produce. While government plays a minimal role in our free-market economy, it provides essential functions for all citizens, promoting growth and stability, supplying public goods, and providing an economic safety net. Big Ideas: Economic scarcity, a basic fact of economic life, requires choices and trade-offs, and all choices have costs. The American free-enterprise economic system is based on and takes advantage of the freedom to make choices based on incentives and self-interest; because it has limited government involvement and regulation, our economy leans toward the pure market model. Producers and consumers distribute goods and services most efficiently through a voluntary system of exchange; value in an exchange depends on utility and scarcity. The goals of the American free-enterprise system—economic freedom, efficiency, and growth—are the result of the basic economic principles of profit motive, voluntary exchange, private property rights and competition. When necessary, the government intervenes in the economy to promote growth and stability, provide public goods and maintain a healthy standard of living. Essential Questions: What is the relationship among scarcity, trade-offs, opportunity costs and production possibilities? How does the market economy establish and preserve political and personal liberty— include a discussion of enlightened self interest, incentives, economic competition, individual freedom and choice, limited government involvement and the role of private property? Define productivity and explain why improving productivity is good for consumers and producers. How are scarce resources allocated efficiently and effectively within the American freeenterprise system? Describe the basic principles of the American free-enterprise system. How does the U.S. government support free enterprise and promote and protect the public interest? 1 Topics/Terms: Need Want Economics Goods Services Scarcity Shortage Factors of production Land Labor Capital Physical capital Human capital Entrepreneur Trade-off Guns or butter Opportunity cost Thinking at the margin Production possibilities curve Production possibilities frontier Efficiency Underutilization Cost Law of increasing costs Economic system Factor payments Patriotism Safety net Standard of living Traditional economy Market economy Centrally planned economy Command economy Mixed economy Market Specialization Household Firm Factor market Profit Product market Self-interest Incentive Invisible hand Consumer sovereignty Socialism Communism Authoritarian Collective Heavy industry Laissez faire Private property Free enterprise Continuum Transition Privatize Profit motive Open opportunity Private property rights Free contract Voluntary exchange Competition Interest group Public disclosure laws Public interest Macroeconomics Microeconomics Gross domestic product (GDP) Business cycle Work ethic Technology Public good Public sector Private sector Free rider Market failure Externality Poverty threshold Welfare Crash transfers In-kind benefits Short-Answer Questions—some or all may be included on the exam: How does scarcity affect economic choices—e.g., trade-offs, opportunity costs, production possibilities, etc? Use the concept of “opportunity cost” to explain the following economic truism: “Nothing in life is free.” What are the roles of self-interest and incentives in a market economy? Why do our national economic goals sometimes require trade-offs? Explain the three questions all economic systems must address in order to allocate resources effectively. Describe production possibilities curves. Include the assumptions on which they are based and the factors that cause them to change. What determines value in an exchange? 2 Explain how an economy can work efficiently in terms of its production possibilities but not be producing goods that are useful to it. Explain what has happened to most of the large centrally planned economies, and discuss why this has happened. Speculate why a completely free market economy might not be a practical one for any major country. Provide an example of a positive and a negative externality? *Applicable California Standards – 12.1.1, 12.1.2, 12.1.3, 12.1.5: Students understand common economic terms and concepts and economic reasoning. 12.2.3, 12.2.8: Students analyze the elements of America’s market economy in a global setting. 12.3.1, 12.3.2, 12.3.3: Students analyze the influence of the federal government on the American economy. 3