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Basics and Money REVIEW
name: _______________________________
What is the fundamental economic problem? (define it).
Scarcity – unlimited wants, but limited resources
What are the 3 basic economic questions?
What to produce? (how to make it, guns or butter)
How to produce? (assembly line, division of labor, specialization)
For whom to produce? (who will buy it?)
What are the 4 factors of production? (define and give an example)
Land (natural resources) – wheat, oil, coal
Labor (human resources) – worker, cashier, cook
Capital (physical-tools, human- skills) – hammer, knowing how to decorate cakes
Entrepreneurship – takes the risk and combines the land, labor, capital to create good/service
Why do entrepreneurs take risks?
Innovation, profit, job creation, social welfare
When making a decision why are marginal cost and benefit important?
To make a rational decision, we want the benefit to exceed the cost.
When making a decision, we incur opportunity costs. What does this mean? Give an example.
Opportunity cost – alternative given up when making a decision (2nd choice)
Ex: after school you want to grab a snack. Arby’s and McDonald’s are on your way home. You decide to go to McDonald’s
because you love oreo mcflurries. Your opportunity cost is Arby’s curly fries
What type of money is being described?
_____ 1. Pocahantas gave John Smith a goat in exchange for a tobacco plant.
a. Commodity
b. Representative
c. Legal Tender
_____ 2. The government issued IOUs to people because they didn’t have enough money to issue tax refunds. People could
exchange the IOU for cash after a 2 month waiting period.
a. Commodity
b. Representative
c. Legal Tender
_____ 3. A person decides to spend $2 at Big Lots on a bouncy ball instead of buying a spiral notebook for his History of
Dinosaurs class at UGA. What is the opportunity cost of his decision?
a. the $2
b. the satisfaction that he would have from hours of bouncy ball fun
c. fact that his best friend will get mad at him for not buying 2 bouncy balls
a. the ability to do his Dinosaurs homework this week
____ 4. How does money facilitate trade?
a. it serves as a store of value
b. it services as a standard of value.
c. it serves as a medium of exchange
d. all of the above.
_____ 5. An entrepreneur uses which productive resources when creating a good or service?
a. Land, labor capital
c. Land, money, education
b. Creativity, labor, tools
d. Technology, education, growth
_____ 6. The resources used to make all goods and services are the
a.
Production possibilities.
b.
factors of production.
c.
d.
production trade-offs.
opportunity costs.
_____ 7. What is the goal of entrepreneurship?
b. to make goods and services using manufactured goods and services
c. to examine the aspects of behavior of entire economies, such as US unemployment rate
d. to develop a new combination of the factors of production making something of value
d.
to make sure you don’t have scarcity in the United States anymore.
_____ 8. You bought a new shirt with the last $23 in your checking account, and your next payday is August 20th. Your friends
call you and want to go bowling. What is the opportunity cost of the shirt?
a. Bowling with your friends
b. the difference between the cost to produce the shirt and the price you paid for them
c. $23
d. knowing you are the first of your friends to have this shirt
____ 9. Consumer goods are
a. Used to make finished products.
b. the goods and services that people buy.
c. natural resources.
d. A and B
____ 10. What is the opportunity cost of a decision?
a. All the alternatives given up when making a decision
b. The different ways that a different person might have made the decision
c. The most desirable alternative given up for the decision
d. The best possible way the question could have been decided
_____ 11. Physical capital includes
a. the stethoscope used to hear a patient’s heart beat
b. the cookie business that Grandma buys her supplies from for her Cookie Co.
c. the mandatory break each employee gets for lunch
d. a teacher’s knowledge of his subject - this is human capital
____ 12. The buildings, structures, machinery, and tools used in the production process are called
a. Consumer goods.
c. natural resources.
b. Capital goods.
d. human resources.
____ 13. Why are all goods and services scarce?
a. some goods cost more than other goods
c. all resources are scarce
b. some people want more than other people d. some things are needs and others are wants
____ 14. When a car is used to deliver pizzas, it is a
a. Land
b. Labor
c. Capital
d. Entrepreneurship
____ 15. The scarce productive resources are ____, ____, ____, ____, and wants are ____.
a. Money, savings, production, GDP, unlimited
b. Money, savings, entrepreneurship, limited
c. Land, Labor, Capital, entrepreneurship, unlimited
d. Land, labor, capital, entrepreneurship, limited
e. Land, labor, money, services, unlimited
____
16. Which of these is not one of the 3 Basic economic questions?
a. What to produce?
c. How to produce?
b. Why are you producing?
d. For whom to produce?
____
17. People are forced to make decisions about how to use resources effectively because
a. exchange depends on mutual needs.
b. allocation is a requirement of satisfaction.
c. resources are limited and wants are unlimited.
d. satisfying needs and wants requires thought.
____ 18. The government of a country must make a decision between increasing military spending and subsidizing wheat
farmers. This kind of decision is a
a. guns or butter issue.
c. global trade-off.
b. decision at the margin.
d. basic economic decision.
____ 19. At a hotel you may find a front desk clerk, a maid, a bell hop, and a manager. This is an example of
a. marginal productivity
b. specialization
c. economies of scale
d. factors of production