Chapter 1 Review

Vocabulary

Items a person must have tosurvive –

Needs

A system in which economic decisions are based ona society’s values, culture, andcustoms –

Traditional

Buyers and users of goods andservices –

Consumers

A system in which a central authority controlseconomic activities Command

External resources such as money, time, equipment,and possessions – Nonhuman Resources

Qualities and characteristics people havewithin themselves – Human Resources

Items a person would like to have but that are notessential tolife –

Wants

A system in which privately owned businessescompete for profitswith limited governmentregulation –

Market Economy

Individuals or businesses that provide goods andservices to meetdemand –

Producers

The value of the best option or alternative givenup –

Opportunity Cost

True or False

Services are physical items such as food andclothing - False

The free enterprise system is an economy in which privately owned businessesoperate andcompeteforprofitswithlimitedgovernmentregulationorinterference - True

In a market economy, consumer needs and wants determine, to a large extent,what goods and services will beproduced - True

Most economies aremixed - True

Scarcity refers to the challenge of resources being limited while wants areunlimited -True

A trade-off is the choosing of one item, which involves giving upanother - True

Technology refers to the application of scientific knowledge to practical uses andproductdevelopment–True

The desire for profit motivates people to spendmoney–False

Demand is the amount of a product of a service producers are willing toprovide - False

Markets are usually not inequilibrium –True

Characteristics of a Command Economy:

  • Central authority controls economic activities
  • Limited consumer choices
  • Prices of goods are set by government or central authority
  • Consumers cannot for themselves how to earn & spend income
  • A central authority allocates resources
  • Often associated with a socialist or communist form of government
  • Producers produce what planners recommend

Characteristics of a Market Economy:

  • Consumers choose how to earn and spend money
  • Emphasis is on the consumer
  • Ideal for starting a business
  • Businesses are encouraged to compete with one another
  • Supply & Demand
  • Many product choices available
  • Often associated with a democratic form of government
  • Innovation sparks growth & prosperity

Fill in the blank

A market economy and a command economy differ primarilyin

The way economic choices aremade

Human resourcesincludes:

Energy, skills, talents, andknowledge

Which of the following is one of the four qualities of a market economy?

Free economicchoice

What is the key incentive for individuals and businesses to produce goods andservices?

Profit

Innovationis:

The process of creating somethingnew

In a market economy, competition for profits encourages:

  • Productimprovements lower prices
  • Greater variety of goods andservices

Which of the following is true of supply anddemand?

Price and supply move in the samedirection

When a supply and demand chart’s coordinates are plotted on a graph, equilibriumis

Where supply and demand curvesintersect

Which of the following would be most likely to cause price toincrease?

Demand for an item is greater than thesupply

In a market economy, what determines how to divide the goods and servicesproduced?

The forces of supply anddemand

Explain the concept ofscarcity