Unit I Study Guide* Introduction to Economics

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, voluntaryexchange, 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 free-enterprise 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?

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?
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.