unit 1 study guide

Unit 1: Basic Economics Concepts

Key Terms (Define the following)

3 Economic Systems

1. Scarcity: economic reality that the Factors of production are limited (limited resources and unlimited wants)

2. Positive vs. Normative Economics; Positive Economics: descriptions of the world as it is, Normative Economics: descriptions for how the world ought to be.

3. Trade-offs: The sacrifice of some or all of one economic goal, good, or service to achieve some goal, good, or service.

4. Opportunity Cost: The sacrifice of one economic goal, good, or service to achieve some goal, good, or service.

1. Centrally Planned Economies (Communism):
An economic system in which economic decisions are made by the state or government rather than by the interaction between consumers and businesses.

2. Free-Market Economies (Capitalism):
A market economy based on supply and demand with little or no government control.

3. Mixed Economies: An economic system that features characteristics of both capitalism and socialism. A mixed economic system allows a level of private economic freedom in the use of capital, but also allows for governments to interfere in economic activities in order to achieve social aims.

Production Possibilities Curve (Frontier)*

Use the chart to create a PPC to the right.

A
B
C
D
E
Hats
0
1
2
3
4
Shoes
30
29
25
15
0 Label the following three points on the graph:
X= Unemployment/Inefficiency
Y= Efficient
Z= Impossible given current resource

Shoes 30 Z= Impossible

25

20

15

10 X= Inefficiency Y= Efficient (on the curve) 5 0 1 2 3