Economics Benchmark Review Basic Concepts and Terms

Identify entrepreneur Creates a new business or product or improves an existing one Willing to take financial risk Looking for monetary gain

Define scarcity Basic problem of economics that results from the combination of unlimited wants and limited resources. It forces people to make choices.

Identify the three questions of production. What How For Whom

What is the opportunity cost of producing at C? Fish Caught v Fish Caught A B C Hours Taught

Identify the three factors that determine value. desirability scarcity utility

Identify the three systems of exchange barter money credit

Identify three ways businesses try to increase efficiency. Division of labor Specialization Allocation of resources

The next best choice you can make describes? Opportunity Cost

Investing in education, training, morals, values, health and skills are examples of? Human capital

To focus on one area of production is an example of: specialization

What are the factors of production? natural human capital *Entrepreneurs

Market In this model economic system individuals make decisions about what, how, and for whom to produce.

Market In this model economy factors of production are owned by individuals

Market Which model economy would best accommodate a pet psychic business?

Voluntary Exchange The unconditional and mutually beneficial transfer of products between producers and consumers

Self-interest Adam Smith’s theory: The impulse that encourages people to satisfy their wants and needs which consequently benefits society.

Identify the five features of the U.S. free enterprise system. 1.Private property & contracts 2. Individual choice 3.competition 4.Self-interest & voluntary exchange 5.Limited government

The idea that money is worth more now than it will be in the future. Present value / less $2010 / more $

Identify eight different types of investments Savings account Money market Certificate of deposit Bond Blue-chip stock Growth stock Real estate Commodities / Precious metals, oil, crops, etc.

Identify the four things to consider when making an investment. rate of return risk/ diversification liquidity tax benefit.

compound interest money earned on a sum of money that is invested plus the interest paid on that money over time. Time and rate of return have biggest impact!

income effect Any increase or decrease in consumers’ purchasing power caused by a change in price

law of demand The inverse relationship in which consumers will buy more of a product at a lower price and less of a product at a higher price.

Law of supply The idea that producers will supply more product at higher prices and less product at lower prices.

supply All of the product a company makes at various prices in a given period of time

market equilibrium The price at which both producers and consumers are satisfied.

The concept which states that as more units of a product are consumed, the satisfaction from consuming each additional unit decrease is called? Diminishing marginal utility

willingness and ability of the consumer to buy goods and services at different prices Demand

Two things that can affect the supply for a product are: 1.Profit motive 2.Market trends

Why do Governments set prices? Minimize supply and demand swings To balance inequalities in the market place. To address unaccounted for costs like pollution.

The term that refers to the tendency of consumers to buy products of similar quality at a lower price? substitution effect

What are the three qualities of elastic demand? 1.whether or not it has available substitutes. 2.whether or not it is a necessity. 3.the portion of the consumers’ income the product’s cost represents.

What are the qualities of elastic supply? Time Money Availability of resources Examples: Elastic: sports memorabilia, paper clips, toys, Inelastic: gold, oil, nuclear weapons

price ceiling Rent control is an example Can cause shortages A maximum price for a product