1. Unit 1: Basic Economic Concepts

2. The Circular Flow Model
The Product Market-
The “place” where goods and services produced by businesses are sold to households.
The Resource (Factor) Market-
The “place” where resources (land, labor, capital, and ent.) are sold to businesses.

3. DEMAND SUPPLY Individuals Businesses SUPPLY DEMAND Resource Market
$$$ Costs $$$
$$$ Income $$$
Resources
Resources
(Factors of
Production)
Individuals
Businesses
Goods and
Services
Goods and
Services
$$$ Spending $$$
$$$ Revenue $$$
SUPPLY
DEMAND
Product Market 3

4. Free Response Questions
When you do a FRQ don’t forget to R.O.L.L.:
READ the entire question first
ORAGANIZE your answer
LIST your answers like the question
LABEL everything

7. 2016 FRQ

8. 2016 FRQ

11. 2. As a consumer, you decide to go to a movie:
1. The study of economics is primarily concerned with:
A) keeping private businesses from losing money.
B) demonstrating that capitalistic economies are superior to socialistic economies.
C) choices that are made in seeking to use scarce resources efficiently.
D) determining the most equitable distribution of society's output.
E) raising taxes to pay for new roads and bridges
2. As a consumer, you decide to go to a movie:
A) if the marginal cost of the movie exceeds its marginal benefit.
B) if the marginal benefit of the movie exceeds its marginal cost.
C) if your income will allow you to buy a ticket.
D) because all movies are enjoyable.
E)because the per unit opportunity cost is lower for movies than for baseball games.

12. 3. In economics, the pleasure, happiness, or satisfaction received from a product is called:
A) marginal cost.
B) rational outcome.
status fulfillment
utility.
efficiency
4. A normative statement is one that:
A) is based on the law of averages.
B) applies only to microeconomics.
C) applies only to macroeconomics.
D) is based on value judgments.
E)is objective and is based on facts.

13. 5. The total opportunity cost of moving from combination E to B is
A) 3 units of Capital Goods
B) 9 units of Consumer Goods
C) 10 units of Consumer goods
D) 9 units of Capital Goods
E) There is no opportunity cost
6. A total output of 3 units of capital goods and 4 units of consumer goods:
A) is irrelevant because it is unattainable under normal circumstances.
B) will result in the maximum rate of growth
C) would involve an inefficient use of resources.
D) is unobtainable in this economy.
E) will shift too many resources to producing capital goods.

14. A) an upgrading of the quality of a nation's human resources
7. A production possibilities curve shows:
A) that resources are unlimited.
B) that people prefer one of the goods more than the other
C) the maximum amounts of two goods that can be produced assuming the full employment of resources
D) combinations of capital and labor necessary to produce specific levels of output.
E) the relationship between the supply and demand of goods
8. Which of the following will NOT produce an outward shift of the production possibilities curve?
A) an upgrading of the quality of a nation's human resources
B) the reduction of unemployment
C) an increase in the quantity of a society's labor force
D) the improvement of a society's technological knowledge
E) a large population surge providing more potential workers.

15. 10. Which point(s) demonstrates productive efficiency? A) Point B
9. Other things equal, this economy will achieve the most rapid rate of growth if:
A) the ratio of capital to consumer goods is minimized.
B) it chooses point C.
C) it chooses point B.
D) it chooses point A.
E)it chooses point D.
10. Which point(s) demonstrates productive efficiency?
A) Point B
B) Point E
C) Points A and B
D) Points A, B, and C
E) Points D

16. 11. Refer to the above diagram. An improvement in technology will:
A) shift the PPC from PP1 to PP2.
B) shift the PPC from PP2 to PP1.
C) move the economy from A to C along PP1.
D) move the economy from A, B, or C on PP1 to D.
E) move the economy from B to F

17. 12. The concept of opportunity cost is best represented by the:
A) shift of the PPC from PP1 to PP2.
B) move from B on PP1 to E on PP2.
C) move from B on PP1 to C on PP1.
D) move from D inside PP1 to B on PP1.
E) the shift from A on PP1 to F on PP3.