Chapter 1-2 Study Guide

Question 1

Choice

Answer 1

An act of selecting or making a decision when faced with two or more possibilities

Question 2

Wants

Answer 2

an item we desire but that is not essential to survival

Question 3

Needs

Answer 3

something like air, food, or shelter that is necessary for survival

Question 4

Scarcity

Answer 4

Limited quantities of resources to meet unlimited wants

Question 5

Shortage

Answer 5

a situation in which a good or service is unavailable

Question 6

Factors of productions

Answer 6

Land, Labor, and Capital

Question 7

Opportunity Cost

Answer 7

the most desirable alternative given up as the result of a decision

Question 8

Traditional Economy

Answer 8

An economic system that relies on habit, custom, or ritual to decide what to produce, how to produce it, and to whom to distribute it

Question 9

Centrally Planned Economy

Answer 9

economic system where the central government makes all decisions on the production and consumption of goods and services

Question 10

Market Economy

Answer 10

an economic system in which decision on production and consumption of goods and services are based on voluntary exchange in markets

Question 11

Mixed Market Economy

Answer 11

market based economies systems with limited government involvement

Question 12

Laissez-faire

Answer 12

The doctrine that government generally should not interfere in the marketplace

Question 13

Socialism

Answer 13

a social and political philosophy based on the belief that democratic means should be used to distribute wealth evenly throughout a society

Question 14

Communism

Answer 14

a political system that is characterized by a centrally planned economy with all economic and political power power resting in the hands of the central government

Question 15

What are the three economic questions a society must ask

Answer 15

• What goods and services should be produced
• How should these goods and services be produced
• Who consumes these goods and services

Question 16

How does free-enterprise differ from laissez faire?

Answer 16

Free enterprise is purely about private decision making. Laissez Faire talks about how the government should generally not intervene.

Question 17

Which economy is the least free in the world? Why?

Answer 17

The economy of north korea. North Korea has a command (centralized) economy. The state controls all means of production, and the government sets priorities and emphasizes in economic development.

Question 18

Where does the US fall in the continuum of centrally planned economy and free market economy?

Answer 18

We are in the middle of both. We are a mixed economy. Private decisions are being made and a majority of natural resources are not owned by the government. However, we still have government regulations that the market must abide by.

Question 19

Land

Answer 19

all natural resources used to produce goods and services

Question 20

Labor

Answer 20

the effort a person devotes to a task for which that person is paid

Question 21

Capital

Answer 21

any human resource that is used to create other goods and services