Unit 1 Guided Notes/ Study Guide for Economics 412

Answer these questions while reading through the course or

attending class connect sessions. At the end of the unit, upload
the completed assignment to the dropbox.
Saving your TGA: Last Name, First Name Initial Student ID#_Unit 1 Study Guide
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Topics Covered:
The Purposes and Origins of Government
Power and Government
Types of Government

(25 points)

1. Explain the role of scarcity in economics.

Humans have an undeniable desire of wants. The
availability of resources can never be enough to
satisfy the needs of everyone. Economic goods are
said to be scarce in supply, that they cannot meet the
demands of humans all at once.
2. Describe the four fundamental questions faced by all
economic systems.
1. What is to be produced?
Goods and services are what needs to be
produced.
2. How is production to be organized?
Capitalism leaves production decisions up to the
producers, but the choices made by consumers
also play an important role. Producers must

eventually sell their goods and services to

consumers. In a free-market system, consumers
have the freedom to choose what to buy. This
gives them a lot of power over producers.
3. How are goods and services to be distributed?
Producers have to distribute goods to the
people who want to consume them. Resources
get distributed, too. Using a good or a service is
known as consumption. In the game of
economics, people consume goods that are
produced. When a player uses a good or service,
he or she is known as a consumer.
4. What is the most effective allocation of resources?
Resources are essential for production. But very
few resources are easily available and ready to
be used. Resources need to be found and set
aside for the production of specific goods.
Producing goods takes resources, and so does
distributing them. You need trucks and trains
and ships, and they need gas and tires and so
on. These resources have to be allocated, as
well. So, in addition to the allocation of
resources for producing goods and services,
economics is also about allocating resources for
distribution.
3. How is Economics like a game? Who are the players in the
game of Economics?
The economy is not just a collection of people. It is
like a game, except that instead of playing on a board
or a field, the players move within the greater
economic system. They follow rules and make
decisions, and these decisions result in outcomes.
Define these different economic goals

4. Efficiency
refers to the use of resources in a manner that gets
as much out of them as possible. Efficiency is a goal
producers have, to provide more goods and services
for society without using more resources.
5. Equity
Equity means fairness; It is the notion that everyone
should be treated equally.
6. Freedom
Freedom in economics is defined as the absence of an
obstacle or constraint.
7. growth
means increasing the size, number, or output of
goods or services. It makes sense to want growth,
because in the economy, growth means more goods,
more jobs, and more money.
8. Security
is protection against risk or danger. Because life is
uncertain and bad things can happen, the economic
goal of security encourages us to lessen the dangers
we face.

9. What is the difference between a rule and a property? Name

a rule and a property that apply to economics.
A rule in economics would be no stealing, but
property would be supply and demand. For example,
a rule would be that everybody gets to spin one at a
time, and a feature would be that everybody gets a
car.

10.
Explain a situation where two specific economic goals
could be incompatible.
A company that wants to grow but they also want to
try to make things safe (security) for their workers
and they close down production to make things safe
for their workers, and so it makes them hard for them
to grow.

11.

Explain the concept of supply and demand.

Let's say someone has a very rare object, like one of

the few original copies of the Declaration of
Independence. What if you wanted to buy that rare
object? You can't steal it. That's a rule. And as a
buyer, you want to pay as little as possible.
So you offer a low price. But there are other buyers,
too. If you want to buy this rare copy of the
Declaration of Independence, you have to compete
with the other buyers. Someone else also wants it
badly, so they offer more than you. Now, you can't go
somewhere else to buy because it's very rare. If you
want it, you have to offer more. So you do. But the
other person offers more than you again. The price is
going higher and higher.
Supply and demand is a concept that really only
affects a free-market economy.

12.
What is the importance of competition in a free-market
system?
Competition is needed to guarantee freedom. Without
competition, people don't have a lot of choices. In
fact, they might have only a single choice. Freemarket systems have to guarantee that there will be
competition. It is one of the rules. Without
competition, you would have to take the "free" out of
free-market system.

13.
How does the profit motive affect the goals of
producers?
Properties of the free-market system are often called
market forces. One important market force in a capitalist
system is the profit motive. Producers make a profit by
selling a good or service for more than it costs to produce.
The difference between the total cost of production and
the selling price is the producer's profit. If the cost is
greater, the producer suffers a loss and will struggle to
stay in business.
14.
What are the main advantages of living in a command
economy?
Its supposed to be an economy where everything is
equitable and equal. Where everything is to be shared,
but in reality that doesnt happen.

15.
Consumers, Producers, Wages: Explain their relation to
one another.

Producers and consumers make free choices, and market

forces do the rest. The free choices of producers and
consumers often result in inequality and insecurity.
Growth is sometimes strong and sometimes weak. People
may be free to make choices, but they're often not free
from struggle and need. The goal of a minimum wage is to
promote economic security and equity by protecting
workers from exploitation. Not everyone agrees that a
minimum wages accomplishes this goal and the value of
minimum wage laws is frequently debated.

Define cost benefit analysis and how cost-benefit

analysis is used to make rational decisions.
Cost benefit analysis is based on personal
preferences and you weigh the pros and cons of your
purchase. This helps us see which choice is better.

16.

17.

Define these Economic Indicators:

GDP

GDP measures the overall size of a countrys economy. Its

the monetary value of all goods and services produced in
a country during a given time.
18.

CPI

CPI is the average price of a group of goods and services

such as food, transportation, and medical care.
19.

Inflation

The inflation rate is an important economic indicator. It

lets people know how fast they should expect prices to
rise.
20.

Unemployment

Its a measurement of inactivity. Its Workers who are out

of work

How does the CPI help calculate the inflation rate of a

country?
The inflation rate can also be used to adjust for the
effects of inflation. Doing this shows how much
something in the past would cost today. For example,
by calculating the inflation-adjusted price, you would
find out that something you paid $5 for in 1990 would
cost $8.90 in 2013. As the CPI rises economists can
see how fast prices I general are going up.

What is happening to the GDP of a country if the economy is

stagnating?
That would mean that the GDP would not be growing.
21.
Define:
Mixed Economy
This economy incorporates both free market
principles and command economic principles. It has
some government involvement through mandatory
laws and regulations that business follow. The
government provided social programs for those who
need help. The US is considered a mixed economy
because the government gets involved. There are

Labor laws, Minimum Wage Laws, Social Programs,

and School Systems.
Free Market
It is an economy that is going to have very little
government involvement. While the government is
not involved in making economic decisions,
capitalistic governments put lars in place to protect
the rights of producers and consumers.
Command Economy
The people who is in control of this economy is the
government. The government/ government planners
control all aspects of the economy. Two countries
would be North Korea & Cuba.

22.
Define E-commerce
The internet is an influential technology that has
improved communication, learning, and commerce.
The internet is also a marketplace where an entirely
new type of economic activity takes place. Using the
internet to buy and sell has advantages for both
consumers and producers.

23.
Explain how technology affects economics.
The advancement of technology leads to improved
results, including greater speed, higher production,
and increased efficiency. Changes in technology affect
the overall economy.

24.
How does increased productivity lead to lower prices for
consumers?
Producers are always looking for technologies that will
improve productivity. Increased productivity leads to
increased profits. It allows things to be made simpler or
standardized.
25.
How can technological advancements create a ripple
effect?
When cars were first being made, the prices were a lot
cheaper and more people were buying them. So that
meant that the government needed to build roads and it
resulted in people traveling more and going on vacations.

26.

How do consumers benefit from e-commerce?

It makes things easier to buy and receive the

products online rather than to go to a store. Free
shipping and comparing prices are much easier.