1. Capitalism & Free Enterprise
Unit 1 Review
Basic Terms
Economic Systems
Capitalism & Free Enterprise
Economic Goals
Government Roles
Business Forms

2. The universal condition affecting all societies and economies requiring decisions and trade offs about production:
Scarcity

3. A good used by consumers as an end product
Final good

4. A good used to produce a final good
Capital good
Physical capital

5. What are the 4 factors of production?
Land
Capital
Labor
Entrepreneur

6. What are the 3 types of capital?
Physical
Financial
Human

7. Which would NOT be considered “land”? (write the number only)
A river that is dammed for energy production
Wind used to power a windmill to grind wheat into flour
Concrete used to lay the foundation for a manufacturing plant
An iron ore deposit mined and used to create steal beams for the new World Trade Center #3

8. Nothing of value is free:
TINSTAAFL

9. What term suggests that making something free only shifts the burden of the cost to other shoulders?
TINSTAAFL

10. What says that all resources are limited, but have relatively unlimited wants and needs fro them?
Scarcity

11. What is the worth of a product as measured by its price?
Value

12. What are the 4 ways to increase productivity?
Division of labor
Specialization
Invest in workers’ human capital (training)
Invest in technology

13. Where are the factors of production purchased?
Factor market

14. A way of improving productivity by organizing labor so that each worker has fewer tasks than before:
Division of labor

15. A specific representation of a need is called:
A want

16. Which is NOT a need?
House
Food
Clothing
Health #1

17. Other uses of a resource are sacrificed when one use is decided on
Other uses of a resource are sacrificed when one use is decided on. These are called:
Trade-offs

18. The capacity of a product to provide its purchaser or user with usefulness and/or satisfaction:
Utility

19. What does a production possibilities frontier demonstrate?
The opportunity cost of increasing production of one product (or area of production) at the loss of another product

20. Due to this, decisions about what to produce, how to produce it, and how to allocate the resources used to produce it must be made:
Scarcity

21. Which is LEAST likely a capital (physical) good?
An extension ladder
A taxi cab
An industrial oven
A factory
An intercom system
A CD player #6

22. When labor is arranged to improve productivity by assigning those better at a task the responsibility of performing that task:
Specialization

23. Where are productive resources (such as labor) bought and sold?
Factor market

24. The term that describes the benefit received from the use of a product:
Utility

25. The cost of the next best alternative use of a resource is called:
Opportunity cost

26. What term best describes the federal government decision to cut military spending under President Clinton to increase federal funding of various social programs?
Opportunity cost
Trade-off

27. What best describes Henry Ford’s use of the assembly line to increase productivity?
Division of labor

29. Which basic economic system is LEAST able to adapt, change, and improve standards of living for its people?
Traditional

30. Which econ system deals with scarcity by relying on central planning by government agencies?
Command

31. Which system provides the most ineffective incentives to work hard, save and invest?
Command

32. Which system provides least for its unproductive members?
Market

33. Which system satisfies consumers most?
Market

34. Which system requires the largest bureaucracy?
Command

35. Which is an example of a market system?
N. Korea
Australia’s aborigines
China
England #4

36. Which BEST describes the U.S.?
Pure market economy
Command economy
Mixed traditional economy
Mixed market economy
Centrally planned economy #4

37. The private ownership of the factors of production:
Capitalism

38. What characteristic of a free enterprise system acts as collateral for entrepreneurs to access financial capital to start businesses?
Private property rights

39. Which free market characteristic acts as the motor to the economy and as an incentive for workers to work hard, save, and invest in hopes of improving their economic conditions?
Profit motive

40. What 4 benefits to consumers does competition tend to produce?
Lower prices
Better products
Greater variety of goods and services
Improved use of resources to cut costs

41. What is the condition of a free market that suggests that all transactions benefit both seller and buyer?
Voluntary exchange

42. When productive resources are privately owned and operated:
Capitalism

43. What characteristic of a free enterprise system allows for experimentation and innovation within the market?
Economic freedom

44. At about what percent of unemployment do economists consider an economy to be functioning at full employment? 5%

45. Which economic goal do most Americans share that provides the elderly with Social Security and the poor with a variety of welfare services?
Economic security

46. What is a general rise in prices throughout the economy?
Inflation

47. Who does inflation hurt most?
Those on fixed incomes

48. “Equal pay for an equal day’s work” is best reflected in which economic goal?
Economic equity

49. What is the necessary result of not being able to have absolute economic freedom and, at the same time, absolute economic equity or security?
Trade-offs among competing goals

50. What role is the government playing when it passes public disclosure laws requiring companies to post nutrition information?
Providing a legal/social framework

51. What role is being played when the government passes and enforces anti-trust laws?
Enforcing competition

52. When California decides to spend more on education and law enforcement, state government is engaged in:
Providing public goods and services

53. When the government requires a company to reduce the amount of fluorocarbons it emits into the atmosphere, it is engaged in:
Correcting for negative externalities

54. When the government employs fiscal policy tools to fight inflation, what role is it playing?
Stabilizing the economy

55. What role is the government playing when it prosecutes violators of patents and copy rights?
Protecting private property

56. What business form is the most numerous in the U.S.?
Proprietorship

57. What business form has the disadvantage of double taxation?
Corporation

58. What form accounts for 90% of all sales in the U.S.?
Corporation

59. What form has the greatest amount of control by owners?
Proprietorship

60. What business form is Disney and Target?
Corporation

61. What is it called when the personal assets of the owners of a company cannot be used to satisfy the debts of a corporation?
Limited liability