ECON 1113 1st EditionExam # 1 Study Guide Lectures: 1 - 7Lecture 1 (January 12)Discussion of the Basic Economic Problem, Economic Resources, and Types of CostsWhat are the two economic facts? Economic resources are scarce (or limited). Desires for particular types of goods and services are effectively unlimited.What are the four economic resources and their characteristics? - Labor: human abilities to use and produce material goods and services- Capital: human-made aids to production, such as tools, machinery, factories, and transportation networks- Land: all natural resources useable in production; a function of technology- Entrepreneurship: human resources, which bring together economic resources, bear risk, gain motivation from self-interest as expressed by a desire to maximize profits, and display an idea about how to maximize profitWhat is the difference between capital goods and consumer goods? Capital goods are used to produce other goods, whereas consumer goods are consumed by themselves.How do unlimited material wants function against the scarcity of economic resources? The limited resources satisfy the unlimited wants as best as possible. However, people must make choices because resources are limited, thus they must unavoidably encourage cost of products and services based upon their choices.What are the two types of costs?- Explicit Costs: out-of-pocket money spent when an individual makes a choice; once spent, the money cannot be spent on anything else- Implicit Costs: alternative forgone, or sacrificed, abstract and material items that result after an individual makes a choice, but this choice does not require out-of-pocket paymentsLecture 2 (January 14)Discussion of Production Possibilities AnalysisWhat is a production possibilities analysis and the assumptions associated with it? A production possibilities analysis delineates how a society chooses to allocate its funds toward either consumer goods or capital goods. It functions under some basic assumptions, which are simplifying and general characteristics of economic principles. These ideas include that resources are fixed in quantity, technology does not advance, no unemployment or underemployment of resources exists, and there are two types of goods: consumer and capital.How is a production possibilities curve drawn and labeled? Production alternatives exist that can be plotted on a graph and ought to form a line that beginson the y-axis and slopes negatively toward the x-axis. The society represented economically by the graph can choose to function at any point on the visible curve or within its dimensions. Consumer goods are listed along one axis, and capital goods are listed on the other axis.What are ways of determining where on a production possibilities curve a society decides to establish production? In the United States, society practices dollar voting in a market economy. This means that how people spend their dollars simultaneously acts as a voting system for which products are in the greatest demand at the best prices. This makes some goods more profitable than others. In the former Soviet Union, a command economy determined through five-year plans by the national Politburo set the consumer and capital production of goods. The capital goods within the society at this time were not so much capital goods as they were military goods due to the regime’s agenda. Based on these principles, they always produced more “military” goods rather than consumer goods. Both systems demonstrate that people must choose and sacrifice for their decisions.What does a production possibilities curve illustrate? The production possibilities curve summarizes the basic economic problem based on one line that displays the potential possibilities offered by the four basic resources. It portrays the necessity of choices because society can only choose one point on the graph. It also conveys economic costs through the negative slope of the production possibilities curve: additional unitsof one good require that an increasing number of the other goods be foregone. This is because the line is straight and not curved. Scarcity creates a limit on the production possibilities curve.Points within the production possibilities curve show less than total utilization of resources. Points outside the production possibilities curve are unattainable due to scarcity of resources, but the current circumstances can change with growth and expand the line to points that now lie beyond it.How would relaxing the assumptions adjust the position of a production possibilities curve?Relaxing the assumptions generates a more realistic portrayal of economic situations. Positive unemployment and/or underemployment of resources can cause for points occurring within theproduction possibilities curve. Growth in economic resources and/or technological advance can shift the entire line outward from the origin.Lecture 3 (January 21)Further Discussion of Production Possibilities Analysis with Examples, Discussion of Flow of Income in the Economy, and Introduction of Price DeterminationHow do the production possibility curves of the United States and China compare?The initial curve of the two lines is essentially the same; however, China’s point of production lies among higher capital good productions, unlike the United States, whose point occurs higher on the consumer goods production. Each of the countries had to choose one point on the curve,and observers are assuming that each nation is near full employment. Generally, the more capital goods produced, the higher the rate of future economic growth. Thus, the Chinese economy will grow faster because of their relatively higher production of capital goods, overtaking the United States. The current depiction of the production possibilities curves would shift outward from their present location in a parallel manner, except China’s would shift furtherthan the United State’s would on the graph.What are the components and flow of income in the economy? Households, or basic consuming units, produce economic resources for firms, or basic producing units, which then produce consumer goods and services, or outputs. Alternately, households participate in consumer spending, through money payment for outputs, given to firms, which then encourage money flow through payments back to households. The resource market includes households supplying resources, firms demanded resources, and together yielding resource