Final Exam Study GuideChapters 1 (all), 2 (Sections 2.1 & 2.3, stopping at “Governments”) & 3 (Sections 3.1, 3.2, & 3.3):Know and understand the definition of economics. What is the difference between productive and allocative efficiency?Economics- the study of how any society best allocates its scarce economic resources among many competing uses. Macro-study of the aggregate (total) effects on the national economy and global economy based on the choices of individuals, businesses, and governments.  Micro- study of choices that individuals and businesses make and the way these choices interact and are influenced by government Productive efficiency Full utilization of economic resourcesTo test for it: if a state is using it to the fullest potential, it cannot get anymore goods or services without sacrificing anotherAllocative efficiency Implies optimality, based on societies wants and needsIf you aren’t providing what society wants/needs, why does it matter that you are providing it? What are the four categories of economic resources?Factors of ProductionScarcity- wants exceed the ability of resources to satisfy Land Includes all natural resources Labor Includes human capitalEntrepreneurship A skill set, big ideas/creativity, the human resource that organizes labor, land, and capitalCapital Does NOT refer to moneyIt is all aspects of production(Machines, tools, instruments, buildings and other items that have been produced in the past and are now used to produce goods and services) Why do we use models in the study of economics?To give a description of the economy or a part of the economy that includes only those features assumed necessary to explain the observed facts. Economics uses mathematical and graph-based models. Ex. Demand and supply model What is the difference between positive and normative analysis?Positive analysis Analysis of what isNormative analysis Opinion, analysis of what it should be  What is an opportunity cost?Opportunity cost- Forgone benefits of the next best alternative -If you did not come to class, what would be your next best alternative?  What does the production possibilities curve represent? What does it mean for a production combination to be inside the curve, on the curve, outside the curve? How does the curve shift? Why does it have the shape that is has?PPF (production possibilities frontier)- the combinations of goods and services that can be produced and the combinations that cannot be produced, given the available factors of production and the state of technology If production combination is inside the curve, they are not utilizing all their resources making it an inefficient production If production combination is on the curve, they are utilizing all their resources making it an efficient production If production combination is outside the curve, it is unattainable o Scarcity  boundaryo Opportunity cost/trade off PPF down slopingo Specialization of economic resources  PPF is concavePure Capitalism and Pure Command Socialism readings: Compare and contrast the characteristics, strengths, and weaknesses of pure command socialism and pure capitalism.Strengths of Pure CapitalismWeaknesses of Pure CapitalismStrengths of Pure Command SocialismWeaknesses of Pure Command Socialism Economic Efficiency: Inflation Equal distribution of wealth and Goods. No Little to no incentive to create quality goods or Econ 2000 1st EditionProducing the products that consumers want andin the least costly wayone is left behind while others exceed wealth standardscreate new servicesEconomic Freedom:People are free to choose based on self interestEveryone is not equal: LARGE WEALTH GAPOnly products needed are produced, saving resourcesNo freedom of choice andlittle varietyPolitical freedom: Separations of Government with EconomicsMonopolies can begin to block market (not in a traditional Ideal Pure Capitalism)Provides a minimum standard of livingConsumer demands are not met, only their basic needs areCompetition leads to Quality productsMoney can buy political power and freedomPromotion of social interest over self interestNo specialization and division of laborPursuit of Self Interest over Social InterestLack of efficiencyPromotes going bigger and better which may inflict with scarcity and lead to environmental harmSubsidies on goods and services quickly lead to shortages.  What are the three economic philosophies and how do these fit in with the U.S.’s mixed economy?Conservative, liberal, socialist; The US is mixed with all 3 of theseChapter 4 (all): Define demand, quantity demanded, supply, and quantity supplied. Recognize the difference between a change in demand (supply) and a change in quantity demanded (quantity supplied).Demand- ranges of prices (entire graph)Quantity Demanded- what consumers are willing to buy at a specific price (single row, single point)Change in demand The entire curve shiftsChange in quantity demanded Movement along the existing lineRead examples on eachSupply- The amount of a good or service that firms is both willing and able to offer for sale at every possible pointQuantity supply- the amount of a good or service that firms is both willing and able to offer for a sale at a specific priceChange in demand The entire curve shiftsChange in quantity supplied Movement along existing curve Why is demand downward-sloping? Why is supply upward-sloping?o The downward slope of the demand curve illustrates the law of demand Law of Demand - other things remaining the same, if the price of a good rises, the quantity demanded of that good decreases; and if the price of a good falls, the quantity demanded of that good increases Example- If the price of iPhones falls, more people will be willing to buy iPhoneso The upward slope of the supply curve illustrates law of supply Law of supply- other things remaining the same, if the price of a good rises, the quantity supplied of that good increases; and if the price of a good falls, the quantity supplied of that good decreases Example: if the price of bottled water rises, spring water owners will offer more to sell Know the determinants of demand and determinants of supply.Change in demand1. Change in consumers taste/preference2. Change in income3. Change in the price of a related good/service4. Change in consumers future expectations5. Change in number of consumers6. Change in exchange rateChange in quantity demand 1.