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Midterm Review

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ECON MIDTERM #1

Chapter 1:
1. What goods and services should be produced? * “guns versus butter” decision: * Which of the following is the best example of "what goods and services should be produced?"
Selected Answer: the production of SUV’s versus the production of sub-compact cars * Which of the following is an example of how the question of "what goods and services to produce?" is answered by the command process? Selected Answer: government subsidies for windmill energy production

How goods and services should be produced? * Involves the allocation of a country’s resources in the production of a particular good or service. * Which of the following is the best example of "how goods and services should be produced?"
Selected Answer: the use of additional workers versus the use of machines in the production of goods.

2. Factors of production * factors of production, resources, or inputs are what is utilized in the production process in order to produce output—that is, finished goods. * Factors of production may also refer specifically to the primary factors, which are land, labor (the ability to work), and capital goods applied to production * Resources: Land, Labor, Capital, Entrepreneurship and management skills

3. Scarcity and opportunity cost * Scarcity is the condition in which resources are not available to satisfy all needs and wants of a specified group or people. * Opportunity cost is the amount (or subjective value) that must be scarified (given up) in choosing one activity over the next best activity. * Which of the following is the best example of opportunity cost?
Selected Answer: the amount of profit that a company forgoes when it decides to drop a particular product line in favor of another one

4. Difference between entrepreneurship and managerial skill *

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