‭ P Macroeconomics‬

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‭Test: What Is Economics?‬
‭Page 1 of 3‬
‭Full Name:‬
‭(print clearly)‬
‭_‭G ‬ iang Bui‬‭___________ User Name:_____‬‭Giang.Bui‬‭_______ Date:___‬‭Oct 16th,2023‬‭___‬
‭Directions‬
‭• Neatly write your responses in the spaces provided. Use a blue or black pen. Don't write‬
‭in the margins.‬
‭• Remember to complete the submission information on every page you turn in.‬

‭ ree-Response Questions‬
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‭1. Scarcity and Economic Systems‬

‭A. Define scarcity. (3 points)‬

‭Scarcity reflects the inherent limitation of resources relative to the unlimited human wants‬

‭ . What are the three questions that every society must face because scarcity‬
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‭exists? (3 points)‬
-‭ ‬ W ‭ hat goods and services to produce?‬
‭-‬ ‭How will those goods and services be produced?‬
‭-‬ ‭Who will get those goods and services?‬
‭ . Briefly describe the three main categories of economic systems that answer the‬
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‭three questions that arise from scarcity. (6 points)‬
‭1.‬ M
‭ arket economy: businesses and people decide what to make, how to make it, and‬
‭who will get it based on what customers want. The government doesn't control these‬
‭decisions much.‬
‭- What goods and services to produce?: determined by market‬
‭- How will those goods and services be produced?: determined by producers‬
‭- Who will get those goods and services?: whoever can pay for them‬

‭2.‬ C
‭ ommand Economy: in a command economy, the government decides what to make,‬
‭how to make it, and who gets it. People and businesses have less say in these‬
‭decisions.‬
‭- What goods and services to produce?: determined by government‬
‭- How will those goods and services be produced?: determined by government‬
‭- Who will get those goods and services?: determined by government‬

‭3.‬ T
‭ raditional economy: In a traditional economy, people make things and trade based on‬
‭customs and traditions that have been passed down for generations.‬
‭- What goods and services to produce?: determined by society's traditions and‬
‭values.‬
‭- How will those goods and services be produced?: varies‬
‭- Who will get those goods and services?: varies‬
‭D. What are the four goals of most economic systems? (4 points)‬
1‭ .‬ ‭ o use their resources the most efficient way. They want no waste‬
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‭2.‬ ‭To maintain a stable price level.‬
‭3.‬ ‭To have full employment.‬
‭4.‬ ‭To have economic growth‬

‭ ____________‬
_
‭AP Macroeconomics Page 2 of 3‬
‭Test: What Is Economics?‬
‭Full Name: ____‬‭Giang Bui‬‭___ User Name:__‬‭Giang.Bui‬‭_____ Date:_‬‭October 16th, 2023‬‭__‬
‭(print clearly)‬

‭E. Explain how economists define capital. What are two types of capital? (4 points)‬
‭ apital is all the equipment, machinery and human skills used to produce goods and services.‬
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‭Two types of capitals are: 1. physical capital: machinery, equipment, and buildings. 2. Human‬
‭capital: the knowledge and skills used to produce goods and services.‬
‭F. How is the price of a good or service determined in a market system? (2 points)‬
‭The price in a market economy depends on its scarcity.‬
‭G. What is a free good? Give an example of a free good. (2 points)‬
‭ ree goods are goods that have more than what humans want. It has zero price. An example‬
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‭is the air you breathe because it's everywhere, and you don't have to pay for it.‬

‭2. The Economy and the Government‬

‭A. What is a laissez-faire economic policy? (3 points)‬

‭ aissez-faire is a French term meaning “let them do”. This means the governments weren't‬
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‭involved in that economy.‬
‭ . Adam Smith, a prominent and influential early economist, advocated a laissez faire policy.‬
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‭He described a phenomenon of market economies, which he called‬
‭the "invisible hand." What is the invisible hand? (6 points)‬
‭ he invisible and by Adam Smith is an idea that there is a force that guides the people in the‬
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‭free market economy. When people are interested in something, this force guides the place‬
‭that produces this product to make more to satisfy their needs.‬

‭ ____________‬
_
‭AP Macroeconomics‬
‭Test: What Is Economics?‬
‭Page 3 of 3‬
‭Full Name: _____‬‭Giang Bui‬‭__ User Name:__‬‭Giang.Bui‬‭__‬‭Date:_Oct 16th,2023‬‭_________‬
‭(print clearly)‬
‭3. Price as a Rationing Tool‬

‭A. How does price ration scarce goods in a market economy? (4 points)‬
I‭ n a market economy, If the goods are more scarce, the higher the price is, and if the goods‬
‭are less scarce, the lower the price.‬
‭ . An increase in price provides information about the relative scarcity of a good.‬
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‭What does it say? (4 points)‬
I‭ t means that the good is in high demand relative to its availability, and there is not enough of‬
‭it to meet the desires of all potential buyers, and people are willing to pay more for it because‬
‭it's harder to get‬
‭ . An increase in price may be caused by either of two things. What are those two‬
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‭things? (4 points)‬
1‭ .‬ A‭ vailability: when there’s less product to buy, then the price goes up.‬
‭2.‬ ‭Value: when many people want the product, the price goes up.‬