240Tutoring Economics Study Material

Transcription

1 240Tutoring Economics Study Material This information is a sample of the instructional content and practice questions found on the 240Tutoring GACE Middle School Social Science Study Guide. This information is meant to help prepare individuals for the GACE Middle School Social Science exam, as well as provide a preview for the quality of resources provided by 240Tutoring. For more preparation material, please visit the study guide enrollment page. All materials and content contained on and any files published thereon are the intellectual property of 240Tutoring, Inc and may not be copied, reproduced, distributed, or displayed without the written permission of 240Tutoring, Inc. All content contained in this document is the intellectual property of 240Tutoring, Inc and may not be copied, reproduced, distributed, or displayed without the written permission of 240Tutoring, Inc.

2 Economics Opportunity Cost and Scarcity Scarcity- This term refers to the fundamental issue that humans do not have all the resources necessary to fulfill every human need and desire. Humans operate in a world where time, money, and natural resources are limited. Not every human goal can be fulfilled or pursued, so in life humans must make trade-offs and decisions as to best allocate their resources. Every resource is not unlimited. For example, drinking water is a precious resource in the desert; fresh air was considered valuable in Los Angeles during the early 90s where it had an abundance of polluted air. Opportunity cost- Because of scarcity, all decisions have a cost associated with them. The cost is known as the opportunity cost. Opportunity cost refers to the cost of the next best-forgone opportunity. The cost is not every opportunity that is not exercised, but the next-best opportunity. For example: John has an invitation from friends to go a movie, a concert, or a play on Friday night, in each instance his friends will pay for John. John does not like theatre plays, but loves concerts and movies. He decides to go to the concert on Friday night and not the movie. The cost, although not monetary, was the enjoyment of the movie. Because the next-best opportunity to John was the movie, the cost of the concert is the movie. Another example: Bob is home alone of Tuesday night. He wants to watch a television program or play a computer game. He decides to play a computer gamewith a cost of not watching the television program. Opportunity cost is the idea that every decision has a cost, whether there is a monetary value attached or not. Origins of Economic Systems Mercantilism- The system of economic thought from the 16 th to the 18 th centurie. Mercantilism holds that the more gold a nation has, the better and stronger their economy and global power. Under Mercantilism the measuring stick of success if how much gold is imported into a country from outside the country. This economic idea led to countries pursuing colonies- as England did with the Americas, India, and South Africa. The structure of the national economy focused on enriching the parent country- even at the expense of the colonies. Colonies were not encouraged to trade with other countries, but rather trade with the parent country so they may sell goods for gold. This idea focused heavily on exporting more than importing.

3 Capitalism- an economic system where the means of production are privately owned and operated to make a profit. Capitalism is a market compromised of rational; in it free individuals use their resources to dictate price, demand, quality and quantity through the purchasing of products. Profits of business are given to management who invest in other business and pay workers a wage for the work and workers are free to move from one job to the next. Capitalism is the basic idea that in a free environment, individuals will make rational decisions to maximize their benefit in life. The underlying principle is that free interaction between individuals pursuing their own interest results in the betterment of everybody. For a person to make money, they must be useful to another. This usefulness benefits society as a whole. Activities or ideas that are not useful in ratio to their cost are not rewarded with profit and are discarded. Adam Smith- Author of An Inquiry Into the Nature and Causes of the Wealth of Nations, considered the father of modern economics. Smith said the economic system of Mercantilism was not in the best interest of maximizing the situation of the individual or country. Smith noticed that when individuals seek their own interest, an invisible hand leads them to benefit society, much more so than they ever imagined. The idea of the invisible hand is the idea that the economy is not led by an entity, bur rather the collusion of individuals acting in their own self interest, revolutionized economic thinking. Communism- The movement to eliminate classes where society is the owner of the means of production; communism eliminates the need for wages and private property. Since all things are owned by everyone, everything is shared. Communism has been implemented by various regimes since The most notable is in Russia in the Russian Revolution in The leader of the revolution was Vladimir Lenin. Lenin s followers were known as Leninist. Lenin s successor was Joseph Stalin, one of the most infamous dictators in human history. In implementation, communism has resulted in the rise of one individual party in a society. This individual party, typically, does not allow for dissenting voices to be heard and quickly eliminates free speech. The party in power oppresses the working poor, making use of society s resources to create luxury environments for governmental officials. The general populace typically lives in poverty with little individual liberty or freedom. The notion of a communist community originated with Karl Marx and his publication of the Communist Manifesto. Socialism- A hard term to identify, socialism typically refers to a significant amount of common ownership of national resources where a directing body, typically the government, plans the allocation of resources to optimal levels to meet the demands of society. Socialism would fall between capitalism and communism because there is a defined ownership in socialism as well as the existence of markets to decide, or measure, an allocation of goods. There are different forms of socialism, which leads to confusion in definitions.

4 Generally, Socialist leaning governments are characterized by high taxes, to redistribute wealth from the rich to the poor and complex tax systems to create financial incentives. The government provides many basic necessities of life and heavy regulation is placed upon the economy. The goal in Socialism is to eliminate social classes and poverty. John Maynard Keynes- A British economist in the early 1900s. Keynes advocated that free market can lead to economic inefficiencies and governmental intervention can lead to a stable, productive economy. He promoted a mixed economy of free markets and governmental intervention. Keynes solution to the hard economic times, as seen during the Great Depression, was for government to stimulate the economy by reducing interest rates and investing in infrastructures. He felt the government could borrow large sums and allocate the resources to the best channels to bring about economic productivity. A notable tension is Keynesian economics was the short run and long run. Keynes felt in the short run, government could borrow to stimulate the economy, but could not do so for the long run as debts have to be paid. When asked on how long the long run was, he replied, in the long run we are all dead. This thought implies that the short run could extend for many years and government intervention would last as long as necessary to stabilize and stimulate the economy. Market Structure Pure Competition (Perfect Competition)- A market where products are almost exactly the same and there are infinite competitors. Each market consist of so many firms creating the same profit that no profit is made and consumers typically go with the cheapest product. Monopolistic Competition- A market where many firms are present and the distinction of products results in increased prices and drives innovation. This can be seen in the markets of video gameseach video game is distinct, but can be used as a substitute for another. A firm, in the short run, can charge large prices for games that offer a great distinction until a competitor enters. In monopolistic competition barriers to entry are few and market advantages are short lived. Oligopoly- a market where only a few sellers are present. This can be observed with the mail market (where the general sellers are the United States Post Office, Federal Express, and United Postal Service) or with the Oil Industry (where there are few refiners for such a large market). Oligopolies still compete with each other, but due to the few service providers, each provider is aware of the other s action.

5 Monopoly- A market where one firm controls the price, production, and supply of a good. The monopoly firm sets the price and demand is very inelastic. There is no competition and consumers are at the mercy of the manufacturer. There is a great deal of inefficiency in a monopolistic market because there is not competition driving innovation. Although a true monopolistic market does not exist- the USPS had a monopoly on the postal service. It is illegal to mail a letter with anybody but the USPS and until the invention of , businesses and citizens of the U.S. were forced to use USPS. Trade Absolute advantage- the ability by an entity to produce more of a good or service than another entity using the same amount of resources. If person A can produce 10 widgets with 10 tools and person B can produce only 5 widgets with 10 tools, person A has the absolute advantage of making widgets. Comparative advantage- The ability of an entity to produce a good or service at a lower opportunity cost than another entity. An example: Company A and Company B each have 10 acres of land. Company A can produce 10 tons of wheat or 5 tons of cotton on their ten acres. Company B can produce 10 tons of cotton or 5 tons of wheat on their land. Because the opportunity cost to produce cotton for Company A is 10 tons of wheat which is less than Company B, Company A has a comparative advantage in producing wheat; in the production of cotton, Company B has a comparative advantage because their opportunity cost (how much wheat they could produce) is less than Company A. The idea of comparative advantage is that different people can do things better than other people. Typically, entities should perform whatever they have a comparative advantage in because this is the most economically productive activity. World currencies- There are many currencies in the world; this is important to international trade. Because currencies are not all valued the same, a change in the value of currency can significantly affect international trade. World currencies increase or decrease for many reasons. One currency can increase or decrease while no other currency increases or decreases. Free trade- The ability for one country to trade with another without the hindrance of regulation such as a tariff (a tax on an import or export) or a trade cap (a limit to the amount a good can be imported or exported). Trade Barrier- Any obstacle in a trade, whether it be a tariff, trade cap, or the subsidization of an industry by a government.

6 Tariffs- A tax on an import or export. Retaliatory Tariff- One country taxing a popular import from another country that placed a tariff on the first country s export. Ex: In June 1930 the U.S. passed the Smoot Hawley Tariff Act. This Act placed a Tariff on over 20,000 goods coming into the country from other countries. Because the other countries were hurt by the new tariffs- there good was more expensive to American consumers, thus less purchased by American consumers- they placed tariffs on American goods to punish America for creating the original tariff. This caused both countries to lose, because consumers could not purchase the goods they wanted and as the exporting companies lost business they lost profits and had to lay-off workers. Retaliatory Tariffs are lose-lose situations and are passed in the idea that the offending country will repeal the original tariff, which led to the retaliatory tariff. Free Enterprise System Look at colonial economics- the official economic policies of the colonies followed Mercantilism. The colonies purpose was to provide economic goods to the mother country. The American colonies, however, constantly evaded tariffs and smuggled whatever economic goods they could in and out of the colonies. There was a constant struggle between Britain and the colonist on the rate and collection of tariffs. Voluntary exchange Meaning- When two or more parties voluntarily exchange one good or another. This is contrasted with involuntary exchange, where trade is forced (or incentives altered) with government taxes, subsidies, laws or regulations. Value of it- Voluntary exchange promotes economic efficiency by rewarding two or more parties who used their resources to obtain something they valued more. Private Property- When one person owns and is responsible for the upkeep of land or capital. Purpose- Private property encourages individuals to use their resources for the owner s greatest benefit. This allows owners to sell, renovate, transfer, or use their property in any way they see fit. Generally, owners will use their resources in the most economically efficient means. Value- Private property gives the incentive for owners, and aspiring owners, to use their resources the best they see fit. Bad or inefficient owners typically cannot afford to maintain their property- thus transferring economic resources to the most useful owner.

7 Example of the benefits of private property: Four cattle ranchers each own 50 acres of land and share 100 acres of land. They can graze their cattle on any land, with the understanding they each are responsible for the upkeep of the common land. Farmer A decides he wants to use the common land to graze his cattle before using his own so he does not have to use his own resources to support the cattle. Farmers B observes Farmer A using the common land and decides he will use the common land as well, to save his private land. Farmer C and D observe and make the same decision as Farmer A and B. Soon, the common land is all grazed out and cannot be used by any farmer. Each farmer then is forced to use their private land, where they must be responsible to ensure the survival of their cattle. Each farmer realized they would maximize the common land for their own benefit- getting all the use before their neighbor ruined the land. The end result, the common land was ruined. Competition- the notion that firms will strive for a greater share of the market to sell or buy goods or services. Purpose/Value- When firms compete for market share, they must innovate and gain some comparative advantage in the market. They must attract customers through better quality, cheaper prices, better services, etc. When firms compete in this manner is allows the best firms to continue in business by rewarding them with profits and gives feedback to inefficient firms through losses. The consumer wins when companies compete because they receive a better product, typically at a cheaper price. Barrier to entry- A barrier to entry is when entry into a market is hindered by an obstacle, whether by government regulation, higher start-up cost, or some other circumstance. Barriers to entry reduce competition because it hinders new companies from entering the market and driving competition. Economic Growth Industrial Revolution- This refers to the unprecedented increase in economic productivity during the 1800s. The Industrial Revolution is directly responsible for the rise of the standard of living in developed nations, the rise of city populations, and increase in governmental activity in individual lives (through government programs to serve citizens needs in the cities: sanitation, street lights, police, fire department, etc). Sherman Antitrust Act- Allows the government to investigate, regulate, and control large companies for the purpose of preventing circumstances that restrict competition in the United States. Smoot-Hawley Tariff Act- The largest tariff act ever in the U.S. In a single Act, 20,000 new tariffs were placed on imports. This caused retaliatory tariffs by Canada and almost every European country, causing a significant rise in unemployment and a depression of stock prices. Many historians consider this as very influential in the Great Depression.

8 WWI- With the Industrial Revolution and the assembly line firmly entrenched in the American economy, World War I allowed the U.S. to maximize their economic capacity. Factories were built to fulfill government contracts and after the war, they were altered to suite production for civilian uses. WWI allowed America to lay an industrial foundation for the future. Supply and Demand Supply and Demand is one of the most basic economic concepts. The law of Supply and Demand states that- when all things are held constant- as a good increases in price more suppliers will supply the good and less consumers will demand the good; when a good decreases in price, less suppliers will supply the good and more consumers will demand the good. The law of Supply and Demand can be expressed in a graph. The law of demand states that as the price of a good increases the less quantity will be demanded for the good. The reason is as it becomes more expensive to purchase a good the opportunity cost increases as well. For example, if bread increases from $1 a loaf to $10 a loaf then a person that buys a loaf of bread will have to not purchase $9 of other goods.

9 Price-(P) P1 P2 P3 Demand (D) Q1 Q2 Q3 Quantity-(Q) The graph above represents a demand line. At price P1 the quantity demanded is low. As the price decreases to P3, the quantity demanded will increase to Q3. If the price of a new Ferrari were to decrease from $300,000 to $3,000- and all other factors remained constant- then many more people would purchase a Ferrari.

10 Price-(P) P3 P2 P1 Q1 Q2 Q3 Quantity-(Q) The graph above represents a supply line. As the price of a good increases, the more of the good will be supplied. The reason is as the price increases suppliers will be able to sell more units at a higher price, thus increasing their revenue. If gum increases from $1 a piece to $10 a piece- and all other factors held constant- then more suppliers would supple gum.

11 Increase in Demand Price-(P) Supply 2 P2 P1 Demand 1 Demand 2 Q1 Q2 Quantity-(Q) The graph above represents a change in demand for a good. In this scenario, assume that a recent scientific study showed that chewing more gum can increase a person s intelligence. More people are going to demand gum, but the cost of supplying gum has not changed. As the demand increases- Demand 1 to Demand 2- the Price will increase from P1 to P2 and the Quantity supplied will increase from Q1 to Q2. In another scenario, assume that a recent scientific study showed that chewing gum decreased a person s intelligence. The demand for gum would decrease from Demand 2 to Demand 1 and the Quantity demanded would shift from Q2 to Q1 and the Price would decrease from P2 to P1.

12 Equilibrium Price-(P) P1 Supply 2 P2 Demand 2 Demand 1 Q2 Q3 Q1 Quantity-(Q) Market can experience disequilibrium in the amount of a good that is demanded verse the amount of the good that is supplied. The above graph represents a market that is out of equilibrium at the Price, P1. In the example, the price results in two different quantities- Q2 represents the Quantity demanded and Q1 represented the Quantity supplied. At the high price there is too much quantity being supplied and too little demand to justify the quantity being supplied; this phenomenon is known as market disequilibrium because their is an uneven balance between the amount of good being supplied and the amount of a good demanded. Suppliers must reduce their price to increase demand. After the price drop from P1 to P2, the quantity supplied will reduce to Q3 and the quantity demanded will result in Q3. NOTE: The scenarios do not address the time frame in which this resolution takes place. In reality, the suppliers would have an access inventory for a period of time until the equilibrium- where price and quantity meet for both consumers and suppliers. The explanations above about the Law of Supply and Demand are intended to provide the reader a functioning, basic knowledge of how supply and demand works together in a market environment. Economists and businesses spend years and many resources attempting to fully explain economic activity in a marketplace. The above discussion is meant to educate the reader on the basic concepts of the Law of Supply and Demand.

13 PRACTICE QUESTIONS The following are 240Tutoring GACE Middle School Social Science practice questions. These and many others can be found in our GACE Middle School Social Science Study Guide. Please find the answers and explanations after the practice questions. 1. In the first half of the 20 th century, he advocated an economic belief that large government spending can stimulate an economy during periods of decline. a. John Maynard Keynes b. Friedrich Hayek c. Adam Smith d. Milton Friedman 2. In economics, an opportunity cost refers to the cost of: a. monetary loss resulting from an action b. Utility lost by not pursuing another option c. next-best forgone activity d. The sum of all forgone opportunities 3. During the economic dominance of Mercantilism, he put forth an economic idea that an Invisible Hand directs the economy towards efficiency. a. Keynes b. Adam Smith c. Marx d. Friedman 4. Which of the following economic idea that believes a countries wealth can be measured by its amount of gold reserves? a. Communism b. Capitalism c. Feudalism d. Mercantilism 5. Mr. Scotts breaks up a dispute among two second grade students. In discussing the situation with the students, Mr. Scotts realized they were arguing over the use of class resources. This situation could best be used to teach which of the following economic principles? a. Scarcity b. Opportunity Costs c. Mercantilism d. Free Trade

14 6. A market where a few firms compete against each other is known as: a. A monopoly b. An oligopoly c. Monopolistic competition d. Perfect Competition 7. Mr. Smith begins a project among his fourth grade class. He gives the class $20 to purchase pencils and has his students sell the them to students that have forgotten pencils at home. Which of the following economic principles can Mr. Smith s students learn from this project? a. Opportunity cost b. Supply and demand c. Comparative advantage d. Impact of imports and tariffs 8. Timmy and John are two second grade students working together on a group project. The project requires one student to cut out magazine pictures of forest while the other student organizes them in a book. Timmy and John decide that since Timmy can cut faster than John, and John is better at organizing than Timmy, then Timmy will cut the pictures and John will organize the pictures. Which of the following economic principles can be observed during this scenario? a. Scarcity b. Opportunity Cost c. Monopolistic Competition d. Comparative Advantage

15 Answer and Explanations 1. Correct Answer (A): (A) John Maynard Keynes ( ) was a British economist in the first half of the 20 th century. He is considered one of the founding fathers of macroeconomics. The driving idea behind many of his theories is that government policies can provide economic stability. His theories gained wide recognition after World War II. (B) Friedrich Hayek ( ) was an Austria-Hungry economist that defended and elaborated upon the ideas of free-market capitalism- free-market capitalism is a system where the only intervention by government is to ensure property rights and enforce contracts. The driving force behind his theories was a free-market communicates the best use of resources through prices and profits. (C) Adam Smith ( ) was a Scottish social and political philosopher. His work Inquiry into the Nature and Causes of the Wealth of Nations is considered the most influential work on economics ever written; because of his efforts he is known as the father of modern economics. (D) Milton Friedman ( ) is an American economist and the most influential economist of the second half of the 20 th century. He offered alternatives to Keynesian economics and gained notable popularity in the 1970s and 1980s. He had considerable influence in American economics and was the economics advisor to Ronald Reagan. 2. C- Correct Answer C: Opportunity costs is the concept that the cost of an activity is not the monetary loss a person receives, but rather what could their time and efforts have otherwise been dedicated to. If a person is deciding between becoming a teacher, a lawyer, or something else the cost of becoming a teacher is not becoming a lawyer (as that is the next alternative). 3. B- Correct Answer B: (B) Mercantilism- or the idea of a nation s wealth and prosperity can be measured by how much gold is has- was a prevalent thought in the 17 th and 18 th century until Adam Smith published Inquiry into the Nature and Causes of the Wealth of Nations. The most famous example from Smith s work is that an Invisible Hand directs resources in an economy through price and profits. The Invisible Hand refers to the non-directed distribution of resources (i.e. nobody tells a farmer how much wheat to grow or sell, nobody tells a baker how much flour to buy or bread to bake, yet both produce and sell enough to food a nation without many leftovers). (A) John Maynard Keynes ( ) was a British economist in the first half of the 20 th century. He is considered one of the founding fathers of macroeconomics. The driving idea behind many of his theories is that government policies can provide economic stability. His theories gained wide recognition after World War II. (C) Karl Marx was a German social philosopher, historian, economist, and sociologist. His ideas collectively are known as Marxism and his writings greatly influenced the

16 Communist inspired revolutions and communist governments of the 20 th century. His famous adage from each according to his ability, to each according to his need is often quoted to summarize Communist ideals. (D) Milton Friedman ( ) is an American economist and the most influential economist of the second half of the 20 th century. He offered alternatives to Keynesian economics and gained notable popularity in the 1970s and 1980s. He had considerable influence in American economics and was the economics advisor to Ronald Reagan. 4. D- Correct Answer D: (A) Communism is a political ideology that promotes the creation of a classless society where the state owns the means of production and equally divides economic resources among the population. Since the state owns of the means of production, it is considered that all citizens of the state are equal owners of the means of production and have an equal right to economic resources. Communism holds the belief that a person should produce according to their individual ability and receive according to their individual need. Communism does not need a currency, hence they do not measure their wealth by gold reserves. (B) Although there are many definitions of capitalism, all capitalist economies share similar characteristics: private citizens own the means of production, economic resources are created and sold with a goal of profit or income, voluntary exchange of labor, competition in a marketplace. Capitalism does not measure wealth by gold reserves. (C) Feudalism was an economic system prevalent in Europe during the Middle Ages. A feudalism society consisted of land owners leasing their land to tenants in exchange for a portion of the tenants crop. Typically the portion demanded by a feudal landowner was high and the workers had very few alternative options for work. (D) Mercantilism is the economic idea that a nation s wealth and prosperity can be measured by how much gold is has. This led nations throughout Europe to pursue the accumulation of gold through increasing exports and decreasing imports (exports brings gold into a country as other countries pay for a good; the opposite is true of imports). This was the prevalent economic theory until Adam Smith s Inquiry into the Nature and Causes of the Wealth of Nations. 5. A- Correct Answer A: (A) Scarcity refers to the limitation of resources in a given scenario. Scarcity is a fundamental economic problem that humans have needs and desires, but live in a world of limited resources. On a daily basis humans must choose how best to spend their time to accomplish their priorities; humans cannot pursue all their desires and needs due to the limitation of time and resources. Scarcity leads to the idea of opportunity costs. A person must decide to pursue opportunity A or opportunity B and the cost of pursuing opportunity A is that opportunity B cannot be pursued (and vice-versa). (B) Opportunity costs is the concept that the cost of an activity is not the monetary loss a person receives, but

17 rather what could their time and efforts have otherwise been dedicated to. If a person is deciding between becoming a teacher, a lawyer, or something else the cost of becoming a teacher is not becoming a lawyer (as that is the next alternative). (C) Mercantilism is the economic idea that a nation s wealth and prosperity can be measured by how much gold is has. This led nations throughout Europe to pursue the accumulation of gold through increasing exports and decreasing imports (exports brings gold into a country as other countries pay for a good; the opposite is true of imports). This was the prevalent economic theory until Adam Smith s Inquiry into the Nature and Causes of the Wealth of Nations. (D) Free trade is an economic policy that does not discriminate between a countries imports and exports and allows citizens and businesses to make a choice. Governments can discriminate what a country imports and exports by placing an embargo on a certain good (the U.S. has a trade embargo on Cuban cigars) or by placing a tariff, or tax, on the imports or exports of a good. 6. B- Correct Answer B: (B) Oligopoly is a market where only a few firms supply a good or resource. A few examples would be Anheuser-Busch and MillerCoors produces 80% of the beer sold in America; AT&T, Verizon, T-Mobile, and Spring control roughly 89% of the cellular telephone service in the U.S. (A) A monopoly is where a firm has no competition in supplying a good or resource. Public utilities are typically monopolies as cities only allow only supplier to provide the utility. (C) Monopolistic Competition refers to a market with imperfect competition where similar products are slightly differentiated (via features, branding, quality, etc). In the short run firms can act like a monopoly, in the long run other firms enter the market. An example would be the tablet market. Apple introduced the ipad and faced little competition for six months while other companies raced to emulate the design. (D) Perfect competition where there is perfect competition among suppliers in a market; there are few perfect competitive markets. General characteristics of perfect competition include: many buyers and sellers, zero barriers to entry, perfect information among all buyers and sellers, homogenous products. 7. B- Correct Answer B: (B) Mr. Smith is introducing his students to the concept of Supply and Demand because his students would supply pencils to students that forgot them at home and needed them, or had a demand for the pencils. (A) Opportunity costs refers to the cost of the next-best forgone opportunity. The students are not experiencing an alternative, thus are not experiencing a realized cost. (C) Comparative advantage refers to the idea that a specific person, people, or geographic area had an advantage in the production process of a good. For example, the southern colonies were better suited at cotton and tobacco production than the northern colonies; the southern colonies had an economic advantage in the

18 production of cotton and tobacco. (D) There is no discussion of an import or tariff in the question prompt. 8. D- Correct Answer D: (D) Comparative advantage refers to the idea that a specific person, people, or geographic area had an advantage in the production process of a good. For example, the southern colonies were better suited at cotton and tobacco production than the northern colonies; the southern colonies had an economic advantage in the production of cotton and tobacco. (A) Scarcity refers to the limitation of resources in a given scenario. Scarcity is a fundamental economic problem that humans have needs and desires, but live in a world of limited resources. On a daily basis humans must choose how best to spend their time to accomplish their priorities; humans cannot pursue all their desires and needs due to the limitation of time and resources. Scarcity leads to the idea of opportunity costs. A person must decide to pursue opportunity A or opportunity B and the cost of pursuing opportunity A is that opportunity B cannot be pursued (and vice-versa). (B) Opportunity costs is the concept that the cost of an activity is not the monetary loss a person receives, but rather what could their time and efforts have otherwise been dedicated to. If a person is deciding between becoming a teacher, a lawyer, or something else the cost of becoming a teacher is not becoming a lawyer (as that is the next alternative). (C) Monopolistic Competition refers to a market with imperfect competition where similar products are slightly differentiated (via features, branding, quality, etc). In the short run firms can act like a monopoly, in the long run other firms enter the market. An example would be the tablet market. Apple introduced the ipad and faced little competition for six months while other companies raced to emulate the design.