FTC1 Study Guide Questions
The following questions are developed as a study aid for the FTC1 COS. They cover important concepts
in each competency. The questions are not comprehensive but are only designed to serve as an
indicator of your preparedness take the FTC1 assessment. After reading material for each competency,
use these questions to reinforce your understanding and review further as necessary.
COMPETENCY 3003.1.1 THE ECONOMIC WAY OF THINKING
chapter 1 (“Getting Started”)
chapter 2 (“The U.S. and Global Economies”)
chapter 3 (“The Economic Problem”)
● How does scarcity influence choices?
Unlimited wants but limited resources. Scarcity is a measure of supply. Not enough for
everyone.
● Contrast Normative and Positive analyses.
Positive economics is objective and fact based, while normative economics is subjective and
value based.
What are the four categories that factors of production are grouped into? What are the incomes
they are paid?
Natural resources, labor, capital, and entrepreneurship. Land-Rent, Labor-Wages, Capital-
business investments and Entrepreneurship - profit
● List two major expenditure items for each of (1) Federal, and (2) State and Local governments.
Federal-Defense spending, Social Security and Medicare
State and Local- Education, Police and Fire.
● How does the Production Possibilities Frontier (PPF) illustrate the concept of trade-off?
All tradeoff involve a cost. Give up something to gain another.
● How do we describe points (1) On the PPF (2) Inside the PPF, and (3) Beyond the PPF in terms of
production efficiency?
1-Efficient
2-Inefficient unemployment
3-unattainable
● Define Opportunity Cost.
The cost of an alternative that must be forgone to pursue a certain action, or the benefits you
could have received by taking an alternative action.
● Given the same resources, if Company A produces 20 shirts or 2 comforters in a month and
Company B produces 40 shirts or 10 comforters in a month, then
○ Which company has the absolute advantage in the production of shirts?
B-Absolute advantage produces higher opportunity cost
○ Which company has the comparative advantage in the production of comforters?
A- Comparative advantage produces lower opportunity costs
○ Which company should specialize in producing shirts?
B
○ Which company should specialize in producing comforters?
A
Page 1 of 4
, FTC1 Study Guide Questions
COMPETENCY 3003.1.2 SUPPLY AND DEMAND
chapter 4 (“Demand and Supply”)
● What is the Law of Demand?
All other factors being equal, as the price of a good or service increases. There is an inverse
relationship between price and quantity demanded.
● What is the difference between “change in quantity demanded” and “demand”?
Quantity demanded is the amount consumer’s demand at a particular price. Demand is the
entire relationship between price and quantity demanded.
● If price of a book increases, what happens to its quantity demanded? Demand?
Quantity Demanded goes down. Demand stays the same
● What do we understand when the supply curve shifts right?
Increase shifts to the right
● How does a market eliminate shortages?
Competition between buyers bid up the price and give sellers more incentive to bring to the
market. Price will go up and quantity will go up to get back to equilibrium.
● Assume that a market is in equilibrium at E 1 and the demand curve shifts to the left. Draw a
graph to show the new equilibrium point E 2. Explain the process of price adjustment (use the
surplus/shortage explanation) as the market equilibrium changes from E1 to E2.
COMPETENCY 3003.1.3 GROSS DOMESTIC PRODUCT (GDP)
chapter 5 (“GDP: A Measure of Total Production and Income”)
chapter 7 (“The CPI and the Cost of Living”)
● What is the definition of GDP?
Gross domestic product. Is the monetary value of all the finished goods and services produced
within a country’s border in a specific time period.
● What is the expenditure approach for calculating GDP?
Consumption + Investment + Government spending + Net exports-import goods
● What is the income approach for calculating GDP?
All expenditures in an economy should equal the total income generated by the production of
all economic goods and services.
Page 2 of 4
The following questions are developed as a study aid for the FTC1 COS. They cover important concepts
in each competency. The questions are not comprehensive but are only designed to serve as an
indicator of your preparedness take the FTC1 assessment. After reading material for each competency,
use these questions to reinforce your understanding and review further as necessary.
COMPETENCY 3003.1.1 THE ECONOMIC WAY OF THINKING
chapter 1 (“Getting Started”)
chapter 2 (“The U.S. and Global Economies”)
chapter 3 (“The Economic Problem”)
● How does scarcity influence choices?
Unlimited wants but limited resources. Scarcity is a measure of supply. Not enough for
everyone.
● Contrast Normative and Positive analyses.
Positive economics is objective and fact based, while normative economics is subjective and
value based.
What are the four categories that factors of production are grouped into? What are the incomes
they are paid?
Natural resources, labor, capital, and entrepreneurship. Land-Rent, Labor-Wages, Capital-
business investments and Entrepreneurship - profit
● List two major expenditure items for each of (1) Federal, and (2) State and Local governments.
Federal-Defense spending, Social Security and Medicare
State and Local- Education, Police and Fire.
● How does the Production Possibilities Frontier (PPF) illustrate the concept of trade-off?
All tradeoff involve a cost. Give up something to gain another.
● How do we describe points (1) On the PPF (2) Inside the PPF, and (3) Beyond the PPF in terms of
production efficiency?
1-Efficient
2-Inefficient unemployment
3-unattainable
● Define Opportunity Cost.
The cost of an alternative that must be forgone to pursue a certain action, or the benefits you
could have received by taking an alternative action.
● Given the same resources, if Company A produces 20 shirts or 2 comforters in a month and
Company B produces 40 shirts or 10 comforters in a month, then
○ Which company has the absolute advantage in the production of shirts?
B-Absolute advantage produces higher opportunity cost
○ Which company has the comparative advantage in the production of comforters?
A- Comparative advantage produces lower opportunity costs
○ Which company should specialize in producing shirts?
B
○ Which company should specialize in producing comforters?
A
Page 1 of 4
, FTC1 Study Guide Questions
COMPETENCY 3003.1.2 SUPPLY AND DEMAND
chapter 4 (“Demand and Supply”)
● What is the Law of Demand?
All other factors being equal, as the price of a good or service increases. There is an inverse
relationship between price and quantity demanded.
● What is the difference between “change in quantity demanded” and “demand”?
Quantity demanded is the amount consumer’s demand at a particular price. Demand is the
entire relationship between price and quantity demanded.
● If price of a book increases, what happens to its quantity demanded? Demand?
Quantity Demanded goes down. Demand stays the same
● What do we understand when the supply curve shifts right?
Increase shifts to the right
● How does a market eliminate shortages?
Competition between buyers bid up the price and give sellers more incentive to bring to the
market. Price will go up and quantity will go up to get back to equilibrium.
● Assume that a market is in equilibrium at E 1 and the demand curve shifts to the left. Draw a
graph to show the new equilibrium point E 2. Explain the process of price adjustment (use the
surplus/shortage explanation) as the market equilibrium changes from E1 to E2.
COMPETENCY 3003.1.3 GROSS DOMESTIC PRODUCT (GDP)
chapter 5 (“GDP: A Measure of Total Production and Income”)
chapter 7 (“The CPI and the Cost of Living”)
● What is the definition of GDP?
Gross domestic product. Is the monetary value of all the finished goods and services produced
within a country’s border in a specific time period.
● What is the expenditure approach for calculating GDP?
Consumption + Investment + Government spending + Net exports-import goods
● What is the income approach for calculating GDP?
All expenditures in an economy should equal the total income generated by the production of
all economic goods and services.
Page 2 of 4
