Answers to Review

1. Draw the business cycle and label.

You can check your answer in your notes. Keys to remember for the test:
Label the axis and don't forget to include inflationary period and recession.
2. Who are the 3 major stakeholders in the economy?
Businesses (firms), individuals (households) and government
3.What is the difference between micro and macro economics?
• macroeconomics is the branch of economics that deals with human behaviour and choices
as they relate to the entire economy.
• Microeconomics is the branch of economics that deal with human
behaviour and choices as they relate to relatively small units - an
individual, a business firm or a single market.
4. What is the difference between real GDP and nominal GDP?
GDP is the value of all goods and services produced within a country within a year. Nominal
GDP does not take into consideration inflation and therefore it is difficult to know if GDP
has grown because of increased productivity or simply and increase in price.
You could also add the formula to help explain
Nominal GDP=current-year price X current-year quantity
Real GDP=base-year price x current-year quantity
5. List 2 advantages of sole proprietorship.
Be your own boss; keep all of the profits
6. List 2 disadvantages of a partnership.
More ideas; more expertise
7. What are the 3 Economic Questions?
What should be produced?
How should it be produced?
For whom should it be produced?
8. Compare and contrast the 3 types of economies
• A free-market economy is an idealized system in which the prices for goods and services
are determined by the open market and consumers, in which the laws and forces of
supply and demand are free from any intervention by a government, price-setting
monopoly, or other authority.
• In true economic terms there are no examples of “true free-market” economies because
there is always some kind of government intervention (ex. 2008/2009 Global Financial
Crisis Government bailed out banks, mortgages companies and major corporations such
as General Motors, more recently, Canadian Government offering CERB payments of
$2000 per month for those who have lost their jobs due to COVID
• In this type of economy individuals and business own property and are free to earn profits
and consumer have greater selection of goods and services
• A command economy occurs when a central government makes all economic decisions.
The government or a collective owns the land and the means of production. It doesn't rely
on the laws of supply and demand that operate in a market economy. A command
economy also ignores the customs that guide a traditional economy. 
• Examples are Cuba and North Korea.
• Too much control by the government as ownership of property for individuals and
businesses is restricted
• Profit is the government and competition is restricted
• A mixed economy is a combination of the free-market approach and the command
approach. Most countries have a mixed economy… some level of government
intervention (see examples above)
• Example Canada, United States, England etc.
• Property is owned by individuals, corporations or government
• Profit is kept by individuals and corporations but pay tax to the government
• Strong competition
9. Conditional statements and descriptive statements are example of _______ analysis.
Positive Economic Analysis
10. Give an example of each type of Positive Economic Analysis
Conditional – If the price of peas increases then quantity supplied will increase.
Descriptive. – This quarter sales have declined in the tourism industry by 80% due to
COVID.
11. Define Opportunity Cost
• is the cost we pay when we give up an alternative to get another alternative
• there can be many alternatives that we give up BUT the opportunity cost of a decision is
the most desirable alternative we give up to get what we want.