30 Questions
What is one of the advantages of a capitalistic economy mentioned in the text?
Encouragement of entrepreneurship
Why does a capitalistic economy lead to the decentralization of economic power?
Through flexible economic mechanisms
What is a major disadvantage of a capitalistic economy as outlined in the text?
Imbalance in standard of living
Why might a capitalistic economy lead to an increase in negative externalities?
Main objective of profit maximization
How does a capitalistic economy affect the utilization of productive resources?
By promoting optimal utilization through innovations
In a capitalistic economy, what leads to an increase in per-capita income and standard of living?
Entrepreneurial activities and profit motive
What marks the end of economic expansion and the beginning of a recession?
Trough
What indicates the lowest point in a business cycle?
Depression
What characterizes a recovery or expansion phase in the economy?
Unemployment level diminishes
In the context of business cycles, what does a peak to peak or trough to trough period define?
Business cycle duration
How is unemployment defined in the text?
People in labour force actively looking for a job
What happens during a recession or contraction phase?
Businesses decline
What is the age range of people considered part of the labor force?
14-60
Which of the following groups is NOT included in the labor force?
Students during school breaks
What type of unemployment occurs due to mismatch between skills and job requirements?
Structural unemployment
What is an example of frictional unemployment?
A student immediately after graduation looking for a job
What type of unemployment occurs due to a lack of job vacancies?
Cyclical unemployment
What is the formula to calculate the labor force?
Employed + Unemployed
What type of costs does accounting cost consider?
Only purchased inputs used in production
How is the monetary value of non-purchased inputs estimated in economic cost?
Opportunity costs in monetary terms
How is accounting profit calculated?
Total revenue – Accounting cost
What is the difference between accounting profit and economic profit?
Accounting profit is greater by the amount of implicit cost
What is a cost function?
A function that shows the total cost of producing a given level of output
What are the types of costs included in economic cost?
Explicit cost and implicit cost
What happens to a firm in the short-run if its average total cost (ATC) is below the market price at equilibrium?
It earns an economic profit
If a firm's average total cost (ATC) is above the market price at equilibrium, what is the result?
The firm incurs a loss
What does it mean when a firm is at the break-even point?
The firm's average total cost (ATC) is equal to the market price
What is the shutdown point for a firm in terms of average variable cost (AVC)?
When AVC is equal to the price
Suppose a firm operates in a perfectly competitive market and has a cost function of TC=2+10q-4q^2 +q^3, what level of output should the firm produce to maximize its profit if the market price is $10?
4 units
Given the same scenario as the previous question, what is the level of profit at equilibrium?
$45
Test your knowledge on the advantages of a capitalistic economy, including minor role of government, self-interest, flexibility, and decentralization of economic power.
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