Basic Economic Concepts Quiz

Scarcity and Opportunity Cost

• Scarcity: the fundamental economic problem of unlimited wants and needs, but limited resources
• Opportunity Cost: the value of the next best alternative that is given up when a choice is made
• Opportunity cost is a key concept in understanding the decisions made by individuals and societies

Basic Economic Concepts

• Economic Systems: ways in which societies organize their economies to produce and distribute goods and services
  • Market Economy: private individuals and businesses make decisions
  • Command Economy: government makes decisions
  • Mixed Economy: combination of market and command economies
• Economic Goals: goals that societies aim to achieve through their economic systems
  • Economic Growth: increase in production of goods and services
  • Economic Efficiency: optimal allocation of resources
  • Equity: fair distribution of income
  • Stability: low inflation and unemployment

Microeconomics

• Market: a place where buyers and sellers interact to exchange goods and services
• Demand: the quantity of a good or service that consumers are willing and able to buy at a given price
• Supply: the quantity of a good or service that producers are willing and able to sell at a given price
• Law of Supply and Demand: the price of a good or service will adjust to equilibrium, where the quantity demanded equals the quantity supplied
• Types of Markets:
  • Perfect Competition: many firms, free entry and exit, identical products
  • Monopoly: single firm, barriers to entry, unique product
  • Monopolistic Competition: many firms, free entry and exit, differentiated products
  • Oligopoly: few firms, barriers to entry, interdependent decision-making

Macroeconomics

• Gross Domestic Product (GDP): the total value of goods and services produced within a country's borders
• Economic Indicators: measures of economic activity
  • Inflation: rate of change in prices
  • Unemployment: percentage of labor force not working
  • Interest Rate: cost of borrowing money
• Fiscal Policy: government's use of taxation and spending to influence the economy
• Monetary Policy: central bank's use of money supply and interest rates to influence the economy

International Trade and Finance

• Absolute Advantage: a country's ability to produce a good or service at a lower cost than another country
• Comparative Advantage: a country's ability to produce a good or service at a lower opportunity cost than another country
• Gains from Trade: benefits of trading with other countries, including increased efficiency and variety
• Exchange Rates: prices of currencies in terms of other currencies
• Balance of Payments: record of a country's international transactions

Scarcity and Opportunity Cost

• Unlimited wants and needs, but limited resources lead to scarcity
• Opportunity cost is the value of the next best alternative given up when a choice is made
• Opportunity cost is crucial in understanding individual and societal decisions

Basic Economic Concepts

Economic Systems

• Market Economy: private individuals and businesses make decisions
• Command Economy: government makes decisions
• Mixed Economy: combination of market and command economies

Economic Goals

• Economic Growth: increase in production of goods and services
• Economic Efficiency: optimal allocation of resources
• Equity: fair distribution of income
• Stability: low inflation and unemployment

Microeconomics

Market and Forces

• Market: a place where buyers and sellers interact to exchange goods and services
• Demand: quantity of a good or service that consumers are willing and able to buy at a given price
• Supply: quantity of a good or service that producers are willing and able to sell at a given price
• Law of Supply and Demand: price adjusts to equilibrium, where quantity demanded equals quantity supplied

Types of Markets

• Perfect Competition: many firms, free entry and exit, identical products
• Monopoly: single firm, barriers to entry, unique product
• Monopolistic Competition: many firms, free entry and exit, differentiated products
• Oligopoly: few firms, barriers to entry, interdependent decision-making

Macroeconomics

National Income

• Gross Domestic Product (GDP): total value of goods and services produced within a country's borders

Economic Indicators

• Inflation: rate of change in prices
• Unemployment: percentage of labor force not working
• Interest Rate: cost of borrowing money

Economic Policies

• Fiscal Policy: government's use of taxation and spending to influence the economy
• Monetary Policy: central bank's use of money supply and interest rates to influence the economy

International Trade and Finance

Trade Advantages

• Absolute Advantage: a country's ability to produce a good or service at a lower cost than another country
• Comparative Advantage: a country's ability to produce a good or service at a lower opportunity cost than another country

Trade Benefits and Exchange

• Gains from Trade: benefits of trading with other countries, including increased efficiency and variety
• Exchange Rates: prices of currencies in terms of other currencies
• Balance of Payments: record of a country's international transactions