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What is one potential negative outcome of a free market economy?
What is one potential negative outcome of a free market economy?
According to Friedrich Hayek's beliefs, what is a limitation of government intervention in the economy?
According to Friedrich Hayek's beliefs, what is a limitation of government intervention in the economy?
Which of the following is a benefit of a free market economy?
Which of the following is a benefit of a free market economy?
What does the 'invisible hand' concept imply?
What does the 'invisible hand' concept imply?
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What is a consequence of information gaps in the market?
What is a consequence of information gaps in the market?
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Which factor of production is associated with rent as a reward?
Which factor of production is associated with rent as a reward?
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What is the primary aim of rational economic agents in decision-making?
What is the primary aim of rational economic agents in decision-making?
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Which of the following best describes normative statements?
Which of the following best describes normative statements?
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What causes an outward shift in the production possibility frontier (PPF)?
What causes an outward shift in the production possibility frontier (PPF)?
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What is the reward to labour in the context of factors of production?
What is the reward to labour in the context of factors of production?
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What is the basic economic problem?
What is the basic economic problem?
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What does opportunity cost represent?
What does opportunity cost represent?
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Which term refers to man-made resources such as machinery?
Which term refers to man-made resources such as machinery?
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Which of the following factors is NOT considered a resource in production?
Which of the following factors is NOT considered a resource in production?
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Which of the following statements is an example of a positive statement?
Which of the following statements is an example of a positive statement?
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What encompasses the term 'enterprise' in economic factors of production?
What encompasses the term 'enterprise' in economic factors of production?
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What does microeconomics primarily study?
What does microeconomics primarily study?
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Which of the following best describes 'needs' in economic terms?
Which of the following best describes 'needs' in economic terms?
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In producing goods, what is considered a 'capital good'?
In producing goods, what is considered a 'capital good'?
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What does the term 'scarcity' imply in economics?
What does the term 'scarcity' imply in economics?
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When making an economic choice, what must be considered?
When making an economic choice, what must be considered?
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What does a positive income elasticity of demand (YED) indicate about a good?
What does a positive income elasticity of demand (YED) indicate about a good?
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If a good has a negative income elasticity of demand (YED), which type of good is it likely to be?
If a good has a negative income elasticity of demand (YED), which type of good is it likely to be?
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What is the effect of a price increase in a substitute good on the demand for another good?
What is the effect of a price increase in a substitute good on the demand for another good?
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A good with a YED value between 0 and +1 is known to be:
A good with a YED value between 0 and +1 is known to be:
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Goods that are typically consumed together are referred to as:
Goods that are typically consumed together are referred to as:
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Which of the following best represents strong substitutes in terms of cross elasticity of demand (XED)?
Which of the following best represents strong substitutes in terms of cross elasticity of demand (XED)?
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A negative cross elasticity of demand (XED) indicates that the goods are:
A negative cross elasticity of demand (XED) indicates that the goods are:
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If a hand lotion has a YED of +1.5, it is likely classified as:
If a hand lotion has a YED of +1.5, it is likely classified as:
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If the quantity demanded for a fast-food item decreases with an increase in consumer income, the item is classified as a:
If the quantity demanded for a fast-food item decreases with an increase in consumer income, the item is classified as a:
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What does a price elasticity of supply (PES) value of +1 indicate?
What does a price elasticity of supply (PES) value of +1 indicate?
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Which of the following best describes inelastic supply?
Which of the following best describes inelastic supply?
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What is characteristics of perfectly elastic supply?
What is characteristics of perfectly elastic supply?
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Which factor does NOT influence price elasticity of supply?
Which factor does NOT influence price elasticity of supply?
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If the quantity supplied is very responsive to price changes, how is the supply described?
If the quantity supplied is very responsive to price changes, how is the supply described?
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What value range indicates inelastic supply?
What value range indicates inelastic supply?
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What does perfectly inelastic supply imply about quantity supplied?
What does perfectly inelastic supply imply about quantity supplied?
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Which of the following is a correct representation of price elastic supply on a diagram?
Which of the following is a correct representation of price elastic supply on a diagram?
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What happens to producer supply when market prices rise?
What happens to producer supply when market prices rise?
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Which of the following best describes consumer surplus?
Which of the following best describes consumer surplus?
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What is a potential consequence of an increase in demand according to the content?
What is a potential consequence of an increase in demand according to the content?
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What does rationing do when supply is limited?
What does rationing do when supply is limited?
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Which condition may cause the signaling function of prices to fail?
Which condition may cause the signaling function of prices to fail?
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What incentive do lower prices provide to consumers?
What incentive do lower prices provide to consumers?
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How does an increase in supply typically affect consumer surplus?
How does an increase in supply typically affect consumer surplus?
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What might happen if prices are set below the equilibrium point?
What might happen if prices are set below the equilibrium point?
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Study Notes
Economic Concepts
- Economics is the study of how societies allocate scarce resources to meet unlimited wants.
- The basic economic problem arises from the limited resources available to satisfy infinite wants.
- Resources are called factors of production, encompassing land, labor, capital, and enterprise.
- Rewards for these factors are rent, wages, interest and profit.
- Microeconomics examines individual markets, firms, and consumers.
- Macroeconomics studies aggregate economic variables like unemployment and inflation.
Basic Economic Problem
- Wants are unlimited, but resources are finite.
- Scarcity forces us to make choices about how to use limited resources.
- The economic problem involves deciding what to produce, how to produce, and for whom to produce.
Opportunity Cost
- Opportunity cost is the value of the next best alternative forgone when a choice is made.
- It is the cost measured in terms of what is given up, rather than monetary terms.
- Resources are scarce, so a decision to allocate them to one activity implies forgoing the benefits that could be had from using these resources for another activity
Production Possibility Frontier (PPF)
- A PPF represents the maximum possible output combinations of two goods or services given available resources and technology.
- PPFs are usually curved, reflecting the law of diminishing returns.
- A shift outward of a PPF represents economic growth (increase in resources or technology allowing output to increase).
- Movement along a PPF shows opportunity cost of producing more of one good while producing less of another.
Economic Systems
- A command economy is characterized by government ownership and control of resources to meet national priorities.
- A market economy relies on the interaction of buyers and sellers in markets to allocate resources.
- A mixed economy combines elements of both
Demand
- Demand refers to the desire, willingness, and ability to buy a good or service at various prices during a particular time period.
- The law of demand states that as price decreases with the same other factors remaining unchanged, demand increases and vice versa.
- Shifts in demand are caused by factors other than price (e.g., income, tastes, prices of related goods).
- The demand curve slopes downwards showing an inverse relationship between price and quantity demanded .
Supply
- Supply refers to the willingness to offer a good or service for sale at various prices during a particular time period.
- The law of supply states that as price increases (with everything else unchanged), supply increases and vice versa.
- Shifts in supply are caused by factors other than price (e.g., input costs, technology, number of suppliers).
- The supply curve slopes upwards showing that quantity supplied is directly related to price.
Market Equilibrium
- Market equilibrium occurs where the quantity demanded equals the quantity supplied.
- At this point, there is no surplus or shortage of the good or service.
- Changes in supply or demand shift the equilibrium, changing both quantity and price.
Elasticity
- Elasticity measures the responsiveness of one variable to changes in another variable.
- Price elasticity of demand (PED) measures the responsiveness of quantity demanded to changes in price.
- Price elasticity of supply (PES) measures the responsiveness of quantity supplied to changes in price.
- Values of PED and PES can help predict how changes in prices will impact the overall market .
Price Elasticity of Demand (PED)
- PED measures the responsiveness of consumers to price changes.
- When PED is elastic, small changes in price result in larger changes in quantity demanded.
- When PED is inelastic, changes in price are not accompanied by significant changes in the quantity demanded.
Price Elasticity of Supply (PES)
- PES shows how producers react to price changes.
- Elastic supply means producers are responsive to price changes.
- Inelastic supply means producers are less responsive to changes in price
Income Elasticity of Demand (YED)
- YED describes the relationship between consumer income and the demand for a certain good.
- YED values can be positive which mean income and demand move in the same direction or negative, meaning if income rises demand falls.
Cross-Price Elasticity of Demand (XED)
- XED measures the responsiveness in the quantity demanded of one good to changes in the price of another good.
- XED values can be positive which mean that if price of one good rises demand for the other rises or negative if a price increase for one good causes demand for another to decrease.
Consumer and Producer Surplus
- Consumer surplus is the difference between the willingness to pay and actual price paid by a consumer.
- Producer surplus is the difference between the price received by a producer and the minimum acceptable price.
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Description
Explore fundamental economic concepts such as scarcity, opportunity cost, and the factors of production. This quiz delves into the distinctions between microeconomics and macroeconomics, aiding in the understanding of how choices are made within an economy. Test your understanding of the basic economic problem and the implications of resource allocation.
