Podcast
Questions and Answers
What is the fundamental problem that the study of economics addresses?
What is the fundamental problem that the study of economics addresses?
According to the principle of opportunity cost, what is the cost of an economic decision?
According to the principle of opportunity cost, what is the cost of an economic decision?
Which principle suggests that people make decisions by comparing marginal benefits and marginal costs?
Which principle suggests that people make decisions by comparing marginal benefits and marginal costs?
What is the primary characteristic of a market economy?
What is the primary characteristic of a market economy?
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Which economic system relies on the forces of supply and demand to determine prices and allocate resources?
Which economic system relies on the forces of supply and demand to determine prices and allocate resources?
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In a command economy, who typically makes decisions about what and how much to produce?
In a command economy, who typically makes decisions about what and how much to produce?
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What does 'invisible hand' refer to in economic theory?
What does 'invisible hand' refer to in economic theory?
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What is the main difference between economic profit and accounting profit?
What is the main difference between economic profit and accounting profit?
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What does diminishing marginal product of labor indicate?
What does diminishing marginal product of labor indicate?
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Which of the following is a characteristic of perfectly competitive markets?
Which of the following is a characteristic of perfectly competitive markets?
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In a perfectly competitive market, each firm is a:
In a perfectly competitive market, each firm is a:
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What is the main goal of a firm in a perfectly competitive market?
What is the main goal of a firm in a perfectly competitive market?
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The demand curve facing a perfectly competitive firm is:
The demand curve facing a perfectly competitive firm is:
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Which of the following is a characteristic of a monopolistic competition market structure?
Which of the following is a characteristic of a monopolistic competition market structure?
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What is a natural monopoly?
What is a natural monopoly?
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Which of the following best describes the term 'externality' in economics?
Which of the following best describes the term 'externality' in economics?
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Study Notes
Economic Principles
- Fundamental problem: Unlimited wants and limited resources create scarcity, the foundation of economic study.
- Opportunity cost: The cost of an economic decision is the value of the next best alternative foregone (not just monetary cost).
- Marginal analysis: Decisions are made by comparing marginal benefits and costs (additional benefits and costs from one more unit).
Economic Systems
- Market economy: Driven by consumer choice and private ownership. Resources are allocated through supply and demand.
- Command economy: Government authorities make decisions on production and resource allocation.
- Mixed economy: Combines elements of both market and command economies.
- Invisible hand: Market forces guiding self-interest, leading to unintended social benefits.
Demand Elasticity
- Inelastic demand: A good with inelastic demand has a relatively small change in quantity demanded when price changes. Loaf of bread is an example.
- Elastic demand: A good with elastic demand has a relatively large change in quantity demanded when price changes. Luxury cars are an example.
Profit and Production Cost
- Economic profit: Includes both explicit (out-of-pocket) and implicit costs (opportunity costs), which accounts for all the cost of inputs used in production.
- Accounting profit: Only includes explicit costs, it doesn't consider implicit costs such as forgone income earning opportunities.
- Marginal product of labor: The additional output produced by adding one more unit of labor.
- Diminishing marginal product of labor: Indicates that the addition of extra labor leads to smaller increases in output, as resources become more abundant.
Market Structures
- Perfect competition: Characterized by many buyers and sellers, identical products, and easy entry and exit. Firms are price takers.
- Monopolistic competition: Characterized by many sellers, differentiated products, and relatively easy entry and exit.
- Oligopoly: Characterized by few firms, differentiated products, and high barriers to entry.
- Monopoly: A single firm controls the entire market.
- Natural monopoly: One firm produces at a lower cost than multiple firms could.
Externalities
- Externality: A cost or benefit not incurred by the person making the decision, but by a third party who isn't involved in the transaction.
- Positive externality: A benefit to a third party unrelated to the transaction. Education is an example.
- Negative externality: A cost to a third party unrelated to the transaction. Pollution is an example.
Production Possibilities Frontier (PPF)
- PPF: A curve representing the different combinations of goods and services a country can produce with its resources.
- A point inside the PPF: Indicates that an economy is not using its resources efficiently.
- A point on the PPF: Indicates that an economy is producing efficiently, but there is no room to produce more without sacrificing something else.
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Description
Test your knowledge on fundamental economic concepts like scarcity, opportunity cost, and the elasticity of demand. Explore different economic systems including market, command, and mixed economies. This quiz will challenge your understanding of how these factors influence decision-making in economics.
