Economic Principles Quiz

Elasticity

• Elasticity measures the responsiveness of quantity demanded or supplied to changes in price, income, or other factors.
• A product is considered elastic if a small change in price leads to a large change in quantity demanded.

Marginal Product

• The value of the marginal product is found by calculating the additional revenue generated from employing one more unit of input, typically labor.
• It is derived from the formula: Value of Marginal Product = Marginal Product of Input x Price of Output.

Public Goods

• Public goods are defined by their characteristics of non-excludability and non-rivalry, meaning they can be accessed by anyone without reducing their availability to others.
• Examples include national defense, public parks, and street lighting.

Gini Index

• The Gini Index measures income inequality within a population, providing a value between 0 (complete equality) and 1 (complete inequality).
• A lower Gini coefficient indicates a more equal distribution of income, while a higher coefficient reflects greater inequality.

Positive vs. Normative Statements

• Positive statements are objective and based on observable phenomena, describing how the world is (e.g., “The unemployment rate is 5%”).
• Normative statements are subjective and based on opinions, expressing how the world should be (e.g., “The government should reduce unemployment”).

Factors Shifting Demand

• Changes in consumer preferences can shift demand, impacting the willingness to purchase products.
• Variations in income levels also affect demand; as consumers earn more, they tend to buy more goods and services.

Causes of Inequality

• Inequality can arise from disparities in education, access to resources, wealth distribution, and systemic issues within economic systems.
• Factors such as globalization, technological advancements, and labor market changes contribute to growing income inequality.

Reasons for Market Failure

• Market failures occur due to externalities, where third-party effects aren't reflected in market prices, leading to inefficiencies.
• Public goods, imperfect information, monopolies, and limited competition can also result in market failures, preventing optimal resource allocation.