Economic Principles Quiz

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Questions and Answers

What is an example of a free good?

Land for farming

Electricity from a power plant

Water from a private well

Sunlight (correct)

Which factor of production is rewarded with profits?

Labor

Enterprise (correct)

Land

Capital

What does a point inside the production possibility curve (PPC) represent?

Underutilization of resources (correct)

Maximum production capacity

Economic downturn

Efficient use of resources

Which of the following is NOT a key question of economics?

When to produce? (D) Signup and view all the answers

Which factor affects geographical mobility of labor?

Family ties and commitments (A) Signup and view all the answers

What does the price mechanism primarily determine in an economy?

Equilibrium prices of goods and services (A) Signup and view all the answers

Which branch of economics focuses on the interactions within individual markets?

Microeconomics (C) Signup and view all the answers

An outward shift in the production possibility curve (PPC) indicates which of the following?

Economic growth (B) Signup and view all the answers

Which type of tax is directly paid by individuals and firms?

Income tax (C) Signup and view all the answers

What is the primary purpose of contractionary monetary policy?

To curb inflation (D) Signup and view all the answers

Which policy aims to enhance the productive capacity of the economy?

Supply-side policies (A) Signup and view all the answers

What type of unemployment is characterized by a mismatch between workers' skills and available jobs?

Structural unemployment (B) Signup and view all the answers

Which type of inflation occurs when the costs of production increase?

Cost-push inflation (A) Signup and view all the answers

How is absolute poverty defined?

Income below a specific income threshold (B) Signup and view all the answers

Which of the following best describes comparative advantage?

Producing goods with lower opportunity costs than others (D) Signup and view all the answers

What is one consequence of over-specialization in an economy?

Reduced market relevance (A) Signup and view all the answers

What is one main benefit of free trade?

Better quality products for consumers (A) Signup and view all the answers

A trade deficit occurs when a country:

Imports more than it exports (C) Signup and view all the answers

What typically causes shifts in the demand curve?

Changes in consumer income (A) Signup and view all the answers

What characterizes inelastic demand?

Demand changes minimally with price changes (C) Signup and view all the answers

Which of the following is an example of vertical integration?

A supplier merging with a manufacturer (C) Signup and view all the answers

Which factor does not influence changes in labor supply?

Productivity of labor (C) Signup and view all the answers

Which objective focuses on a firm's long-term existence?

Survival (C) Signup and view all the answers

What is the primary function of commercial banks?

Provide financial services to individuals and businesses (A) Signup and view all the answers

Which factor is essential for determining price elasticity of supply?

Time available (C) Signup and view all the answers

What is a key characteristic of monopoly?

One firm dominates the market with no close substitutes (D) Signup and view all the answers

What type of economic policy involves government spending and taxation?

Fiscal policy (A) Signup and view all the answers

Which of the following describes a regressive tax?

Lower income individuals pay a larger proportion (C) Signup and view all the answers

Which of the functions of money allows people to save and invest?

Store of value (D) Signup and view all the answers

What would likely increase supply according to economic principles?

Decrease in production costs (D) Signup and view all the answers

Which of the following correctly defines market equilibrium?

When supply and demand are equal (D) Signup and view all the answers

Which of the following represents a mixed economic system?

An economy combining market forces with government intervention (B) Signup and view all the answers

Study Notes

The Economic Problem

The economic problem arises from the scarcity of resources to meet unlimited wants.
Economic goods have an opportunity cost, meaning there is a cost associated with choosing one over another.
Free goods do not have an opportunity cost, such as sunlight.

Factors of Production

Land: Natural resources used in production.
Labor: Human resources used in production.
Capital: Man-made resources used to produce goods and services.
Enterprise: Skills and willingness of individuals to take risks in production.

Rewards for Factors of Production

Land: Rent
Labor: Wages
Capital: Interest
Enterprise: Profits

Mobility of Factors of Production

Geographical Mobility: Willingness to relocate for employment, influenced by factors such as family ties, commitments, and cost of living.
Occupational Mobility: Willingness to change jobs, influenced by factors like cost of training, education, and profession.

Opportunity Cost

The cost of the next best alternative when making a choice.
Can be represented using a production possibility curve (PPC).
Points on the PPC represent different combinations of goods and services a country can produce with its available resources.
A point inside the PPC is inefficient, while a point outside the PPC is unattainable.
Outward shifts in the PPC indicate economic growth due to factors like increased resources, technology advancements, or a larger labor force.
Inward shifts in the PPC indicate economic decline due to factors like natural disasters, low investments, or depletion of resources.

Branches of Economics

Microeconomics: Focuses on individual markets and their interactions.
Macroeconomics: Focuses on the economy as a whole, including factors like employment, inflation, and economic growth.

Market System

Economic decisions are driven by prices of goods and services, determined by supply and demand.

Key Questions of Economics

What to produce?
How to produce?
For whom to produce?

Price Mechanism

The interaction of supply and demand determining equilibrium prices.
Equilibrium point is where the supply and demand curves intersect.

Demand

The willingness and ability of consumers to buy goods and services at a given price.
Higher price generally leads to lower demand.
Factors affecting demand: Price, advertising, government policies, consumer testing, consumer income, price of substitutes, interest rates.
Individual demand: The demand of one individual or firm.
Market demand: The aggregate demand of all individuals and firms.
Movements along the demand curve are caused by changes in price.
Shifts in the demand curve (rightward or leftward) are caused by changes in factors other than price.

Supply

The willingness and ability of suppliers to provide goods and services at a given price.
Higher price generally leads to higher supply.
Factors affecting supply: Cost of factors of production, prices of other goods, global factors, technological advancements, business optimism.
Individual supply: The supply of an individual producer.
Market supply: The aggregate supply of all firms.
Market Equilibrium: Occurs when supply and demand are equal.

Price Elasticity of Demand

The responsiveness of demand to changes in price.
Inelastic demand: Demand is relatively unresponsive to price changes.
Elastic demand: Demand is highly responsive to changes in price.
Factors affecting price elasticity of demand: Number of substitutes, time period, proportion of income spent on the good, necessity of the product.

Price Elasticity of Supply

The responsiveness of quantity supplied to changes in price.
Inelastic supply: Supply is relatively unresponsive to price changes.
Elastic supply: Supply is highly responsive to price changes.
Factors affecting price elasticity of supply: Time available, availability of resources, supply already available to meet demand, spare production capacity, factor substitution available.

Market Failure

Occurs when the price mechanism fails to allocate scarce resources efficiently.

Mixed Economic Systems

A combination of market and government intervention in the economy.

Functions of Money

Medium of Exchange: Facilitates transactions without bartering.
Unit of Account: Provides a common measure of value for goods and services.
Store of Value: Holds value over time, allowing people to save and invest.
Standard for Deferred Payment: Enables borrowing and lending.

Characteristics of Money

Acceptability: Willingness of people to use it as payment.
Durability: Able to withstand repeated use.
Portability: Easy to carry and transport.
Divisibility: Can be easily divided into smaller units.
Scarcity: Limited supply to maintain value.

Types of Banks

Commercial Banks: Offer financial services to individuals and businesses.
Central Banks: Control a country's money supply and interest rates.

Households

Spending: Consumers contribute to the demand for goods and services.
Saving: Provides funds for investment and economic growth.
Borrowing: Allows households to finance purchases or invest.

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Description

Test your knowledge on the economic problem and the factors of production. This quiz covers key concepts such as economic goods, rewards for production factors, and mobility aspects. Perfect for students exploring economic theories.