Economic Review Quiz

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Questions and Answers

Explain the Law of Demand and how it affects consumer behavior.

The Law of Demand states that as the price of a good increases, the quantity demanded decreases. This typically leads consumers to purchase less of a good when it becomes more expensive.

What are complementary goods, and provide an example?

Complementary goods are products whose demand is related; an increase in the demand for one results in an increase in demand for the other. An example of complementary goods is printers and ink cartridges.

Define 'elastic demand' and how it differs from 'inelastic demand.'

Elastic demand occurs when a change in price leads to a significant change in the quantity demanded, while inelastic demand means that quantity demanded changes little with price changes. This distinction affects pricing strategies.

What role does scarcity play in economics?

<p>Scarcity occurs when demand exceeds availability, forcing societies to allocate resources efficiently. It drives the need for decision-making regarding resource distribution.</p> Signup and view all the answers

Differentiate between frictional unemployment and structural unemployment.

<p>Frictional unemployment involves workers transitioning between jobs, while structural unemployment occurs when workers lack the necessary skills for available jobs. Both are important indicators of labor market dynamics.</p> Signup and view all the answers

What is the significance of the Federal Reserve in the economy?

<p>The Federal Reserve serves as the central bank of the United States, managing monetary policy and ensuring financial stability. It influences inflation, employment, and interest rates through its policies.</p> Signup and view all the answers

Describe the concept of monopoly and its potential impact on the market.

<p>A monopoly occurs when a single seller controls the market for a specific good, leading to higher prices and reduced consumer choice. This can lead to inefficiencies and unfair market practices.</p> Signup and view all the answers

What are public goods, and how do they relate to excludable and non-excludable goods?

<p>Public goods are goods that are non-excludable, meaning they cannot limit consumption, and are provided without profit motive. Excludable goods allow for consumption control and can lead to different market behaviors.</p> Signup and view all the answers

Explain the term 'fiscal policy' and how it can influence economic growth.

<p>Fiscal policy refers to government spending and tax policies utilized to influence economic conditions. Expansionary fiscal policy can stimulate growth, while contractionary policies may slow it down.</p> Signup and view all the answers

What is the role of the consumer price index (CPI) in economics?

<p>The Consumer Price Index (CPI) measures the average change over time in prices paid by consumers for goods and services. It is used to assess inflation and cost of living adjustments.</p> Signup and view all the answers

Flashcards

Law of Demand

The tendency for the quantity demanded of a good to decrease as its price increases.

Law of Diminishing Marginal Utility

As a person consumes more of a good, the additional satisfaction they get from each additional unit decreases.

Demand Schedule

A table that shows the quantity of a good demanded at different prices.

Neutral Good

A good whose demand remains constant regardless of price.

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Complimentary Goods

Goods that are consumed together, where the demand for one influences the demand for the other.

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Elastic Demand

Demand is highly sensitive to changes in price.

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Inelastic Demand

Demand is relatively insensitive to changes in price.

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Tangible Goods

Products that you can see and touch, like clothes or furniture.

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Intangible Goods

Products that are not physical, like services or ideas.

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Scarcity

A situation where the demand for a good exceeds its availability.

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Study Notes

Economic Review

  • Economic Concepts

    • Demand: The quantity of a good or service that consumers are willing and able to buy at various prices.
    • Law of Diminishing Marginal Utility: As a consumer consumes more of a good, the satisfaction (utility) received from each additional unit declines.
    • Law of Demand: Higher prices lead to lower quantities demanded, and vice-versa.
    • Demand Schedule: A table showing the quantity demanded at different prices.
    • Neutral Good: Demand does not change based on price.
    • Complimentary Good: The demand for one good increases when the price of another good decreases (and vice-versa).
    • Elastic Demand: A significant change in the quantity demanded in response to a change in price.
    • Inelastic Demand: A small change in the quantity demanded in response to a change in price.
    • Tangible Goods: Goods that can be touched or seen.
    • Intangible Goods: Services or experiences.
    • Scarcity: The limited availability of goods and services.
    • Rationing Device: Mechanisms for distributing scarce goods or services.

  • Types of Goods

    • Excludable Goods: Consumers can be prevented from consuming the goods.
    • Non-excludable Goods: Consumers cannot be prevented from consuming the goods.
    • Price-takers: Firms that cannot influence market prices.
    • Price-seekers: Firms with some power to influence market prices (e.g., monopolies).

  • Market Structures

    • Monopoly: Single seller of a unique product.
    • Perfect Competition: Many sellers of similar products.

  • Economic Indicators

    • GDP: Gross Domestic Product—total value of goods and services produced in a country.
    • CPI: Consumer Price Index—measures inflation.

  • Labor Market

    • Frictional Unemployment: Workers transitioning between jobs.
    • Structural Unemployment: Workers lacking skills needed for available jobs.
    • Inflation Rate: The rate at which prices increase over time.

  • Business Organization Structures

    • Sole Proprietorship: Business owned and run by one individual.
    • Partnership: Business owned and run by multiple individuals.
    • Corporation: A separate legal entity from its owners.

  • Economic Motivations

    • Incentive: Factors driving people to take specific actions.

  • Macroeconomics

    • Fiscal Policy: Government policies impacting output through spending and taxes.
    • Expansionary Policy: Increased spending and/or lower taxes.
    • Contractionary Policy: Decreased spending and/or increased taxes.
    • Crowding out: Government borrowing reducing private sector investment.

  • Economic Issues

    • Stagflation: When inflation occurs with slow economic growth/high unemployment.
    • Supply and Demand Equilibrium: Supply equals demand at a certain price.
    • Federal Reserve: Central bank of the US; monetary policy.
    • Open Market Operations: Buying and selling of bonds to influence the money supply.

Economic History

  • Adam Smith is considered a first modern economist

    • First modern economist

  • Ethics in economics also a critical factor

  • Concepts like land, entrepreneur and capitalists are considered important components of an economy.

  • Businesses, production, resources, and methods considered critical elements

  • Financial Market and Incentives:

    • Financial markets provide incentives to people to allocate resources efficiently.
    • Incentives influence people's behavior in markets.

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