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Questions and Answers
What is the opportunity cost of choosing one option over another?
What is the opportunity cost of choosing one option over another?
What characterizes a perfectly competitive market?
What characterizes a perfectly competitive market?
Which concept describes the economic situation where resources cannot be reallocated without disadvantaging someone?
Which concept describes the economic situation where resources cannot be reallocated without disadvantaging someone?
What is the primary focus of microeconomics?
What is the primary focus of microeconomics?
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How do positive economics differ from normative economics?
How do positive economics differ from normative economics?
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What does the demand curve illustrate?
What does the demand curve illustrate?
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Which of the following is NOT a factor affecting supply and demand?
Which of the following is NOT a factor affecting supply and demand?
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What is one outcome of equilibrium in a perfectly competitive market?
What is one outcome of equilibrium in a perfectly competitive market?
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What happens to the quantity demanded as the price increases?
What happens to the quantity demanded as the price increases?
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What does the law of supply state?
What does the law of supply state?
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What leads to market equilibrium?
What leads to market equilibrium?
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How do price ceilings typically affect a market?
How do price ceilings typically affect a market?
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What is one consequence of barriers to entry in a market?
What is one consequence of barriers to entry in a market?
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What do economic profits incentivize in a market?
What do economic profits incentivize in a market?
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What typically characterizes imperfect competition?
What typically characterizes imperfect competition?
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What is pork barrel politics primarily aimed at achieving?
What is pork barrel politics primarily aimed at achieving?
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What is an example of a market failure?
What is an example of a market failure?
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What determines the overall output measured by Gross Domestic Product (GDP)?
What determines the overall output measured by Gross Domestic Product (GDP)?
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Which type of unemployment is primarily associated with economic recessions?
Which type of unemployment is primarily associated with economic recessions?
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What would be considered a trade deficit?
What would be considered a trade deficit?
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How does inflation affect the economy?
How does inflation affect the economy?
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Which factor is NOT typically associated with labor productivity?
Which factor is NOT typically associated with labor productivity?
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What is the primary impact of business cycles on the economy?
What is the primary impact of business cycles on the economy?
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What is the relationship between GDP per capita and living standards?
What is the relationship between GDP per capita and living standards?
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What characterizes public goods in the context of climate-related impacts?
What characterizes public goods in the context of climate-related impacts?
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What problem complicates global climate cooperation by allowing benefits without cost?
What problem complicates global climate cooperation by allowing benefits without cost?
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How does a high discount rate affect climate-related policies?
How does a high discount rate affect climate-related policies?
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What does the social cost of carbon (SCC) estimate?
What does the social cost of carbon (SCC) estimate?
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What is one potential governance issue with geoengineering?
What is one potential governance issue with geoengineering?
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What is a fundamental characteristic of the tragedy of the commons?
What is a fundamental characteristic of the tragedy of the commons?
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Why do some economists advocate for a 'no regrets' policy in climate actions?
Why do some economists advocate for a 'no regrets' policy in climate actions?
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What challenge has characterized international climate negotiations for over 40 years?
What challenge has characterized international climate negotiations for over 40 years?
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What is the primary difference between savings and investment?
What is the primary difference between savings and investment?
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Which statement about money supply and economic activity is accurate?
Which statement about money supply and economic activity is accurate?
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What characterizes potential output in economic terms?
What characterizes potential output in economic terms?
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In terms of fiscal and monetary policy, what is a common challenge faced by policymakers?
In terms of fiscal and monetary policy, what is a common challenge faced by policymakers?
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What is a major challenge in addressing climate change from an economic perspective?
What is a major challenge in addressing climate change from an economic perspective?
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How do externalities impact market functioning?
How do externalities impact market functioning?
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Which aspect of economic theory is crucial in understanding climate change policies?
Which aspect of economic theory is crucial in understanding climate change policies?
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Why do open economies differ from closed economies regarding savings and investment?
Why do open economies differ from closed economies regarding savings and investment?
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Study Notes
Economics Basics
- Economics studies how individuals make choices about allocating scarce resources.
- Scarcity: Resources are limited, but desires are unlimited.
- Opportunity cost: The value of what is forgone to pursue a chosen option.
- Rational decision-making: Weighing benefits and opportunity costs.
- Models are simplified representations of real-world phenomena.
- Positive economics describes and predicts economic events, while normative economics evaluates based on value judgments.
- Pareto efficiency is achieved when resources are allocated so no one can be made better off without harming someone else.
- Microeconomics focuses on individual behavior and market dynamics, while macroeconomics examines the broader economy's performance.
Supply and Demand Dynamics
- Market prices and quantities are determined by supply and demand interactions.
- A market consists of all buyers and sellers of a particular good or service.
- Perfect competition is characterized by many buyers and sellers, standardized goods, and well-informed participants.
- Equilibrium is achieved when supply and demand curves intersect, maximizing total surplus.
- The demand curve shows the quantity buyers are willing to purchase at various prices.
- The law of demand states that as price increases, quantity demanded decreases.
- The supply curve shows the quantity producers are willing to supply at various prices.
- The law of supply states that as price increases, quantity supplied also increases.
- Market equilibrium occurs when no participant wishes to change their behavior.
- Elasticity measures the responsiveness of supply and demand to price changes.
Government Interventions & International Trade
- Government interventions can include price ceilings, price floors, and taxes.
- Interventions can alter equilibrium and affect market efficiency.
- International trade increases total surplus, but not all participants may benefit.
Firm Behavior
- Firms aim to maximize economic profits by combining inputs to produce goods and services.
- Entry and exit of firms drive economic profits to zero in the long run.
- Imperfect competition includes monopoly, oligopoly, and monopolistic competition.
- Barriers to entry lead to higher prices, lower output, and reduced total surplus compared to perfect competition.
Market Failures and Goods Classification
- Market failures occur when non-market interactions lead to inefficient outcomes.
- Goods can be classified by rivalry in consumption and excludability: private goods, common resources, collective goods, and public goods.
The Role of Institutions & Government
- Institutions, both formal and informal, organize human interactions.
- Governments enforce property rights and regulate markets.
- Pork barrel politics are government expenditures aimed at pleasing voters or legislators through localized projects.
- Rent-seeking involves gaining economic benefits through political influence rather than productive activity.
Measuring Economic Output
- Gross Domestic Product (GDP) measures the market value of all final goods and services produced within a country.
- GDP per capita is closely tied to labor productivity, influenced by factors like physical and human capital, technology, and the political/legal environment.
Business Cycles and International Trade
- Economic activity fluctuates between expansion and recession.
- Trade impacts national economies, with surpluses (exports > imports) and deficits (imports > exports).
Labor Force and Inflation
- The unemployment rate measures the percentage of the labor force actively seeking work but unable to find it.
- Inflation is the general increase in prices, measured by indices like the Consumer Price Index (CPI).
- Inflation can affect purchasing power, distort price signals, and inhibit economic growth.
Savings and Investment
- Savings refers to income not spent on current consumption, while investment involves purchasing new capital equipment.
- Financial markets channel savings into investments.
- In closed economies, savings equals investment; in open economies, it includes net capital outflows.
The Role of Money and the Federal Reserve
- Money serves as a medium of exchange, unit of account, and store of value.
- The Federal Reserve controls the money supply and influences credit conditions.
- Changes in the money supply impact prices in the long run and influence economic activity in the short run.
Potential Output and Output Gaps
- Potential output (full employment output) differs from actual output.
- Deviations from potential output create output gaps.
- Fiscal and monetary policies can be used to stabilize the economy and return it to potential output.
Economics and the Ecology of Climate Change
- Addressing global climate change requires a blend of economics and ecology.
- Climate policy must consider the “climate commons,” where cumulative effects of individuals and nations affect shared atmospheric resources.
Externalities in Climate Impact
- Externalities arise when market prices don’t reflect the full impact of individual or national actions on others.
- Externalities can be one-way or reciprocal and often require corrective measures.
Public Goods, Public Bads, and Free Riders
- Climate-related impacts can be public goods or public bads.
- The free rider problem occurs when individuals benefit from public goods without bearing the cost.
Collective Action and the Principal-Agent Problem
- Climate change solutions involve collective action challenges.
- The tragedy of the commons describes the risk of overusing shared resources.
- The principal-agent problem arises when higher authorities (principals) struggle to monitor and enforce climate actions among individual agents (countries or regions).
Discount Rate and the Social Cost of Carbon
- The discount rate values present consumption more than future consumption.
- High discount rates undermine sustainability efforts.
- The social cost of carbon (SCC) estimates the economic damage of each additional ton of carbon.
Technological Advances and Renewable Energy
- Government subsidies have accelerated the adoption of renewable energy.
- Some economists advocate a “no regrets” policy, recommending action to reduce greenhouse gases (GHGs) even if worst-case scenarios don’t occur.
Policy Responses and Geoengineering
- Policy options include:
- Inaction
- Geoengineering
- International Climate Negotiations
- Solar geoengineering artificially lowers global temperatures by reflecting incoming sunlight back into space.
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Description
This quiz covers fundamental concepts in economics, focusing on resource allocation, scarcity, opportunity cost, and rational decision-making. It also delves into supply and demand dynamics, market structures, and economic efficiency. Test your understanding of microeconomics and macroeconomics!
