Economics Basics Quiz

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Questions and Answers

Which situation describes a surplus in the market?

There is an equal amount of goods produced and consumed.

The price of a product is set too low, resulting in high demand.

The quantity demanded exceeds the quantity supplied.

The price of a product is above equilibrium, causing excess supply. (correct)

In which economy are resources allocated primarily by the government?

Market economy

Mixed economy

Traditional economy

Command economy (correct)

What best describes scarcity in economic terms?

When there is too much of a good available in the market.

A condition where demand is equal to supply.

The inability to satisfy all human wants with limited resources. (correct)

When the price of goods is set too high for consumers.

How does the law of supply generally operate?

As the price of a good increases, the quantity supplied increases. Signup and view all the answers

What is the fundamental economic problem associated with limited resources?

Scarcity Signup and view all the answers

Which of the following is NOT considered a factor of production?

Money Signup and view all the answers

What occurs in a market economy regarding resource allocation?

Resource allocation is determined by market forces. Signup and view all the answers

What describes the law of demand?

As the price of a good increases, the quantity demanded decreases. Signup and view all the answers

What happens to the demand when income increases in a competitive market?

Demand increases Signup and view all the answers

How does a price ceiling of ₱1.50 affect a competitive market?

It creates a shortage Signup and view all the answers

What effect does a simultaneous decrease in supply and increase in demand have on the equilibrium price?

It increases the equilibrium price Signup and view all the answers

In a command economy, how is market activity primarily regulated?

Through government intervention Signup and view all the answers

What is the primary difference between a shortage and scarcity?

A shortage occurs when demand exceeds supply at a certain price, whereas scarcity is a basic economic problem of limited resources Signup and view all the answers

What is the primary study focus of economics?

How individuals, firms, and governments make choices under scarcity Signup and view all the answers

What would be the likely impact on the rental market if a price floor is set at ₱3.50?

It will create a surplus of rental properties Signup and view all the answers

What does opportunity cost refer to in economic decision making?

The value of the second-best alternative that is foregone Signup and view all the answers

How does an increase in demand for sake influenced by an earthquake impact the market equilibrium?

Equilibrium price will rise Signup and view all the answers

According to the law of demand, what happens to quantity demanded when the price of a good increases?

Quantity demanded decreases Signup and view all the answers

What is the implication of the law of demand in a situation where the price of a good increases?

Quantity demanded decreases Signup and view all the answers

What does the law of supply indicate about the relationship between price and quantity supplied?

As price increases, the quantity supplied increases Signup and view all the answers

What differentiates scarcity from shortage in economic terms?

Scarcity is a long-term condition, while shortage is temporary Signup and view all the answers

In a command economy, what primarily dictates resource allocation?

Government decisions and plans Signup and view all the answers

What condition is described as existing when the quantity supplied exceeds the quantity demanded?

Surplus Signup and view all the answers

How is a shortage fundamentally characterized in economic terms?

A condition where demand exceeds supply Signup and view all the answers

Study Notes

Economic Concepts

Scarcity: A condition where resources are insufficient to satisfy all wants. A permanent state affecting decision-making.
Shortage: A temporary situation where demand outstrips supply, often due to price being set too high.

Opportunity Cost

Defined as the value of the best alternative that is forgone when making a decision, rather than the total cost or amount of money spent.

Laws of Demand and Supply

Law of Demand: States that as the price of a good rises, the quantity demanded decreases; conversely, as the price drops, demand increases.
Law of Supply: As the price of a good increases, the quantity supplied increases; when prices drop, supply decreases.

Equilibrium Price

The point where the quantity demanded equals the quantity supplied. It maximizes producer profits while satisfying consumer demand.

Market Economy vs. Command Economy

Market Economy: Resource allocation is determined by market forces without government intervention.
Command Economy: The government controls resource allocation and economic decisions.

Economic Problems

Scarcity is the most fundamental economic problem, defining the limits of how resources can be utilized.

Shifts in Supply and Demand

Simultaneous shifts can occur due to events such as natural disasters, affecting both supply and demand.
Example: An earthquake decreases supply (e.g., fermented rice for sake) while potentially increasing demand for related products.

Market Responses to Price Controls

Price Ceiling: A maximum price set below equilibrium, causing shortages as demand exceeds supply.
Price Floor: A minimum price set above equilibrium, leading to surpluses as supply exceeds demand.

Basic Production Factors

Key factors of production include land, labor, and capital. Money is not considered a factor of production but a medium of exchange.

Retail Market Dynamics

Equilibrium adjusts based on fluctuating demand and supply. Changes in income levels can influence both the equilibrium price and quantity in the market.

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Description

Test your understanding of fundamental economic concepts, including scarcity and choice. Learn the distinctions between shortage and scarcity as you explore how individuals and firms make decisions in an economy. Perfect for those seeking to grasp the core principles of economics.