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Questions and Answers
What type of scarcity refers to the condition where goods are scarce compared to their demand?
In a command economy, decision-making is decentralized.
False
What are the three basic questions an economic system seeks to answer?
What to produce, How to produce, For whom to produce
In economics, factors of production refer to the _____, ____, and _____ involved in producing goods and services.
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Match the economic systems with their characteristics:
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What is the likely result of a decrease in consumer income on the demand curve for a normal good?
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Inferior goods are demanded more when consumer incomes increase.
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What factors are included in the non-price determinants of demand?
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A good whose demand increases as consumer income rises is known as a __________ good.
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Match the following economic terms with their descriptions:
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Study Notes
Scarcity and Economic Concepts
- Scarcity refers to the insufficiency of resources to meet all the needs and wants of a population.
- Relative scarcity occurs when goods are scarce compared to their demand.
- Absolute scarcity indicates that supply is fundamentally limited.
- Opportunity cost represents the value of the next best alternative that is forgone when a choice is made.
Economic Resources and Factors of Production
- Economic resources are the factors of production used to create goods and services.
- Land encompasses natural resources not created by humans, such as soil and minerals.
- Labor includes both physical and human efforts exerted in the production process.
- Capital consists of man-made resources utilized in producing goods and services.
Macroeconomics vs Microeconomics
- Macroeconomics analyzes the overall performance and behavior of the entire economy.
- Microeconomics focuses on individual entities like consumers and producers, studying their choices and the effects on market prices.
Fundamental Economic Problems
- Key economic questions include: What to produce? How to produce? For whom to produce?
- Evaluating resource utilization efficiency is essential for economic growth.
Economic Systems
- Economic systems are structures that determine how societies address fundamental economic problems.
- Traditional economies are based on customs and practices passed down through generations.
- Command economies centralize decision-making within government or planning committees.
- Free market economies emphasize democratic principles where decisions are driven by demand and supply.
- Mixed economies combine elements of both command and market systems.
Demand and Its Determinants
- Demand increases when complementary goods are also in demand (e.g., coffee and sugar).
- The population or number of consumers influences product demand substantially.
- The Law of Demand demonstrates an inverse relationship between price and quantity demanded (Qd): as price rises, Qd falls, and vice versa.
- Shifts in the demand curve can occur due to non-price determinants such as changes in income, demographics, and consumer tastes.
- Normal goods experience increased demand with rising incomes, while inferior goods see decreased demand.
Supply and Demand Dynamics
- Supply refers to the quantity of goods that sellers are willing to offer for sale at various prices.
- A supply schedule shows the amounts producers are willing to sell at different price levels.
- A supply curve visually represents a supply schedule, with price on the vertical axis and quantity supplied on the horizontal axis.
- The Law of Supply states that there is a direct relationship between price and quantity supplied (Qs): as price increases, Qs rises; as price decreases, Qs falls.
Non-Price Determinants of Supply
- Supply is influenced by factors such as production capabilities, availability of raw materials, taxes, and subsidies.
Microenvironment Factors
- Suppliers: Their power impacts business success, especially when they are the sole or largest provider in the market.
- Resellers: Intermediaries contribute significantly to product delivery, and their reputation can enhance product marketing.
- Customers: Essential for revenue generation; businesses must attract them through marketing efforts and competitive pricing.
- Competition: Other sellers of similar goods or services can affect market dynamics and influence pricing and marketing strategies.
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Description
This quiz covers key concepts related to scarcity and economic resources, including definitions of relative and absolute scarcity, opportunity cost, and the factors of production. Test your understanding of how these principles apply to economic decision-making and resource allocation.
