Economics Fundamentals Quiz

The Basic Economic Problem

• The fundamental economic problem is scarcity, the limited resources exist to fulfill unlimited wants.
• Resources are finite, while human needs and wants are infinite.
• This leads to choices about how to best use resources.

Factors of Production

• Essential components for economic activity: land, labor, capital, and enterprise.
• Land encompasses all natural resources.
• Labor involves the human effort used in production.
• Capital refers to man-made aids in production (machinery, tools, buildings).
• Enterprise involves the organization and risk-taking involved in production.

Opportunity Cost

• The forgone benefit of the next best alternative when a choice is made.
• Decisions involve trade-offs, and opportunity cost measures the value of what is given up.

Production Possibility Curve

• A graphical representation of the possible combinations of two goods or services an economy can produce given its resources and technology.
• The curve illustrates the trade-offs between producing one good versus another.
• Points on the curve represent efficient use of resources, points inside the curve show underutilization.

Microeconomics and Macroeconomics

• Microeconomics examines individual economic agents (consumers, firms) and specific markets.
• Macroeconomics analyzes the overall economy, including aggregate demand, inflation, and unemployment.

The Role of Markets in Allocating Resources

• Markets help allocate resources efficiently by coordinating buyers and sellers.
• The interplay of supply and demand determines prices and quantities, guiding production decisions.

Demand

• Represents the quantity of a good or service that consumers are willing and able to buy at various price points.
• Demand is influenced by factors like price, consumer income, and tastes.

Supply

• Represents the quantity of a good or service that producers are willing and able to offer at various price points.
• Supply is affected by factors such as input costs (raw materials), technology, and government policies.

Price Determination

• The interplay of demand and supply determines the equilibrium price and quantity in a market.

Price Changes

• Changes in prices ripple through the economy and impact consumers and producers.
• Increases in prices often lead to reduced demand and changes in production.

Price Elasticity of Demand

• Measures the responsiveness of quantity demanded to a change in price.
• Elastic demand indicates a substantial change in quantity demanded with a small price change.
• Inelastic demand means a small change in quantity demanded with a large price change.

Price Elasticity of Supply

• Measures the responsiveness of quantity supplied to a change in price.
• Elastic supply indicates a significant change in quantity supplied with a price change.
• Inelastic supply means a small change in quantity supplied with a large price change.

Market Economic System

• An economic system where resources are allocated primarily through markets.
• Prices guide individuals and firms in production and consumption decisions.

Market Failure

• Situations where markets fail to allocate resources efficiently.
• This can result from externalities, public goods, or information asymmetry.

Mixed Economic System

• A combination of market and centrally planned systems.
• Government plays a role alongside the market in resource allocation.