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Questions and Answers
What is the concept of 'Opportunity Cost' primarily concerned with?
What is the concept of 'Opportunity Cost' primarily concerned with?
Which economic system is characterized by low innovation and predictable roles?
Which economic system is characterized by low innovation and predictable roles?
According to Adam Smith, what does the 'Invisible Hand' represent?
According to Adam Smith, what does the 'Invisible Hand' represent?
What distinguishes 'Comparative Advantage' from 'Absolute Advantage'?
What distinguishes 'Comparative Advantage' from 'Absolute Advantage'?
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Which of the following is a pro of Socialism?
Which of the following is a pro of Socialism?
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What occurs at market equilibrium?
What occurs at market equilibrium?
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What does the Law of Demand state?
What does the Law of Demand state?
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Which factor of production is considered a natural resource?
Which factor of production is considered a natural resource?
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Study Notes
Economics - Key Concepts
- Economics: The management of a household (Greek). Focuses on decision-making with limited resources and unlimited wants (scarcity).
- Scarcity: A fundamental principle in economics. Resources have multiple uses.
- Opportunity Cost: What you give up when making a choice. "No free lunch" (Milton Friedman).
Three Central Economic Questions
- What to produce?
- How to produce?
- For whom to produce?
Factors of Production
- Capital: Tools, equipment (interest).
- Entrepreneurs: Risk-takers (profit).
- Labor: Workers' skills (wages).
- Land: Natural resources (rent).
Economic Theories and Key Figures
-
Adam Smith (Father of Economics):
- Division of Labor: Specialization increases efficiency.
- Invisible Hand: Self-interest promotes societal benefit.
- Wealth of Nations: Links labor to national wealth.
- David Ricardo: Comparative advantage (focus on what you do best/lower opportunity cost).
Economic Systems
- Traditional Economy: Stable, predictable roles, low innovation, low living standards.
- Capitalism (Free Market): Private property, voluntary exchange, profit motive, efficient and innovative, but can lead to inequality.
- Socialism: Government controls resources to meet social goals, equity, but can be inefficient with high taxes.
- Communism: Class struggle (bourgeoisie vs. proletariat), abolishment of private property, public goods for all, but with limited freedom and incentives.
Microeconomics
- Law of Demand: Price ↑, Quantity Demanded ↓ (inverse relationship).
- Law of Supply: Price ↑, Quantity Supplied ↑ (direct relationship).
- Market Equilibrium: Quantity demanded = quantity supplied.
- Elasticity: Responsiveness to price changes, Elastic (>1) = high sensitivity, Inelastic (<1) = low sensitivity.
- Diminishing Marginal Utility: Satisfaction decreases with more consumption of a product).
Macroeconomics
- Key Metric (GDP): Formula: GDP = C + I + G + (X - M). C = Consumption (70%), I= Investments, G= Government spending, X = Exports, M= Imports.
- Employment: Types: Frictional, Structural, Cyclical – Full employment = 4.5%.
- Inflation Causes: Demand-pull, Cost-push. Target rate: 2% (CPI.)
Additional Key Terms and Concepts
- Demand Shifters (TRIBE): Tastes, Related goods, Income, Buyers, Expectations
- Supply Shifters (COTTEN): Cost of inputs, Opportunity cost, Taxes, Technology, Expectations , Number of sellers.
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Description
Explore the fundamental principles of economics, including scarcity, opportunity cost, and the factors of production. Delve into the insights of key economic figures like Adam Smith and David Ricardo, and understand their contributions to economic theory and practice. This quiz will test your knowledge on how these concepts apply to decision-making with limited resources.
