Economics Overview Quiz

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Questions and Answers

What does positive economics focus on?

Value-based judgments

Normative statements

Objective analysis of economic situations (correct)

Subjective interpretations

Which of the following represents an example of positive economics?

Unemployment rate (correct)

A proposal for tax reforms

Ideal allocation of resources

Suggestions for reducing poverty

Which economic branch deals with individual choices based on changes in incentives?

Agricultural economics

Microeconomics (correct)

Normative economics

Macroeconomics

What is scarcity in economic terms?

When supply cannot meet demand Signup and view all the answers

What is a normative statement?

An assertion that is based on personal values Signup and view all the answers

What are average variable costs (AVC)?

Fixed costs divided by the quantity of output Signup and view all the answers

Which of the following primarily focuses on improving economic development?

Normative economics Signup and view all the answers

Which statement best describes good in economic terms?

A product that satisfies someone's needs or wants Signup and view all the answers

What does agricultural economics study?

Production and distribution of agricultural resources Signup and view all the answers

What does macroeconomics analyze?

Overall economy behavior Signup and view all the answers

What does a high number of good substitutes indicate about the price elasticity of demand for a product?

Demand is elastic. Signup and view all the answers

When a price increase involves a substantial amount in proportion to the consumer's income, what type of demand is generally observed?

Elastic demand. Signup and view all the answers

Which type of goods are likely to have elastic demand according to their importance to consumers?

Luxury goods. Signup and view all the answers

What is likely to be the effect of time on supply elasticity?

Supply elasticity increases with time. Signup and view all the answers

What does the opportunity cost represent?

The value or benefit lost when choosing one option over another. Signup and view all the answers

According to Keynesian Theory, what happens if consuming goods does not increase demand for them?

It results in a decline in production. Signup and view all the answers

In the formula for Gross Domestic Product (GDP = C + I + G + (X-M)), what does 'C' represent?

Consumer spending. Signup and view all the answers

How is the inflation rate calculated?

As the percentage change in the price index from the previous period. Signup and view all the answers

What is the formula to calculate the Consumer Price Index (CPI)?

CPI = TWP Current / TWP Base Year x 100 Signup and view all the answers

Which type of unemployment is characterized by workers taking time to find jobs that suit their skills?

Frictional Unemployment Signup and view all the answers

What does the Inflation Rate (IR) formula measure?

Percentage change in the Consumer Price Index Signup and view all the answers

What is defined as the percentage of the labor force that is unemployed?

Unemployment Rate Signup and view all the answers

Which theory suggests that economic systems work best with minimal government intervention?

Laissez-Faire Theory Signup and view all the answers

How is the Purchasing Power of Peso calculated?

PPP Year = 100 / CPI of the Year Signup and view all the answers

Which type of unemployment arises when there aren't enough jobs available in the labor market?

Structural Unemployment Signup and view all the answers

What defines the term 'Underemployed' in the labor market?

Working less than 40 hours a week Signup and view all the answers

What defines autarky in economic terms?

A situation where a family group produces goods equal to their consumption Signup and view all the answers

Which of the following is NOT a characteristic of commodity money?

Is universally accepted without question Signup and view all the answers

What is one of the main functions of money?

A standard of deferred payment Signup and view all the answers

Which function does the Central Bank of the Philippines NOT perform?

Acts as a commercial lending bank for individuals Signup and view all the answers

When was the Central Bank of the Philippines formally opened?

January 3, 1949 Signup and view all the answers

What does the Electronic Fund Transfer System utilize for transactions?

Computer terminals for automated transactions Signup and view all the answers

Which of the following describes the main objective of the Central Bank of the Philippines?

To maintain price stability of the peso Signup and view all the answers

What role does the Central Bank of the Philippines serve in the financial system?

It acts as the lender of last resort Signup and view all the answers

What does fixed cost refer to in economic terms?

Costs that do not change with output levels. Signup and view all the answers

How does the law of demand typically affect quantity demanded?

Quantity demanded decreases with a price rise. Signup and view all the answers

What is average total cost (ATC) calculated as?

Total costs divided by the quantity produced. Signup and view all the answers

What defines a perfectly elastic demand?

An infinite change in quantity demanded without any change in price. Signup and view all the answers

A surplus occurs when:

The quantity supplied exceeds the quantity demanded. Signup and view all the answers

What influences elasticity of demand aside from price?

Tastes and preferences of consumers. Signup and view all the answers

In the context of equilibrium market, what occurs?

Demand is equal to supply. Signup and view all the answers

Which term describes the situation when supply and demand are not equal?

Disequilibrium. Signup and view all the answers

What do we call the costs that vary with production output?

Variable costs. Signup and view all the answers

How is elasticity of supply defined?

Responsiveness of quantity supplied to changes in price. Signup and view all the answers

Study Notes

Economics

Studies scarcity and its implications for resource use, goods and services production, growth, and welfare over time.

Positive Economics

Objective analysis of economic happenings.
Uses facts and verifiable data to explain economic events.
Investigates past and present economic activity to predict future trends.

Normative Economics

Focuses on value-based judgments to improve economic development, projects, and wealth distribution.
Based on opinions and values rather than empirical data.

Microeconomics

Analyzes individual economic actors' choices based on incentives, prices, resources, and production methods.

Macroeconomics

Examines overall economic behavior.

Agricultural Economics

Studies resource allocation, distribution, and utilization in agriculture.

Cost

Monetary value of sacrifices made to achieve an objective.
Includes money expenses incurred by a firm during production.

Fixed Cost

Remains constant regardless of output levels (e.g., rent).

Variable Cost

Changes with output levels (e.g., raw materials).

Total Cost

Sum of fixed and variable costs.

Average Total Costs (ATC)

Total cost divided by quantity output.

Average Fixed Costs (AFC)

Fixed cost divided by quantity output.

Average Variable Costs (AVC)

Variable cost divided by quantity output.

Inventories

Unsold goods that make up a firm's stock.

The Law of Demand

Quantity demanded of a good decreases as its price increases, and vice versa (ceteris paribus).

Factors Influencing Quantity Demanded (Besides Price)

Tastes and preferences
Income
Expectations about future prices
Prices of related goods (substitutes)

Ceteris Paribus

All other things remain equal.
Assumption of no change in any other variable.

Shortage

Occurs when quantity demanded exceeds quantity supplied.

The Law of Supply

Quantity supplied of a good increases as its price increases, and vice versa (ceteris paribus).

Factors Influencing Supply (Besides Price)

Cost of production
Number of firms in the market
Availability of economic resources
Technology used
Government policies

Equilibrium Market

State where demand equals supply.
Represents agreement between buyers and sellers on transaction quantities.

Equilibrium Price

The price at which demand and supply are equal.
Also known as the "market clearing price".

Disequilibrium

Occurs when supply and demand are not equal.

Surplus

Occurs when quantity supplied exceeds quantity demanded.

Elasticity of Demand

Measures the responsiveness of quantity demanded to changes in market price.

Elasticity of Demand Categories

Elastic Demand: Large percentage change in quantity demanded due to a price change.
Inelastic Demand: Small percentage change in quantity demanded due to a price change
Unitary Demand: Percentage change in price equals percentage change in quantity demanded.
Perfectly Elastic Demand: Infinite change in quantity demanded with no price change (or a very small change).
Perfectly Inelastic Demand: No change in quantity demanded despite a price change.

Elasticity Formula (for Demand):

(Qd1 - Qd2) / (Qd1 + Qd2) / (P1 - P2) / (P1 + P2)
Where:
- Q = quantity
- P = price

Elasticity Coefficient:

Greater than 1: Elastic demand, quantity changes faster than price
Equal to 1: Unitary demand
Less than 1: Inelastic demand, quantity changes slower than price

Determinants of Elasticity of Demand

Number of substitutes: Products with many substitutes have elastic demand, while those with few substitutes have inelastic demand.
Price increase in proportion to income: If a price increase has a small impact on a buyer's budget, demand is inelastic. If the price increase is a significant proportion of income, demand is elastic.
Importance of the product to consumers: Luxury goods are elastic, necessities like food are inelastic.

Elasticity of Supply

Measures the responsiveness of quantity supplied to changes in market price.

Price Elasticity of Supply (PES) Formula:

ES = %ΔQs / %ΔP
Where:
- %ΔQS = the percentage change in quantity supplied
- %ΔP = the percentage change in price

Determinants of Supply Elasticity:

Time: Longer time periods generally allow for greater supply elasticity.
Ability to produce substitutes: The availability of substitutes for the product influences supply elasticity.

Consumption

The use of goods and services by households.
The act of using resources to satisfy current wants and needs.

Consumers

Individuals who buy or use goods and services to satisfy their wants.
The final users of an item.

Keynesian Theory

Suggests that a lack of increased demand for goods and services leads to decreased production.
Emphasized government intervention to stimulate demand and economic activity.

Inflation

A sustained increase in the general price level.

Inflation Rate

The percentage change in the price index from the preceding period.

Consumer Price Index (CPI) Formula:

CPI = TWP Current / TWP Base Year x 100

Total Weighted Price (TWP)

Used to calculate the CPI.

Inflation Rate Formula:

IR = (CPI (Current Yr) - CPI (Past Yr) / CPI of the past year) x 100

Purchasing Power of Peso:

PPP (Year) = 100 / CPI of the Year

Labor Force

The portion of the population aged 15 or older, willing to work.

Unemployed

Individuals aged 15 or older, willing to work, and able to work but unable to find a job.

Underemployed

Workers who are employed for less than 40 hours per week and are seeking more work.

Visible Underemployment

The number of individuals working less than 40 hours per week and looking for more work.

Unemployment Rate

The percentage of the labor force that is unemployed.

Types of Unemployment

Frictional Unemployment: Occurs when workers are temporarily unemployed while searching for better job matches.
Structural Unemployment: Results from a mismatch between the available jobs and the skills of the workforce.

The Laissez-Faire Theory

Advocates for minimal government intervention in the economy, believing that markets will self-regulate.

Malthusian Theory

Suggests that population growth outpaces food production, leading to resource scarcity and limited living standards.

Money

Anything widely accepted as payment for goods and services, acts as a store of value and a means of settling debts.

Stages of Payment Evolution

Autarky: Production and consumption within a family or tribe, money not used.
Barter: Exchange of goods or services directly for other goods or services.
Commodity Money: Using uncoined metals (gold, silver, copper) as money.
Coinage: Standardized metal coins to prevent short weighting (deception in weight).
IOU: Written promises to pay (I owe you).
Specialized Bankers: Keeping and lending out a portion of entrusted money.
Electronic Fund Transfer System/Electronic Money: Transactions through computer terminals and automated systems.

Central Bank of the Philippines

The country's central bank, publicly owned and a non-profit government institution.
Responsible for currency issuance, serving as the government's banker, and regulating monetary and financial activities.

Characteristics of the Central Bank of the Philippines

Publicly owned, non-profit government bank.
Issues currency and is the ultimate source of money.
Serves as the government's banker and financial advisor.
Acts as a "banker's bank" for other banks.
Serves as the "lender of last resort" to banks in financial emergencies.
Holds the country's foreign exchange reserves.
Regulates monetary and financial activities.

The Central Bank of the Philippines was established in 1948

Formally opened and began operations on January 3, 1949.
Regulates money supply and supervises the financial system.

Main Objectives of the Central Bank of the Philippines

Maintaining price stability of the peso.
Fostering monetary, credit, and exchange conditions conducive to economic growth.

Instruments of Monetary Control

The Central Bank uses various instruments to regulate money supply and influence economic activity.

Gross Domestic Product (GDP): Formula

GDP = C + I + G + (X-M)
Where:
- C = Consumer spending
- I = Investment spending
- G = Government spending
- X = Exports
- M = Imports

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Description

Test your knowledge of key economic concepts, including positive and normative economics, micro and macroeconomics, and agricultural economics. This quiz covers the implications of scarcity, resource allocation, and cost analysis in the field of economics.