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What is the ultimate goal of economic science?
To improve the living conditions of people in their everyday lives.
Who defined economics as 'the study of mankind in the ordinary business of life'?
Material wants mean the desires of consumers, businesses, and units of governments to obtain and use various goods and services that provide ___.
utility
Material wants for goods and services can be completely satisfied.
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What is capital in the context of economics?
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Which of the following is not considered an economic resource according to the text?
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Capital goods satisfy wants indirectly by facilitating production of consumable goods, while consumer goods satisfy material wants directly.
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Match the entrepreneur's functions with their descriptions:
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In a command economy, the government makes most economic decisions.
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What does full employment mean?
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What is meant by full production?
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What does allocative efficiency refer to?
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Productive efficiency means producing goods and services in the least costly way.
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Production possibilities frontier (PPF) reflects a country's __________ and technologies.
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Define the points along the PPC as _____________ production points, as they show the maximum amount that can be produced from the two commodities.
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What does each point along the PPC represent?
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What is the only way to get more of one good while producing on the PPC?
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Moving from point Z to point K on the PPC involves producing more wheat while maintaining the same amount of machine. (True/False)
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What do points beyond the PPC represent?
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What is the term used to describe the desire to buy supported by the ability to buy?
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What does demand refer to in economic analysis?
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Demand can be described by tables or curves that relate the quantity of a product required by consumers at various ______ levels.
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Match the following concepts with their definitions:
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What is the relationship between the price of a good and the quantity demanded according to the Law of Demand?
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An increase in consumer income will always lead to a rightward shift of the demand curve for normal goods.
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What is the main determinant of demand that is influenced by consumer preferences?
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Shifts in the demand curve are caused by changes in ________ variables.
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Match the following factors with their effect on the demand curve: Income tax increase
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Define supply in economics.
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What is the law of supply?
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Explain the factors that can shift the supply curve to the right or left in economics.
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An increase in the number of producers of a commodity leads to a decrease in supply.
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What is a surplus in the market?
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What is a shortage in the market?
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What happens when a market is in a surplus?
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What occurs when the market is in a shortage?
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What happens to prices in a market as it moves towards equilibrium?
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Insert the presumed price of $12 into the demand function to find Qd?
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Insert the presumed price of $12 into the supply function to find Qs?
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What is the excess supply when the price is $12?
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Insert the presumed price of $6 into the demand function to find Qd?
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Insert the presumed price of $6 into the supply function to find Qs?
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What is the excess demand when the price is $6?
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What is elasticity a measure of?
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Study Notes
The Economic Problem and Economic Systems
- Definition of Economics: Economics is a social science that studies how individuals, governments, firms, and nations make choices on allocating scarce resources to satisfy their unlimited wants.
Why Study Economics?
- Economics is essential to understanding the world in which we live and work.
- It helps us understand:
- Why some people earn more than others.
- Why some jobs pay high wages while others pay low wages.
- How firms operating in different market environments decide what quantities to produce of their product outputs, what prices to charge for these outputs, and what quantities of labor and capital inputs to employ.
The Economic Problem
- Unlimited Wants: Material wants mean that the desires of consumers, businesses, and units of governments to obtain and use various goods and services that provide utility.
- Characteristics of Material Wants:
- Insatiable or unlimited: material wants for goods and services cannot be completely satisfied.
- Multiply over time: wants change and multiply, fueled by development of new products and advertising and sales promotion.
Scarce Resources
- Definition of Economic Resources: Economic resources mean all natural, human, and manufactured resources that go into the production of goods and services.
- Types of Resources:
- Land: natural resources (endowments or gifts of nature).
- Labour: human resources, including physical and mental talents of human beings.
- Capital: manufactured aids or durable goods of an economy, produced to produce other goods.
- Entrepreneurial Ability: a special human resource that combines resources, innovates, makes business policy decisions, and bears risks.
Solving the Economic Problem
- Economics intervenes through its theories and tools at the micro and macro levels to help solve the economic problem.
- The three questions of economic organization:
- What goods are produced and in what quantities?
- How are commodities and services produced?
- For whom are goods and services produced?
Economic Systems
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Economics studies various mechanisms that an economy can use to allocate its scarce resources, including:
- Command economy
- Market economy
- Mixed economy### Economic Systems
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There are three ways to organize an economy: Command Economy, Market Economy, and Mixed Economy.
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Command Economy: government makes most economic decisions, owns resources, and directs all industries and farms.
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Market Economy: individuals and private firms make decisions, and resources are allocated based on market mechanisms.
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Mixed Economy: combines elements of command and market systems, with government regulation and market direction.
Economics and Efficiency
- Economics is the science of efficiency, aiming to get the maximum amount of useful goods and services with available resources.
- To achieve efficiency, a society must achieve:
- Full Employment: all available resources are employed.
- Full Production: all employed resources are used to make the most valued contributions to the GDP.
Types of Efficiency
- Allocative Efficiency: resources are directed to goods and services most wanted by society.
- Productive Efficiency: the least costly production technique is used to produce wanted goods and services.
Production Possibility Frontier (PPF)
- The PPF reflects a country's available resources and technologies.
- It shows the various combinations of two goods that can be produced, given the resources and technology.
- Assumptions:
- Efficiency: full employment and full production.
- Fixed Resources: resources are fixed in quantity and quality.
- Fixed Technology: technology does not change during the analysis.
- Two Goods: the economy produces only two goods.
Characteristics of PPF
- The PPF is a downward sloping curve, indicating that an increase in the production of one good requires a decrease in the production of the other good.
- Points on the curve represent efficient use of resources.
- Points inside the curve represent inefficient use of resources.
- Points outside the curve are desirable but not feasible, given the resources and technology.
Analysis of PPF
- The PPF shows the trade-offs between two goods, and the opportunity cost of producing one good instead of the other.
- Moving from one point to another on the curve requires a sacrifice in the production of one good to increase the production of the other good.
- The PPF is used to analyze the production possibilities of an economy and to make decisions about resource allocation.### The Production Possibility Frontier
- The production possibility frontier (PPF) represents the various combinations of two goods that can be produced when resources are fully utilized.
- Points inside the curve indicate that the economy is not achieving full employment and full production.
- Points outside the curve are not attainable due to limited resources and technology.
Law of Increasing Opportunity Costs
- Opportunity cost refers to the amount of other products that must be forgone or sacrificed to obtain one unit of a given product.
- The production possibility frontier shows the opportunity cost of one good as measured in terms of the other good.
- The opportunity cost of producing one good increases as the society moves along the production possibility frontier.
Applications of the Production Possibility Curve
- Unemployment: The production possibility curve can help explain the problem of unemployment by showing how the economy can attain full employment by utilizing its resources fully and efficiently.
- Economic Growth: The production possibility curve can shift outward due to an increase in resource quantity or quality, or technological progress, leading to economic growth.
- Present Goods versus Future Goods: An economy that allocates more resources to producing capital goods will have more of both kinds of goods in the future.
- The PPC and comparative advantage: The production possibility curve can help explain how countries can benefit from trade by specializing in the production of goods that they have a comparative advantage in.
The PPC and Division of Labor
- A division of labor refers to how production can be broken down into separate tasks, enabling machines to be developed and labor to specialize in a small range of activities.
- Division of labor leads to increase production efficiency and can shift the PPC outward.
Demand and Supply in a Market System
- A market refers to the convergence of the desires of a group of buyers and sellers of a particular good or service.
- The demand for a product is determined by the buyers as a group, while the supply of the product is determined by the sellers as a group.
- The concept of demand is used to describe, analyze, and predict the behavior of buyers in the market.
Demand
- Demand refers to the different quantities of a particular commodity that the consumer is willing and able to purchase at different price levels over some time.
- Effective demand is the desire to buy supported by the purchasing power, while ineffective demand refers to just the desire to acquire a commodity.
- Demand can be described by using tables or curves that relate the quantity of a product required and can be afforded by consumers in a particular period at various price levels.
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Description
Test your knowledge of economics principles with this quiz, prepared by professors from Helwan University's Faculty of Commerce and Business Administration.
