12 Questions
What economic system relies on market prices as signals to producers?
Capitalism
In economics, what refers to man's mental and physical labor?
Labor
What does the lowest legal price that can be paid in the market for goods and services, labor, or financial capital represent?
Price floors
Which term describes the individual exercise of free enterprise in an economic system?
Capitalism
Which economic term quantifies the relationship between the unemployment rate and the GDP gap?
Okuns...
Which term refers to laws enacted by the government to regulate prices?
Price control
Which economic system involves making production decisions based on custom and tradition?
Traditional economy
In economics, what do you call organizations that transform resources into products?
Firms
Which market should consumers purchase products in, according to the text?
Output Markets
What happens to the demand for green tea if it is considered a normal good?
Increases as price increases
According to the law of supply, what is the relationship between price and quantity supplied?
Positive
Which economic system prioritizes the interests of society over those of individuals?
Command economy
Study Notes
Economic Systems
- A command system is a socialist economy.
- In a capitalist system, market prices serve as a signal to producers about what goods to produce and how much of these goods should be produced.
- A mixed economy answers economic problems predominantly through the price mechanism with government intervention.
Economic Units
- A household is considered a basic consuming unit.
- Land refers to resources such as water, forest, and minerals.
- Labor refers to a person's mental and physical effort.
- Capital refers to machines, tools, and equipment.
Economic Concepts
- An entrepreneur is a risk-taker and decision-maker.
- Interest is the price of capital.
- Macroeconomics pertains to national income analysis.
- Microeconomics is also known as price theory.
- Normative economics deals with the idea of what should be.
- Scarcity is a fundamental concept in economics.
Price Control and Regulation
- Price control refers to laws enacted by the government to regulate prices.
- Price floors are the lowest legal price that can be paid in the market for goods and services, labor, or financial capital.
- Equilibrium quantity is the quantity that corresponds to the equilibrium price.
Unemployment and Business Cycle
- Cyclical unemployment is caused by a decline in total spending, typically during recession cases of the business cycle.
- Structural unemployment is caused by changes in the demand and technology in the labor market.
- Okun's Law quantifies the relationship between the unemployment rate and the GDP gap.
Supply and Demand
- The law of supply states that there is a positive relationship between price and quantity.
- Firms are organizations that transform resources into products.
- Substitutes are products that have a negative relationship in demand, meaning that as the price of one item decreases, the demand for the other item increases.
Market Equilibrium
- A market will be in equilibrium if the quantity of the good supplied equals the quantity demanded.
Other Concepts
- Output markets are where consumer-purchased products are sold.
- Normal goods have a direct relationship between price and demand, meaning that as the price increases, the demand also increases.
- The law of demand implies that as the price falls, the quantity demanded increases.
Test your knowledge of the law of supply, market equilibrium, and economic terms like firms and substitutes with this economics quiz. See if you can correctly answer questions on the relationship between price and quantity, equilibrium conditions in a market, and the effects of price changes on demand.
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