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Questions and Answers
What is the fundamental problem that economists try to solve?
What is the fundamental problem that economists try to solve?
What is the value of the next best alternative that is given up when a choice is made?
What is the value of the next best alternative that is given up when a choice is made?
What determines the supply of a good or service?
What determines the supply of a good or service?
What is the point at which the supply and demand curves intersect?
What is the point at which the supply and demand curves intersect?
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What happens when the quantity supplied equals the quantity demanded?
What happens when the quantity supplied equals the quantity demanded?
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What is the price at which the quantity supplied equals the quantity demanded?
What is the price at which the quantity supplied equals the quantity demanded?
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What is the term for a situation where small changes in price or quantity do not affect the equilibrium?
What is the term for a situation where small changes in price or quantity do not affect the equilibrium?
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What happens in a situation of disequilibrium?
What happens in a situation of disequilibrium?
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What is the term for the point where the quantity supplied equals the quantity demanded?
What is the term for the point where the quantity supplied equals the quantity demanded?
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In a perfectly competitive market, which of the following is true?
In a perfectly competitive market, which of the following is true?
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What type of market structure is characterized by a single seller?
What type of market structure is characterized by a single seller?
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What is the term for a market for inputs such as labor, capital, land, and entrepreneurship?
What is the term for a market for inputs such as labor, capital, land, and entrepreneurship?
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What type of market structure is characterized by many buyers and sellers and differentiated products?
What type of market structure is characterized by many buyers and sellers and differentiated products?
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What type of market is characterized by imperfect competition among a few sellers?
What type of market is characterized by imperfect competition among a few sellers?
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What is the formula to calculate Gross Domestic Product (GDP)?
What is the formula to calculate Gross Domestic Product (GDP)?
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Which of the following is a goal of fiscal policy?
Which of the following is a goal of fiscal policy?
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What is the primary goal of monetary policy?
What is the primary goal of monetary policy?
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What is the phase of the business cycle characterized by increasing economic activity and low unemployment?
What is the phase of the business cycle characterized by increasing economic activity and low unemployment?
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Which type of unemployment occurs when people are changing jobs or entering the labor market?
Which type of unemployment occurs when people are changing jobs or entering the labor market?
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What is the term for the lowest point of contraction in the business cycle?
What is the term for the lowest point of contraction in the business cycle?
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What is the goal of increasing government spending in fiscal policy?
What is the goal of increasing government spending in fiscal policy?
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What is the term for unemployment that occurs due to a mismatch between job skills and available jobs?
What is the term for unemployment that occurs due to a mismatch between job skills and available jobs?
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What is the primary purpose of budgeting?
What is the primary purpose of budgeting?
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What is the recommended percentage for needs in the 50/30/20 rule?
What is the recommended percentage for needs in the 50/30/20 rule?
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What is the percentage of credit utilization that should be avoided to prevent a negative impact on credit score?
What is the percentage of credit utilization that should be avoided to prevent a negative impact on credit score?
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What is the percentage of credit score that is influenced by payment history?
What is the percentage of credit score that is influenced by payment history?
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Why is it important to monitor credit reports regularly?
Why is it important to monitor credit reports regularly?
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What is the main purpose of zero-based budgeting?
What is the main purpose of zero-based budgeting?
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What happens when credit utilization exceeds 30%?
What happens when credit utilization exceeds 30%?
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Why is it advisable to avoid applying for multiple credit cards or loans in a short period?
Why is it advisable to avoid applying for multiple credit cards or loans in a short period?
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What is the main goal of the European Union's economic integration?
What is the main goal of the European Union's economic integration?
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Which institution is the executive body of the European Union?
Which institution is the executive body of the European Union?
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What is a key benefit of international trade?
What is a key benefit of international trade?
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What is a type of trade barrier?
What is a type of trade barrier?
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What is the purpose of the European Union's Common Commercial Policy?
What is the purpose of the European Union's Common Commercial Policy?
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What is the name of the international trade organization that the European Union is a part of?
What is the name of the international trade organization that the European Union is a part of?
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What is the European Union's monetary union policy?
What is the European Union's monetary union policy?
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What is the purpose of the European Union's regional development policies?
What is the purpose of the European Union's regional development policies?
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Study Notes
Scarcity
- Definition: The fundamental economic problem of scarcity refers to the limited availability of resources to meet unlimited human wants and needs.
- Characteristics:
- Resources are limited
- Wants and needs are unlimited
- Choices must be made about how to allocate resources
Opportunity Cost
- Definition: The value of the next best alternative that is given up when a choice is made.
- Key points:
- Opportunity cost is a subjective value, dependent on individual preferences
- It is the cost of choosing one option over another
- Opportunity cost is not always monetary, but can be time, effort, or other resources
Supply and Demand
-
Supply:
- Definition: The amount of a good or service that producers are willing and able to produce and sell at a given price level.
- Determinants:
- Production costs
- Technology
- Expectations
- Government policies
-
Demand:
- Definition: The amount of a good or service that consumers are willing and able to buy at a given price level.
- Determinants:
- Price
- Income
- Consumer preferences
- Population
Market Equilibrium
- Definition: The point at which the supply and demand curves intersect, resulting in no excess supply or demand for a good or service.
- Characteristics:
- Equilibrium price: The price at which the quantity supplied equals the quantity demanded.
- Equilibrium quantity: The quantity supplied and demanded at the equilibrium price.
- Types of equilibrium:
- Stable equilibrium: Small changes in price or quantity do not affect the equilibrium.
- Unstable equilibrium: Small changes in price or quantity can cause the equilibrium to shift.
- Disequilibrium: A situation where the quantity supplied does not equal the quantity demanded.
Scarcity
- The fundamental economic problem of scarcity arises due to limited resources and unlimited human wants and needs.
- Resources are limited, while wants and needs are unlimited, forcing individuals to make choices about resource allocation.
Opportunity Cost
- Opportunity cost is the value of the next best alternative given up when a choice is made.
- It is a subjective value dependent on individual preferences.
- Opportunity cost can be non-monetary, such as time, effort, or other resources.
Supply
- Supply refers to the amount of a good or service producers are willing and able to produce and sell at a given price level.
- Determinants of supply include production costs, technology, expectations, and government policies.
Demand
- Demand refers to the amount of a good or service consumers are willing and able to buy at a given price level.
- Determinants of demand include price, income, consumer preferences, and population.
Market Equilibrium
- Market equilibrium occurs when the supply and demand curves intersect, resulting in no excess supply or demand.
- The equilibrium price is the price at which the quantity supplied equals the quantity demanded.
- The equilibrium quantity is the quantity supplied and demanded at the equilibrium price.
- Types of equilibrium include stable equilibrium, unstable equilibrium, and disequilibrium.
Microeconomics
Supply and Demand
- As the price of a good increases, the quantity supplied also increases, assuming all other factors remain constant (Law of Supply).
- Conversely, as the price of a good decreases, the quantity demanded also increases, assuming all other factors remain constant (Law of Demand).
- The equilibrium point is reached when the supply and demand curves intersect, resulting in the quantity supplied equaling the quantity demanded.
- Shifts in the supply curve occur due to changes in production costs, technology, or expectations.
- Shifts in the demand curve occur due to changes in consumer preferences, income, or prices of related goods.
Market Structure
Types of Market Structures
- Perfect competition is characterized by many buyers and sellers, free entry and exit, a homogeneous product, and perfect information.
- Monopoly is marked by a single seller, barriers to entry, and a single product.
- Monopolistic competition is characterized by many buyers and sellers, free entry and exit, and differentiated products.
- Oligopoly is marked by few sellers, interdependent decision-making, and non-price competition.
Types of Markets
- Perfectly competitive markets are characterized by many buyers and sellers, free entry and exit, a homogeneous product, and perfect information.
- Imperfectly competitive markets include monopoly, monopsony, monopolistic competition, and oligopoly.
- Factor markets involve the trade of inputs such as labor, capital, land, and entrepreneurship.
- Product markets involve the trade of outputs including goods and services.
Macroeconomics
Gross Domestic Product (GDP)
- GDP is the total value of goods and services produced within a country's borders over a specific time period, usually a year.
- GDP is calculated by adding Consumption, Investment, Government Spending, and the difference between Exports and Imports.
- GDP is a widely used indicator of a country's economic performance and growth.
Fiscal Policy
- Fiscal policy is the use of government spending and taxation to influence the overall level of economic activity.
- Government spending can be increased to stimulate the economy or decreased to reduce inflation.
- Taxation can be used to increase disposable income by lowering taxes or to reduce demand by increasing taxes.
- The goals of fiscal policy are to stabilize the economy, promote economic growth, and reduce unemployment.
Monetary Policy
- Monetary policy is the actions of a central bank to control the money supply and interest rates.
- Open Market Operations involve buying or selling government securities to increase or decrease the money supply.
- Changing reserve requirements can increase or decrease the money supply.
- Setting short-term interest rates can influence borrowing and spending.
- The goals of monetary policy are to promote maximum employment, price stability, and moderate long-term interest rates.
Business Cycle
- The business cycle refers to the fluctuations in economic activity, typically involving periods of expansion and contraction.
- The phases of the business cycle are expansion, peak, contraction, trough, and recovery.
- Expansion is characterized by increasing economic activity and low unemployment.
- The peak is the highest point of expansion.
- Contraction is characterized by decreasing economic activity and rising unemployment.
- The trough is the lowest point of contraction.
- Recovery is the period when economic activity begins to increase again.
Types of Unemployment
- Frictional unemployment occurs when people are changing jobs or entering the labor market.
- Structural unemployment occurs when there is a mismatch between job skills and available jobs.
- Cyclical unemployment occurs due to economic downturns.
- Seasonal unemployment occurs due to regular fluctuations in demand for certain industries.
- Long-term unemployment lasts for an extended period of time.
Budgeting
- Budgeting is a process to allocate income towards expenses, savings, and debt repayment, helping prioritize financial goals and make conscious spending decisions.
- Effective budgeting reduces financial stress and anxiety, enabling individuals to manage their finances effectively and make the most of their income.
- To create a budget, identify income and fixed expenses, categorize expenses into needs and wants, set financial goals, assign percentages of income to each category, and track and adjust expenses regularly.
- Common budgeting methods include the 50/30/20 rule, allocating 50% for needs, 30% for wants, and 20% for savings and debt repayment, and zero-based budgeting, where every dollar is accounted for and assigned to a category.
Credit Management
- Credit management involves managing credit responsibly to achieve financial goals and maintain a good credit score.
- A good credit score can lead to lower interest rates, better loan terms, and lower insurance premiums, while poor credit management can lead to debt, financial stress, and a lower credit score.
- A credit score is composed of payment history (35%), credit utilization (30%), length of credit history (15%), credit mix (10%), and new credit (10%).
- Effective credit management strategies include making on-time payments, keeping credit utilization ratios below 30%, monitoring credit reports regularly, avoiding multiple credit applications, and considering debt consolidation.
European Union
- 27 member states in Europe, established in 1993 after the Maastricht Treaty
- Aims to promote economic and social integration among member states
- Key institutions: European Commission, European Council, and European Parliament
EU Institutions
- European Commission: executive body
- European Council: heads of state and government
- European Parliament: directly elected by EU citizens
EU Economic Integration
- Single market: allows for free movement of goods, services, capital, and people
- Monetary union: 19 member states use the Euro as a single currency
- Fiscal policy coordination: member states coordinate budget policies
- Common agricultural and fisheries policies
- Regional development policies to reduce economic disparities
International Trade
- Exchange of goods and services between countries
- Gains from trade:
- Specialization and comparative advantage
- Increased efficiency and productivity
- Greater variety of goods and services
Trade Barriers
- Tariffs: taxes on imported goods
- Quotas: limits on imported quantities
- Non-tariff barriers: regulatory and administrative obstacles
Trade Agreements
- Bilateral agreements: between two countries
- Multilateral agreements: among multiple countries (e.g., WTO)
- Regional trade agreements: among member states (e.g., EU, NAFTA)
EU Trade Policy
- Common Commercial Policy: EU speaks with one voice in international trade negotiations
- EU trade agreements: over 40 agreements with countries and regions worldwide
- EU's role in international trade organizations:
- World Trade Organization (WTO)
- Organization for Economic Co-operation and Development (OECD)
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Description
Understand the fundamental economic problem of scarcity, its characteristics, and the concept of opportunity cost, including its definition and key points.
