Intermediate 2nd Year Economics Quiz

Key Concepts in Intermediate 2nd Year Economics

Microeconomics

Demand and Supply
- Law of Demand: Price and quantity demanded are inversely related.
- Law of Supply: Price and quantity supplied are directly related.
- Market Equilibrium: Point where demand equals supply.
Elasticity
- Price Elasticity of Demand: Measure of how quantity demanded responds to price changes.
- Income Elasticity: Response of demand to changes in consumer income.
- Cross Elasticity: Response of demand for one good when the price of another good changes.
Consumer Theory
- Utility: Satisfaction derived from consuming goods.
- Marginal Utility: Additional satisfaction from consuming one more unit.
- Budget Constraint: Limit on consumption based on income and prices.
Production and Costs
- Factors of Production: Inputs used to produce goods/services (land, labor, capital).
- Short-run vs. Long-run: Distinction based on fixed and variable inputs.
- Cost Curves: Average cost, marginal cost, and their implications for production decisions.
Market Structures
- Perfect Competition: Many firms, identical products, free entry/exit.
- Monopoly: Single firm, unique product, high barriers to entry.
- Oligopoly: Few firms, interdependent pricing, potential for collusion.

Macroeconomics

National Income Accounting
- GDP: Total value of goods/services produced in a country.
- GNP: GDP plus net income from abroad.
- NNP: GNP minus depreciation.
Inflation
- Definition: Sustained increase in the general price level.
- Types of Inflation: Demand-pull and cost-push inflation.
- Measurement: Consumer Price Index (CPI) and Producer Price Index (PPI).
Unemployment
- Types: Frictional, structural, cyclical, and seasonal.
- Natural Rate of Unemployment: Long-term average level of unemployment in an economy.
Monetary Policy
- Role of Central Banks: Control money supply and interest rates.
- Tools: Open market operations, discount rate, reserve requirements.
Fiscal Policy
- Government Spending: Impact on aggregate demand.
- Taxation: Role in influencing consumer spending and investment.

International Economics

Balance of Payments
- Accounts: Current account, capital account, financial account.
- Importance: Indicates economic relationship with the rest of the world.
Exchange Rates
- Definition: Price of one currency in terms of another.
- Types: Fixed, floating, and pegged exchange rates.
Trade Theories
- Comparative Advantage: Theory that explains why countries engage in trade.
- Protectionism: Use of tariffs and quotas to restrict imports.

Economic Development

Indicators of Development
- GDP per capita, Human Development Index (HDI), literacy rates.
Poverty and Inequality
- Measurement: Poverty line, income distribution metrics.
- Causes and consequences of poverty.

Key Theories and Models

Keynesian Economics
- Emphasis on total spending in the economy and its effects on output and inflation.
Classical Economics
- Belief in self-regulating markets, long-term growth, and full employment.
Behavioral Economics
- Study of psychological factors that affect economic decision-making.

Summary

Understanding these key concepts in Intermediate 2nd Year Economics provides a solid foundation for analyzing both microeconomic and macroeconomic environments. It equips students with the analytical tools to assess real-world economic issues.

Microeconomics

Demand and Supply
- Law of Demand states that price and quantity demanded have an inverse relationship; as price increases, demand decreases.
- Law of Supply indicates that price and quantity supplied are directly related; higher prices encourage more supply.
- Market Equilibrium exists where the quantity demanded equals the quantity supplied, determining market price.
Elasticity
- Price Elasticity of Demand measures how sensitive the quantity demanded is to price changes; higher elasticity indicates a greater response to price shifts.
- Income Elasticity assesses how demand changes in response to consumer income variations; positive values signify normal goods, negative values represent inferior goods.
- Cross Elasticity evaluates the demand change for one good when the price of a different good changes, indicating whether goods are substitutes or complements.
Consumer Theory
- Utility refers to the satisfaction gained from consuming goods and services.
- Marginal Utility is the extra satisfaction obtained from consuming an additional unit of a good, diminishing as consumption increases.
- Budget Constraint outlines the limits of consumption based on an individual’s income and the prices of goods.
Production and Costs
- Factors of Production include land, labor, and capital, essential for producing goods and services.
- Distinction between short-run (with at least one fixed input) and long-run (all inputs can vary) significantly influences production decisions.
- Cost Curves display average cost and marginal cost, crucial in determining the optimal output level for firms.
Market Structures
- Perfect Competition features many firms offering identical products with no barriers to entry or exit.
- Monopoly consists of a single firm controlling the market with unique products and significant barriers to entry.
- Oligopoly includes a few firms where pricing strategies are interdependent, often leading to potential collusion.

Macroeconomics

National Income Accounting
- GDP represents the total market value of all final goods and services produced within a country during a specific period.
- GNP calculates GDP plus net income earned from abroad, reflecting broader economic activity.
- NNP is derived from GNP minus depreciation of capital assets, providing a measure of sustainable income.
Inflation
- Inflation is characterized by a sustained increase in the general price level across an economy.
- Two primary types of inflation are demand-pull (driven by demand exceeding supply) and cost-push (resulting from rising production costs).
- Inflation measurement is conducted using Consumer Price Index (CPI) and Producer Price Index (PPI), serving as indicators of price changes.
Unemployment
- Different types of unemployment include frictional (short-term), structural (mismatch of skills), cyclical (linked to economic cycles), and seasonal (varies with seasons).
- The Natural Rate of Unemployment symbolizes the long-term average level of unemployment prevailing in an economy without cyclical influences.
Monetary Policy
- Central Banks play a crucial role in managing the economy through controlling money supply and influencing interest rates.
- Key tools include open market operations (buying/selling government securities), adjusting the discount rate, and setting reserve requirements for banks.
Fiscal Policy
- Government spending influences aggregate demand, stimulating economic growth or causing overheating.
- Taxation policies affect consumer spending and investment decisions, adjusting overall economic activity.

International Economics

Balance of Payments
- Divided into three accounts: current account (trade balance), capital account (financial transactions), and financial account (investment flows).
- The balance of payments reflects a country’s economic transactions with the rest of the world, signaling economic health.
Exchange Rates
- The exchange rate indicates the value of one currency compared to another, essential for international trade.
- Types include fixed (set by the government), floating (market-determined), and pegged (fixed to another currency or basket).
Trade Theories
- Comparative Advantage explains trade patterns where countries specialize in producing goods where they have a lower opportunity cost.
- Protectionism involves tariffs and quotas to limit imports, aiming to protect domestic industries from foreign competition.

Economic Development

Indicators of Development
- Key indicators include GDP per capita, Human Development Index (HDI), and literacy rates, providing insight into economic well-being and development progress.
Poverty and Inequality
- Poverty is measured through the poverty line and income distribution ratios, highlighting disparities in wealth and access to resources.
- Analysis of causes and consequences of poverty reveals critical challenges affecting economic stability and growth.

Key Theories and Models

Keynesian Economics
- Focuses on the importance of total spending for influencing economic output and inflation levels, advocating for active government intervention.
Classical Economics
- Emphasizes self-regulating markets, asserting that economies naturally move towards full employment and long-term growth.
Behavioral Economics
- Investigates how psychological factors influence economic decision-making, challenging traditional assumptions of rational behavior in economic theory.