Introduction to Economics Concepts
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Questions and Answers

What term describes the coexistence of the government and the private sector in economic decision-making?

  • Capitalism
  • Mixed Economy (correct)
  • Monopoly
  • Socialism

Normative economics is based on facts.

False (B)

Name one characteristic of a mixed market.

Private Ownership

Positive economics explains economic phenomena in __________ terms.

<p>verifiable</p> Signup and view all the answers

Match each aspect of economic study with its definition:

<p>Positive economics = Describes and explains economic phenomena Normative economics = Focuses on value judgments and fairness Resource allocation = Distribution of resources in an economy Public services = Government-funded services for the public</p> Signup and view all the answers

Which of the following could be a goal of normative economics?

<p>Reducing unemployment rates (C)</p> Signup and view all the answers

Competition is not a characteristic of a mixed market.

<p>False (B)</p> Signup and view all the answers

What type of economic policy might be considered to sustain or reduce unemployment rates?

<p>targeted economic policies</p> Signup and view all the answers

What is the primary role of an entrepreneur in economics?

<p>To make decisions related to production (C)</p> Signup and view all the answers

Scarcity refers to the fact that human wants and needs are limited.

<p>False (B)</p> Signup and view all the answers

What are the basic economic questions that need to be addressed?

<p>How to produce, what to produce, for whom to produce</p> Signup and view all the answers

In a free market, companies and resources are owned by ______ individuals or entities.

<p>private</p> Signup and view all the answers

Which of the following best describes a 'trade-off'?

<p>Giving up one thing to gain another (D)</p> Signup and view all the answers

Match the economic concepts with their descriptions:

<p>Private Ownership = Ownership by individuals or entities Market Forces = Supply and demand control the economy Competition = Rivalry among businesses for resources and customers Consumer Choice = Decisions made by consumers based on preferences</p> Signup and view all the answers

In a free market, the government has complete control over economic activities.

<p>False (B)</p> Signup and view all the answers

What is rationality in the context of economic decision-making?

<p>The assumption that individuals make choices to maximize their utility based on their preferences and constraints.</p> Signup and view all the answers

What does perfect information in economic theory assume?

<p>Consumers and producers have complete and accurate information (B)</p> Signup and view all the answers

Ceteris paribus means 'everything else is variable'.

<p>False (B)</p> Signup and view all the answers

What economic theory suggests that population growth may outpace resource production?

<p>Malthusian economics</p> Signup and view all the answers

In Keynesian economics, ____ demand is key to understanding economic output.

<p>aggregate</p> Signup and view all the answers

Which of the following best describes laissez-faire?

<p>A theory of free-market capitalism (D)</p> Signup and view all the answers

The Keynesian model is solely focused on individual behaviors in the economy.

<p>False (B)</p> Signup and view all the answers

What does the failure to hold things constant under ceteris paribus lead to?

<p>Errors in analysis</p> Signup and view all the answers

Match the economic theories to their descriptions:

<p>Perfect Information = Consumers and producers have full knowledge Ceteris Paribus = Assumes other factors are constant Malthusian Economics = Population growth vs. linear resource production Keynesian Economics = Aggregate demand impacts the entire economy</p> Signup and view all the answers

What is defined as a condition where individuals lack basic necessities for survival?

<p>Absolute poverty (C)</p> Signup and view all the answers

Unemployment is when individuals are employed in jobs that do not utilize their skills.

<p>False (B)</p> Signup and view all the answers

What impact does high unemployment have on economic development?

<p>It leads to the underutilization of labor resources and reduces household income, stalling economic progress.</p> Signup and view all the answers

Individuals experiencing ______ work in jobs below their skills or education level.

<p>underemployment</p> Signup and view all the answers

Match the types of unemployment or underemployment with their definitions:

<p>Visible Underemployment = Working fewer hours than desired Invisible Underemployment = Working in roles that underutilize skills Unemployment = Willing and able to work but cannot find a job Absolute Poverty = Lack of basic necessities for survival</p> Signup and view all the answers

What effect does hysteresis have on unemployment?

<p>It erodes skills over time, making re-entry into the workforce harder. (C)</p> Signup and view all the answers

Underemployment is only related to employees who want more hours.

<p>False (B)</p> Signup and view all the answers

What are the key determinants of demand?

<p>Factors that influence the quantity of a good or service consumers are willing to purchase at a given price.</p> Signup and view all the answers

What does relative poverty measure?

<p>Income below a country's median level. (C)</p> Signup and view all the answers

The O-Ring Theory focuses solely on high-quality labor without any regard to task interdependence.

<p>False (B)</p> Signup and view all the answers

Who developed the O-Ring Theory?

<p>Michael Kremer</p> Signup and view all the answers

In relative poverty, individuals are often defined as poor if they earn less than _____ of the median income in their country.

<p>50%</p> Signup and view all the answers

Match the following concepts with their descriptions:

<p>Absolute Poverty = Severe deprivation of basic human needs. Relative Poverty = Comparison of income within a specific society. O-Ring Theory = Interconnectedness of tasks in production. Inequality = Disparities in income and resources among individuals.</p> Signup and view all the answers

What is one of the key features of relative poverty?

<p>It varies by country and over time. (B)</p> Signup and view all the answers

Economic underdevelopment can be influenced by the presence of widespread poverty.

<p>True (A)</p> Signup and view all the answers

What major impact does relative poverty have on individuals?

<p>It emphasizes social inequality and affects quality of life.</p> Signup and view all the answers

What is one effect of high inflation?

<p>Erodes purchasing power (B)</p> Signup and view all the answers

A leftward shift in the demand curve indicates an increase in demand.

<p>False (B)</p> Signup and view all the answers

What does a change in demand reflect?

<p>Shifts in the demand curve due to external factors.</p> Signup and view all the answers

The law of demand states that as the price of a good increases, the quantity demanded __________.

<p>decreases</p> Signup and view all the answers

Which of the following can cause a decrease in demand?

<p>Fall in the price of substitutes (A), Rise in the price of complementary goods (D)</p> Signup and view all the answers

Match the following scenarios with their impact on demand:

<p>Increase in consumer income = Increase in demand for normal goods Rise in the price of complementary goods = Decrease in demand Change in preferences favoring streaming = Decrease in demand for DVDs Positive future expectations = Increase in demand</p> Signup and view all the answers

A __________ is a graphical representation of the relationship between the price of a good and the quantity demanded.

<p>demand curve</p> Signup and view all the answers

What typically happens to the demand for electric vehicles as governments provide subsidies?

<p>Demand increases.</p> Signup and view all the answers

Flashcards

Factors of Production

The combination of land, labor, and capital used to create new products and services.

Scarcity

The idea that human wants and needs are unlimited, while resources are limited.

Rationality

The assumption that individuals make choices to maximize their satisfaction, given their preferences and constraints.

Trade-Off

The process of deciding which option to prioritize, knowing that choosing one means giving up the other.

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Basic Economic Questions

Economic questions that every society must answer: What goods and services to produce, how to produce them, and who gets them.

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Free Market

A system where individuals and businesses freely make decisions about production and consumption based on supply and demand.

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Economic Analysis

The application of economic theories and models to understand and analyze contemporary economic and social issues.

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Entrepreneur

A person who combines the factors of production to create new products or services, taking risks and making decisions about production.

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Mixed System

A system where the government and private sector work together to make economic decisions and manage resources.

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Positive Economics

Describes and explains economic events using verifiable data and analysis.

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Normative Economics

Judges the fairness and desirability of economic outcomes, often suggesting what the economy should be.

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Unemployment Rate

Measures the percentage of the workforce who are unemployed and actively seeking work.

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Applied Economics

The application of economic theory and econometrics to real-world situations.

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Lack of Competition

A situation where there is very little competition between businesses.

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Private Initiative

The role of individuals and businesses in making economic choices and decisions.

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Minimal Private Initiative

Describes an economic situation where the private sector plays a minimal role, often leading to limited innovation and efficiency.

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Unemployment

The situation where individuals capable and willing to work at the current wage rates cannot find a job.

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Underemployment

People are working in jobs that do not fully utilize their skills or education level, or they're working fewer hours than they desire.

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Visible Underemployment

When you work fewer hours than you'd like.

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Invisible Underemployment

When someone is working in a job that does not use their full potential.

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Absolute Poverty

A condition where individuals lack the basic necessities for survival like food, clean water, shelter, and clothing.

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Demand

The willingness and ability of consumers to purchase a good or service at a given price.

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Determinants of Demand

Factors that influence the quantity of a good or service consumers are willing and able to buy at a given price.

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Hyperinflation

A situation where prices rise rapidly and uncontrollability.

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Economic Theory

A set of ideas and principles that explain how different economies function. Economic theories often use models to represent how key variables interact.

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Malthusian Economics

The idea that, while population growth may be exponential, the growth of food supply and other resources is linear, leading to potential resource shortages and societal problems.

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Laissez-Faire Economics

A theory that advocates for minimal government intervention in the free market, allowing individuals and businesses to make economic decisions based on supply and demand.

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Keynesian Economics

A macroeconomic theory focusing on aggregate demand, which is the total spending in an economy. This theory suggests that government intervention can influence economic output and inflation.

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Perfect Information

The assumption that consumers and producers have complete and accurate information about products, prices, and other relevant economic factors.

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Ceteris Paribus

A Latin phrase meaning "other things being equal" or "holding all else constant". It's important for isolating the effect of one variable on another.

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Failure To Hold Things Constant Under Ceteris Paribus

An error in economic analysis where extraneous variables are considered, making it difficult to isolate the true cause of an economic phenomenon.

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Fallacies in Economics (Failure to Hold Things Constant Under Ceteris Paribus)

A situation where an economic theory makes a claim that assumes one factor is the sole cause of a change, when in reality other factors could also be involved.

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What is relative poverty?

Relative poverty refers to a situation where individuals or groups have significantly less income or resources compared to others in the same society or economy. It's measured in relation to the societal average.

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O-Ring Theory

The O-Ring Theory explains how crucial interconnected tasks are in production. If one small part fails, the entire system can collapse.

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Why is the O-Ring Theory important?

The O-Ring Theory highlights the importance of high-quality labor and interconnected tasks in achieving production success.

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How does poverty impact economic development?

Widespread poverty limits consumption, savings, and investment, impacting overall economic activity and development.

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What's the difference between absolute and relative poverty?

Absolute poverty focuses on severe deprivation of basic needs, while relative poverty highlights social inequality and its impact on quality of life.

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Why do economies or sectors experience persistent underdevelopment?

Persistent underdevelopment in economies or sectors can be explained by the lack of cooperation, even when there are clear potential benefits.

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What is the 'O-Ring' in the theory?

The failure of a single small part (the O-Ring) can lead to catastrophic failure in a complex system.

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What's the key lesson from the O-Ring Theory?

The O-Ring Theory emphasizes that small errors in a crucial part of a production process can negatively impact the entire system.

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Demand Schedule

Shows the relationship between the price of a good and the quantity demanded, holding other factors constant.

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Demand Curve

A graphical representation of the demand schedule, showing the inverse relationship between price and quantity.

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Decrease in Demand

A decrease in demand, meaning consumers are willing to buy less of a good at the same price. This shifts the demand curve to the left.

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Increase in Demand

An increase in demand, meaning consumers are willing to buy more of a good at the same price. This shifts the demand curve to the right.

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Law of Demand

The higher the price, the lower the quantity that consumers are willing and able to buy. This is the reason why demand curves slope downwards.

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Change in Demand

The change in demand is a broader shift in the demand curve, reflecting external factors. This is a shift of the entire curve.

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Change in Quantity Demanded

A specific change in the quantity demanded due to a change in price, resulting in movement along the existing demand curve.

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Study Notes

Defining Economics

  • Economics is the effective management of scarce resources to satisfy unlimited human needs and wants.
  • It studies how individuals, groups, and societies produce, consume, and distribute goods and services.
  • Economics origins can be traced to Adam Smith's book "An Inquiry into the Nature and Causes of the Wealth of Nations."

Basic Economic Concepts

  • Scarcity: Limited resources (land, labor, capital, entrepreneurship) in contrast to unlimited needs and wants.
  • Unlimited Needs and Wants: Human desires for goods and services are endless.
  • Rationality: Individuals make choices to maximize their utility, given their preferences and constraints.
    • Example: A store orders essentials like bread and milk, predicting customer demand.
  • Trade-offs: Choosing one option over another, involving sacrifices.
    • Example: Vacation expenses versus savings for future investment.
  • Opportunity cost: Value of the next best alternative lost when making a decision.
    • Example: Purchasing tractors, losing the profitability of an alternative project.

Economic Resources (Factors of Production)

  • Land: Natural resources (e.g., land, water, minerals). Payment is rent.
  • Labor: Human skills and effort. Payment is wages/salaries.
  • Capital: Man-made resources (e.g., machinery, tools). Payment is interest.
  • Entrepreneurship: Combining other factors to create new products/services.

Basic Economic Questions

  • How to produce?
  • What to produce?
  • For whom to produce?

Economic Systems

  • Free Market: Economic decisions based on supply and demand, with minimal government intervention.
  • Characteristics: Private ownership, competition, market forces, resource allocation.

Command System

  • Economic decisions controlled by a central authority (typically government).
  • Characteristics: Central planning, public ownership, limited consumer choice, production quotas.

Mixed System

  • Coexistence of government and private sectors in economic decision-making and resource allocation.
  • Characteristics: Private and government ownership, regulation, market forces, taxes and redistribution.

Economic Theory

  • Economic theories: A set of principles and ideas that explain how economies function.

    • Example: Keynesian economics analyzes the relationship between aggregate demand and economic output.

  • Assumptions: Economic theories often make simplified assumptions to better understand behavior.

  • Rationality: Individuals make logical decisions.

  • Profit Maximization: Businesses strive to maximize profits.

  • Perfect Information: Clear and accurate information is available.

  • Ceteris Paribus: Holding all other conditions equal.

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Description

This quiz covers the fundamental concepts of economics, including scarcity, unlimited needs and wants, rationality, trade-offs, and opportunity cost. Understanding these concepts is essential for analyzing how resources are managed and allocated in societies. Explore the origins of economic thought with references to Adam Smith's work.

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