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Questions and Answers
What is the definition of economics?
Economics is the social science that studies the choices that individuals, businesses, governments, and entire societies make to cope with scarcity and the incentives that influence those choices.
Which of the following are the two main parts of economics?
What is meant by scarcity?
Scarcity refers to the inability to satisfy all our wants due to limited resources.
What are the four categories of factors of production?
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Microeconomics studies the performance of the national and global economies.
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In low-income Ethiopia, agriculture accounts for __ percent of total production.
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What is an incentive?
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What does it mean for resource use to be efficient?
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Match the following terms with their descriptions:
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Study Notes
Definition of Economics
- Economics studies how individuals, businesses, governments, and societies make choices in response to scarcity.
- Scarcity leads to the necessity of making choices and is influenced by incentives, which can be rewards or penalties.
Main Divisions of Economics
- Microeconomics: Focuses on individual and business choices and how they interact in markets, alongside governmental influences.
- Macroeconomics: Examines national and global economic performance, addressing issues like unemployment rates.
Key Economic Questions
- Central questions in economics involve what goods and services to produce, how to produce them, and for whom they are produced.
- Understanding the balance between self-interest and social interest is crucial to economic studies.
Production Insights: What, How, and For Whom
- Goods and services are valued and produced to meet human wants.
- In the U.S.:
- Agriculture contributes less than 1% to production.
- Manufactured goods account for 19%.
- Services represent 80%.
- In low-income Ethiopia:
- Agriculture makes up 36% of production.
- Manufactured goods are at 17%.
- Services only 47%.
How Goods and Services are Produced
- Goods and services are created using four factors of production:
- Land: Natural resources utilized in production.
- Labor: Human effort and time invested; influenced by human capital (skills/knowledge gained through education and experience).
- Capital: Tools, machinery, and infrastructure used in production.
- Entrepreneurship: The ability to organize land, labor, and capital effectively.
Income Distribution
- Earnings from factors of production:
- Land generates rent.
- Labor generates wages.
- Capital generates interest.
- Entrepreneurship generates profit.
Self-Interest vs. Social Interest
- Economic choices often reflect self-interest, aiming for individual benefit.
- Social interest encompasses decisions that benefit society collectively and includes:
- Efficiency: Optimal resource use where one person's gain does not cause another's loss.
- Fair Share: Considerations of equitable distribution of resources among individuals.
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Description
This quiz explores the fundamental concepts of economics, focusing on scarcity, choice, and incentives. You will learn about how individual, business, and government choices are influenced by these key economic principles. Test your understanding of the definition and scope of economics.
