Introduction to Economics Quiz

Study Notes

Economics studies how individuals and societies allocate scarce resources to satisfy unlimited wants.
Scarcity means there are limited resources, but unlimited wants, leading to choices and trade-offs.
Opportunity cost is the value of the most valuable alternative forgone.

Factors of production are the inputs used to create goods and services:
- Land: Natural resources (minerals, forests)
- Labor: Human effort (workers in a factory)
- Capital: Tools and machinery (computers, factories)
- Entrepreneurship: Ability to combine resources and take risks for new products
Production Possibility Curve (PPC) shows the maximum combinations of goods an economy can produce with its available resources.
Economic growth, caused by technological improvements or increased resources, shifts the PPC outwards.

Law of Demand: As the price of a good decreases, the quantity demanded increases, and vice versa.
Demand Curve: Visual representation of the relationship between price and quantity demanded, sloping downwards.
Law of Supply: As the price of a good increases, the quantity supplied increases, and vice versa.
Supply Curve: Visual representation of the relationship between price and quantity supplied, sloping upwards.
Market Equilibrium: The point where quantity demanded equals quantity supplied.
Shifts in Demand: Affected by income, tastes, prices of related goods, expectations.
Shifts in Supply: Affected by production costs, technology, number of suppliers, expectations.

Perfect Competition: Many firms, selling identical products, with no individual control over pricing. (Example: Agriculture)
Monopolistic Competition: Many firms, selling differentiated products, with some price control. (Example: Restaurants)
Oligopoly: Few firms, with interdependent pricing decisions, potential for collusion. (Example: Airlines)
Monopoly: Single firm controlling the market, significant price-setting power, barriers to entry. (Example: Local utility companies)

Governments intervene in markets to correct market failures, redistribute income, and promote economic stability.
Types of Intervention:
- Taxes: To reduce negative externalities (example: Cigarette taxes).
- Subsidies: To encourage positive externalities (example: Renewable energy subsidies).
- Regulations: To enforce standards & protect consumers (example: Environmental regulations).
- Price Controls:
  - Minimum Price (Floor): Prevents prices from falling below a certain level (example: Minimum wage)
  - Maximum Price (Ceiling): Prevents prices from rising above a certain level (example: Rent controls)

Economic Development: Aims to improve living standards, education, health.
Economic Growth: Focuses on increasing GDP (Gross Domestic Product).
Challenges to Development:
- Poverty: Lack of access to resources and opportunities.
- Inequality: Disparities in wealth and income distribution.
- Corruption: Erosion of trust and efficiency in governance.