Introduction to Economics Quiz

Introduction to Economics

• Economics studies how societies allocate scarce resources to meet unlimited wants and needs.
• It analyzes choices made by individuals, businesses, and governments.
• Microeconomics examines individual markets and businesses, while macroeconomics studies the entire economy.
• Key economic concepts include scarcity, opportunity cost, supply and demand, and market equilibrium.

Scarcity

• Resources are limited, while wants and needs are unlimited.
• Scarcity drives economic decision-making.
• Scarcity necessitates choices and trade-offs.

Opportunity Cost

• Opportunity cost is the value of the next best alternative forgone.
• It measures the relative cost of a decision.
• Every choice has an opportunity cost.

Supply and Demand

• Supply is the quantity of a good or service producers are willing to offer at various prices.
• Demand is the quantity of a good or service consumers are willing to purchase at various prices.
• Supply and demand interactions determine market prices and quantities.

Market Equilibrium

• Market equilibrium occurs when quantity supplied equals quantity demanded.
• At equilibrium, there's no pressure for prices to change.
• Any surplus or shortage leads to price adjustments until equilibrium is restored.

Factors Affecting Supply

• Input costs (raw materials, labor, capital) affect production costs and supply.
• Technology improvements increase productivity and lower costs, boosting supply.
• Government regulations (taxes, subsidies) affect production costs and supply.
• Producer expectations influence current supply decisions.
• The number of sellers impacts the overall supply.

Factors Affecting Demand

• Consumer tastes and preferences shift demand.
• Consumer income impacts purchasing power and demand.
• Related good prices (complements and substitutes) influence demand.
• Consumer expectations about future prices or conditions affect current demand.
• The number of buyers affects overall demand.

Types of Economies

• Traditional Economy: Decisions based on customs, traditions, and beliefs.
• Command Economy: The government controls production (what, how, and for whom).
• Market Economy: Decisions made by individuals and businesses based on supply and demand.
• Mixed Economy: Combines elements of command and market economies, with government regulation and market freedom.

Production Possibility Curve (PPC)

• PPC illustrates trade-offs between producing two goods with limited resources and technology.
• It shows the maximum possible output combinations.
• Points outside the curve are currently unattainable.

Basic Economic Problems

• What to produce?: Determining goods and services based on consumer needs and desires.
• How to produce?: Choosing production methods and resources.
• For whom to produce?: Deciding who receives the produced goods and services.

Basic Economic Systems

• Capitalism: Private ownership, market decisions, and profit motive.
• Socialism: Government ownership controls major resources for social welfare and equality.
• Communism: Theoretical system with common ownership and classless society, often manifested in practice as a totalitarian state.

Circular Flow of Income

• Shows the continuous flow of money, goods, and services between households and firms.
• Firms produce, sell to households, receive payment, and households provide factors and earn income.

Economic Growth

• Increases in a nation's productive capacity (measured by real GDP per capita) over time.
• Driven by technological advancements, capital accumulation, and labor force growth.
• A common economic goal.

Economic Development

• Focuses on improving economic well-being through factors like education, healthcare, and infrastructure, alongside growth.

Inflation

• A sustained increase in the general price level of goods and services.

Unemployment

• People actively seeking jobs but unable to find work. Types include frictional, structural, and cyclical unemployment.

Government Role in the Economy

• Regulate and stabilize the economy.
• Provide public services.
• Address market failures (e.g., monopolies and externalities).