Introduction to Economics Quiz

Introduction to Economics

• Economics is the social science studying how societies allocate scarce resources to satisfy unlimited wants and needs.
• Two main branches are microeconomics and macroeconomics.
• Microeconomics examines individual markets, consumers, producers, and their interactions.
• Macroeconomics analyzes the entire economy, including inflation, unemployment, and economic growth.

Scarcity and Choice

• Resources are scarce, insufficient to satisfy all desires.
• Scarcity necessitates choices about resource use.
• Choices involve trade-offs.
• Opportunity cost is the value of the next best alternative forgone.

Basic Economic Concepts

• Supply and Demand: Interaction of supply and demand determines market price and quantity. Supply is the quantity producers offer at various prices, while demand is the quantity consumers wish to buy. Equilibrium occurs where supply and demand curves intersect.
• Market Structures: Markets vary, with examples including perfect competition, monopolies, and oligopolies. Each structure affects pricing, output, and market dynamics.
• Elasticity: Measures responsiveness of quantity demanded or supplied to price or other factors. This includes price elasticity of demand, price elasticity of supply, income elasticity of demand, and cross-price elasticity of demand.
• Productivity: Measures production efficiency. Increased productivity yields greater output with the same resources.
• Externalities: Unintended market consequences affecting third parties. Positive externalities benefit and negative externalities harm third parties, such as education and pollution, respectively.
• Market Failures: Markets sometimes fail to allocate resources efficiently. Externalities and information asymmetries are common causes. Government intervention might be needed to correct this.

Economic Systems

• Capitalism: Private ownership of resources, market allocation, profit motive.
• Socialism: Social ownership, centralized planning, aiming for equitable distribution.
• Mixed Economy: Combines capitalist and socialist aspects. Most modern economies are mixed.

Macroeconomic Issues

• Economic Growth: Measured by increases in real GDP. Factors include capital investment, technological progress, and human capital.
• Inflation: Sustained increase in general price levels. Causes range from increased demand to supply-side issues.
• Unemployment: Portion of labor force actively seeking work but unemployed. Types include frictional, structural, and cyclical unemployment.
• Fiscal Policy: Government policies affecting taxation and spending to influence the economy.
• Monetary Policy: Actions by central banks managing money supply and credit to promote stability. Interest rates and reserve requirements are common tools.
• Economic Fluctuations: Recessions and expansions, assessed via GDP growth, employment, and inflation. Economists study these for better understanding and management.

International Economics

• Trade: Exchange of goods and services between countries. Factors include comparative advantage, specialization, and international agreements (e.g., WTO).
• Exchange Rates: Relative value of one currency to another, fluctuating and affecting international trade and investment.
• Globalization: Increasing interconnectedness of economies through trade, investment, and technology.