Introduction to Economics Quiz

Introduction to Economics

• Economics studies how societies allocate scarce resources to satisfy unlimited wants and needs.
• It examines production, distribution, and consumption of goods and services.
• Key concepts include scarcity, opportunity cost, supply and demand, and market mechanisms.
• Macroeconomics focuses on the overall economy, including inflation, unemployment, and economic growth.
• Microeconomics focuses on individual markets and decisions by households and firms.

Scarcity and Choice

• Scarcity is the fundamental economic problem—limited resources against unlimited wants.
• This forces choices about resource use.
• Opportunity cost is the value of the next best alternative forgone.
• Every choice has an opportunity cost, such as producing good X instead of good Y.
• Individuals, firms, and governments face trade-offs due to scarcity.

Supply and Demand

• Supply is the quantity producers offer at various prices.
• Demand is the quantity consumers want to buy at various prices.
• Supply and demand curves show the price-quantity relationship.
• Their interaction determines market equilibrium price and quantity.
• Supply factors include input costs, technology, and government rules.
• Demand factors include consumer preferences, income, and related goods' prices.

Market Structures

• Perfect competition: many buyers/sellers, identical products, free entry/exit, perfect information.
• Monopoly: one seller controls the entire market.
• Monopolistic competition: many sellers with differentiated products.
• Oligopoly: a few large sellers dominate the market.
• Each structure has unique price-setting and competitiveness characteristics.

Macroeconomic Concepts

• Gross Domestic Product (GDP) measures the total value of goods/services produced within a country's borders in a period.
• Inflation is a sustained rise in the general price level.
• Unemployment is the percentage of the labor force actively seeking but unable to find work.
• Economic growth is an increase in the production of goods/services over time, often measured by GDP growth.
• Fiscal policy uses government spending/taxation to influence the economy.
• Monetary policy involves central bank actions to control money supply and interest rates.

Economic Systems

• Different economic systems—capitalist, socialist, and mixed—exist globally, each with advantages and disadvantages.
• Capitalism: private ownership, free markets, profit motives.
• Socialism: social ownership, resource distribution.
• Mixed economies blend capitalist and socialist features.

International Trade

• International trade allows specialization based on comparative advantage.
• Comparative advantage means producing a good/service at a lower opportunity cost than another country.
• Exports are domestically produced goods/services sold abroad.
• Imports are foreign-produced goods/services bought domestically.
• Trade barriers (tariffs, quotas) restrict international trade.

Economic Growth and Development

• Economic growth is an increase in the production of goods/services, measured by changes in real GDP.
• Economic development improves standards of living, infrastructure, and human capital.
• Factors promoting growth include technological advancement, capital accumulation, and human capital development.
• Sustainable development balances growth with environmental protection and social equity.

Behavioral Economics

• This field examines how psychology affects economic decisions, often differing from standard economic models.
• Heuristics, biases, and framing influence consumer choice and market behavior.

Contemporary Economic Issues

• Global economic inequality, income distribution, environmental sustainability, technological change, and financial market instability affect economies.
• These create complex challenges for economists and policymakers.