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What is the primary focus of macroeconomics?
What is the primary focus of macroeconomics?
What defines an economic good?
What defines an economic good?
Which of the following best describes scarcity?
Which of the following best describes scarcity?
What is opportunity cost?
What is opportunity cost?
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What does 'Ceteris Paribus' assume?
What does 'Ceteris Paribus' assume?
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What is included under the term 'capital' in factors of production?
What is included under the term 'capital' in factors of production?
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What best describes a 'free good'?
What best describes a 'free good'?
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Which of the following roles does entrepreneurship play in the economy?
Which of the following roles does entrepreneurship play in the economy?
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What does Price Elasticity of Demand (PED) measure?
What does Price Elasticity of Demand (PED) measure?
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Which of the following goods is most likely to have elastic demand?
Which of the following goods is most likely to have elastic demand?
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If a product has a PED of less than 1, it is considered to have what type of demand?
If a product has a PED of less than 1, it is considered to have what type of demand?
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What happens to total revenue when the price of an inelastic good increases?
What happens to total revenue when the price of an inelastic good increases?
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Which statement is true regarding goods with elastic demand?
Which statement is true regarding goods with elastic demand?
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Which factor would likely make demand for a product more elastic?
Which factor would likely make demand for a product more elastic?
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In terms of elasticity, what category do tobacco products generally fall into?
In terms of elasticity, what category do tobacco products generally fall into?
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What is indicated by a price elasticity greater than 1?
What is indicated by a price elasticity greater than 1?
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What does marginal utility refer to?
What does marginal utility refer to?
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Which of the following best defines stagflation?
Which of the following best defines stagflation?
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What is the main focus of monetarists in economics?
What is the main focus of monetarists in economics?
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How does the law of demand describe the relationship between price and quantity demanded?
How does the law of demand describe the relationship between price and quantity demanded?
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What is a Veblen good?
What is a Veblen good?
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Which concept explains why quantity demanded decreases when prices go up?
Which concept explains why quantity demanded decreases when prices go up?
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Which of the following is NOT a non-price determinant of demand?
Which of the following is NOT a non-price determinant of demand?
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What does individual demand represent?
What does individual demand represent?
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What best defines 'land' in economic terms?
What best defines 'land' in economic terms?
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Which economic system allows individuals to make decisions with minimal government intervention?
Which economic system allows individuals to make decisions with minimal government intervention?
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What does 'thinking on the margin' refer to in economic decision-making?
What does 'thinking on the margin' refer to in economic decision-making?
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Which statement accurately describes a mixed economy?
Which statement accurately describes a mixed economy?
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What is represented by the Production Possibilities Curve (PPC)?
What is represented by the Production Possibilities Curve (PPC)?
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In which economic system are roles typically passed down through generations?
In which economic system are roles typically passed down through generations?
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What does efficiency imply in the context of resource use?
What does efficiency imply in the context of resource use?
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Which of the following best describes a command/centrally planned economy?
Which of the following best describes a command/centrally planned economy?
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If the income elasticity of demand (YED) for a good is negative, what type of good is it considered?
If the income elasticity of demand (YED) for a good is negative, what type of good is it considered?
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In which scenario would you expect total revenue to decrease?
In which scenario would you expect total revenue to decrease?
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What does the Engel Curve illustrate?
What does the Engel Curve illustrate?
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When the price of a unit elastic good changes, what happens to total revenue?
When the price of a unit elastic good changes, what happens to total revenue?
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What does opportunity cost represent when making a choice?
What does opportunity cost represent when making a choice?
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What causes the production possibility curve (PPC) to be 'bowed out'?
What causes the production possibility curve (PPC) to be 'bowed out'?
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What is the definition of scarcity?
What is the definition of scarcity?
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What is meant by actual growth in an economy?
What is meant by actual growth in an economy?
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What is an example of a leakage in an economy?
What is an example of a leakage in an economy?
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What happens to Gross National Income (GNI) during a recession?
What happens to Gross National Income (GNI) during a recession?
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Which of the following describes a closed circular flow?
Which of the following describes a closed circular flow?
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What principle does classical economics advocate for?
What principle does classical economics advocate for?
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Study Notes
Introduction to Economics
- Key concepts include scarcity, choice, efficiency, economic well-being, sustainability, change, and interdependence.
- Two main types of economics: microeconomics (individual economic behavior) and macroeconomics (the economy as a whole).
- Economics studies how people interact and how scarce resources meet unlimited needs.
- Economic goods are scarce, limited resources.
- Free goods are abundant; no scarcity; no opportunity cost of production.
- Scarcity necessitates choices and trade-offs.
- Opportunity cost is the value of the next best alternative.
- Centers Paribus = The effect one economic variable has on another, provided all other variables remain the same.
- Scarcity leads to choices, choices lead to trade-offs.
Factors of Production
- Capital: physical (human-made resources) and human (skills/knowledge).
- Entrepreneurship: individuals who combine factors for production.
- Land: natural resources.
- Labor: effort exerted for a task.
- Decisions are made using marginal analysis (considering incremental changes).
- Basic economic questions are: what to produce, how to produce, and for whom to produce.
- Types of Economic Systems: Traditional (hunting, bartering), Command (government-controlled), Market (individual and business decisions). Free Market (no government intervention), Mixed economies (combination).
Production Possibilities Curve (PPC)
-
Assumptions:
- Only two goods are produced.
- Full employment.
- Mixed resources.
- Fixed technology.
-
Illustrates possible combinations of output given resources.
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Efficiency: Resources are utilized optimally- no waste and no improvements possible.
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Opportunity cost: Increases as more of one good is produced, indicating trade-offs.
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Constant opportunity cost: Resources are equally applicable to both goods.
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Increasing opportunity cost: Resources are not equally suited for both goods resulting in curved PPC.
Actual and Potential Growth
- Actual growth is made with better use of available resources.
- Potential growth is the maximum amount that can be generated, from improved resources (PPC shifts).
- Factors that shift PPC - change in quality/quantity of factors, improvement in technology.
- Scarcity occurs when demand exceeds availability.
- Choices allow consumers and producers to select from available options.
- Circular flow is a closed system, where inputs & outputs are transferred to Households & Businesses.
Open Circular Flow
- Money flows into and out of the economy.
- Leakages are factors that take money out of an economy (savings, taxes, imports)
- Injections are factors putting money into an economy (investments, government spending, exports)
- GDP (Gross National Income) grows when injections exceed leakages
Classical and Neoclassical Economics
- Classical economics: advocates for private ownership, empowerment of individuals, and labor-based theories of value; Say's Law (supply creates its own demand) and comparative advantage.
- Neoclassical economics: shifts focus to consumer utility (satisfaction) and value determination. Consumers and producers are rational actors.
Monetarism (New Classical)
- Economic growth is driven by the total amount of money in the economy and a stable money supply.
- Money supply growth should match output growth.
- Government should not control demand.
21st Century Economics
- Interdisciplinary approach incorporating psychology.
- Growing awareness of environmental and social impact of economic activity.
- Shift toward circular economic models (minimizing waste, maximizing resource reuse).
- Doughnut model.
Microeconomics: Demand
- Individual demand: one person's desire for a product.
- Market demand: the sum of all individual demands at different prices.
- Law of demand: inverse relationship between price and quantity demanded.
- Income effect: as prices fall, purchasing power increases.
- Substitution effect: Cheaper product attracts consumers.
- Shifters of demand: income, quality, related goods price, preferences, expectations.
Microeconomics: Elasticities of Demand
- Elasticity measures responsiveness of one variable to a change in another.
- PED (price elasticity of demand) measures percentage change in quantity demanded compared to a percentage change in price.
- Inelastic: price sensitivity is small.
- Elastic: price sensitivity is large.
- Unit elastic: price change equals quantity change.
Microeconomics: Supply
- Law of supply: direct relationship between price and quantity supplied.
- Higher prices incentivize higher production; lower prices reduce production.
- Shifters of supply: technology, number of firms, future expectations, related good prices, and government interventions like taxes or subsidies.
- Short run vs. long run supply. Short run limits flexibility; long run allows for full adjustments.
Price Control
- Price ceiling(maximum price): leads to shortages, black markets if below equilibrium.
- Price floor(minimum price): leads to surpluses, losses for consumers if above equilibrium
Indirect Taxes
- Specific Tax: fixed amount per unit sold; upward shift in supply curve.
- Ad Valorem (percentage) Tax: percentage of the price; rotational shift in supply curve.
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Description
This quiz covers key concepts in economics, including scarcity, choice, efficiency, and the two main branches: microeconomics and macroeconomics. It explores how economic goods and free goods differ and discusses the factors of production that influence economic interactions. Test your understanding of these foundational economic principles!
