Podcast
Questions and Answers
What happens to Average Cost (AC) when Marginal Cost (MC) rises above AC?
What happens to Average Cost (AC) when Marginal Cost (MC) rises above AC?
Diseconomies of scale occur when a firm expands its production and its Long Run Average Cost (LRAC) curve decreases.
Diseconomies of scale occur when a firm expands its production and its Long Run Average Cost (LRAC) curve decreases.
False
What is the principle that states profits gained from investments will yield proportionally smaller returns as more resources are invested?
What is the principle that states profits gained from investments will yield proportionally smaller returns as more resources are invested?
Law of Diminishing Returns
A firm achieves ______ of scale when it expands its scale of production and its LRAC curve decreases.
A firm achieves ______ of scale when it expands its scale of production and its LRAC curve decreases.
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Match the type of economies of scale with their definitions:
Match the type of economies of scale with their definitions:
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What is the primary focus of microeconomics?
What is the primary focus of microeconomics?
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Macroeconomics deals with the behavior and performance of entire economies.
Macroeconomics deals with the behavior and performance of entire economies.
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Define scarcity in the context of economics.
Define scarcity in the context of economics.
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An economy deals with the production, consumption, and distribution of goods and services produced from its __________ resources.
An economy deals with the production, consumption, and distribution of goods and services produced from its __________ resources.
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Match the following economic concepts with their definitions:
Match the following economic concepts with their definitions:
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Which of the following questions falls under the category of economic problems?
Which of the following questions falls under the category of economic problems?
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A need is defined as a desire for a product that is not vital to one’s existence.
A need is defined as a desire for a product that is not vital to one’s existence.
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What effect do excise taxes on products like cigarettes and gasoline typically have on consumption?
What effect do excise taxes on products like cigarettes and gasoline typically have on consumption?
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Positive industrial relations have no impact on a firm's success.
Positive industrial relations have no impact on a firm's success.
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What must firms do if they fail to recover their costs?
What must firms do if they fail to recover their costs?
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A person may purchase goods or services due to peer influence, known as the ______ effect.
A person may purchase goods or services due to peer influence, known as the ______ effect.
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Which of the following is a factor influencing a firm's production decisions?
Which of the following is a factor influencing a firm's production decisions?
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Excise duties are imposed solely on luxury goods.
Excise duties are imposed solely on luxury goods.
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What law in Trinidad and Tobago prohibits discrimination against disabled persons in employment?
What law in Trinidad and Tobago prohibits discrimination against disabled persons in employment?
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Firms must balance their ______ to maximize profitability while managing production costs.
Firms must balance their ______ to maximize profitability while managing production costs.
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Which of the following is an example of a merit good?
Which of the following is an example of a merit good?
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Demerit goods are considered beneficial to consumer health.
Demerit goods are considered beneficial to consumer health.
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What is the definition of public goods?
What is the definition of public goods?
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A Giffen good is characterized by an increase in demand as the price ______.
A Giffen good is characterized by an increase in demand as the price ______.
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Match the following types of goods to their correct descriptions:
Match the following types of goods to their correct descriptions:
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What does human capital refer to?
What does human capital refer to?
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The short run is characterized by fully adjusted market conditions.
The short run is characterized by fully adjusted market conditions.
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List one factor that can cause the Production Possibility Frontier (PPF) to shift to the right.
List one factor that can cause the Production Possibility Frontier (PPF) to shift to the right.
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____ are tangible products, while ____ are intangible products.
____ are tangible products, while ____ are intangible products.
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What happens when the PPF shifts to the left?
What happens when the PPF shifts to the left?
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Which economic system is characterized by government planning of production and allocation of goods?
Which economic system is characterized by government planning of production and allocation of goods?
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Higher interest rates encourage borrowing to purchase expensive items.
Higher interest rates encourage borrowing to purchase expensive items.
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What is a primary activity in the primary sector of the economy?
What is a primary activity in the primary sector of the economy?
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A __________ economy relies on the laws of demand and supply.
A __________ economy relies on the laws of demand and supply.
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Match the following sectors with their primary focus:
Match the following sectors with their primary focus:
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What is a disadvantage of a Free Market Economy?
What is a disadvantage of a Free Market Economy?
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Natural disasters lead to increased spending and decreased savings.
Natural disasters lead to increased spending and decreased savings.
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Identify one advantage of a Mixed Economy.
Identify one advantage of a Mixed Economy.
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The __________ sector consists of companies that provide services like retail and entertainment.
The __________ sector consists of companies that provide services like retail and entertainment.
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Which of the following is NOT a primary sector business activity?
Which of the following is NOT a primary sector business activity?
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Study Notes
Introduction to Economics
- Economics is the social science of resource utilization and management to satisfy unlimited societal wants with limited resources.
- It studies how scarce resources are allocated among competing uses.
Branches of Economics
Microeconomics
- Analyzes how incentives and actions impact resource use and distribution.
- Explains value differences, efficient production/exchange, and coordination.
Macroeconomics
- Analyzes the functioning of entire economies.
- Studies macroeconomic phenomena like inflation, growth, income, GDP, and unemployment.
Differences Between Micro and Macroeconomics
- Microeconomics focuses on individual entities (people, firms), while macroeconomics analyzes the entire economy.
Definition of an Economy
- An economy manages the production, consumption, and distribution of goods/services from limited resources to meet unlimited wants.
Fundamental Economic Problems
- Scarcity: Wants exceed production capacity.
- Wants: Desires not essential for survival.
- Needs: Essentials for survival.
Fundamental Economic Questions
- What to produce? Choosing between different goods/services.
- How to produce? Finding the most efficient production methods.
- For whom to produce? Targeting specific consumer groups.
Economic Agents
Government
- Influences the economy through laws, grants, taxes, infrastructure, and regulations.
- Examples include minimum wage laws, industrial zones, and regulations on industries like gaming.
Firms
- Production units that create goods/services for households.
- Decisions influenced by demand, costs, profitability, resources, and industrial relations.
Households
- Individuals or groups making economic decisions to maximize well-being.
- Influence of income, education, interest rate, political climate, natural disasters, and consumer trends.
Economic Systems
- Methods of resource, service, and good distribution.
Types of Economic Systems
Traditional/Subsistence Economy
- Production for basic needs (food, shelter) rather than the market.
Free Market Economy
- Private businesses answer economic questions through demand and supply.
Command Economy
- Government plans production, jobs, and allocation.
Mixed Economy
- Combines free market and command approaches, with government and private sectors both playing roles.
Economic Sectors
Primary Sector
- Extracts and harvests natural resources (mining, agriculture, forestry).
- Less prominent in developed economies.
Secondary Sector
- Processes, manufactures, and constructs goods from primary resources.
Tertiary Sector
- Provides services (retail, finance, tourism).
Types of Goods
Merit Goods
- Goods deemed essential by the state, often underprovided by the market (education, healthcare).
Demerit Goods
- Goods whose consumption is socially harmful (alcohol, cigarettes).
Private Goods
- Goods that can be purchased and consumed by one individual, reducing availability for others (clothing, food).
Public Goods
- Goods that are consumed collectively and shared (roads, national defense).
Factors of Production
- Land: Natural resources.
- Labor: Available workers.
- Capital: Tools, machinery, and other goods used to produce goods/services.
- Entrepreneurship: Risk-taking and organization in production.
Production
- The conversion of factors of production into goods/services.
Production Possibility Frontier (PPF)
- Graph showing maximum output combinations of two goods.
Shifts of the PPF
- A shift rightwards indicates an increase in production capacity, while a leftward shift shows a decrease.
- This can be due to resource discovery, technological advancements, or increased labor.
Cost Calculations
- Total Cost (TC): Fixed cost (FC) + Variable cost (VC).
- Average Cost (AC): TC/Output.
- Marginal Cost (MC): Change in TC/Change in Output.
- Relationship between MC and AC: MC intersects AC at the latter's minimum point.
Product Calculations
- Total Product (TP): Total output from factors.
- Marginal Product (MP): Additional output from one more unit of input.
- Average Product (AP): Output per unit of input.
- Relationship between MP and AP: MP intersects AP at the latter's maximum point.
Economies and Diseconomies of Scale
- Economies of scale: Decreasing long-run average costs as output increases.
- Diseconomies of scale: Increasing long-run average costs as output increases.
- Causes of diseconomies of scale include excessive specialization, communication problems, and coordination difficulties.
Minimum Efficient Scale (MES)
- Lowest output level where economies of scale are fully exploited.
Returns to Scale
- Measure of output change in response to proportional input changes.
- Types: increasing, constant, decreasing returns to scale.
- Sources include division of labor, specialization, and indivisibility.
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Description
This quiz covers the basics of economics, including its definition, branches, and the differences between microeconomics and macroeconomics. You'll learn about how economies manage resources to fulfill societal wants amid scarcity. Test your understanding of key concepts and fundamental economic problems.
