Microeconomics and Macroeconomics Quiz

Economics and Economy

• Economics is a social science analyzing individual and corporate behavior, and social/political institutions, to see how well they convert limited resources into needed goods and services.
• Economics is derived from the Greek word "oikonomia," meaning management of the economy.
• Economics is split into microeconomics and macroeconomics.
• Microeconomics studies individual and company resource allocation decisions.
• Macroeconomics deals with the overall performance and behavior of an economy.
• Economics also includes positive and normative economics.
• Positive economics describes and tests real-world economic statements through observation.
• Normative economics describes/advocates ideal economic situations.

The Economy

• The economy is a domain emphasizing practices, discourses, and material expressions related to resource production, use, and management.
• Economic systems often exist in companies, households, countries, or as trade & production systems.

Scarcity

• Scarcity is the economic concept where individuals need to allocate limited resources to meet their needs.
• Scarcity affects the monetary value individuals put on goods and services.
• Scarce resources, like gold or knowledge, are more valuable due to their limited availability.

Satisfying Needs

• Needs are feelings or awareness of lacking something, which can be innate or acquired.
• Wants are desires that are not essential for survival.

Types of Needs

• Basic needs are associated with biological needs (eating, sleeping).
• Higher needs are associated with lifestyle preferences (car, clothing).
• Needs can be individual or collective.
• Physical needs include food and shelter.
• Mental needs include education and learning.
• Social needs include friendship or belonging.

Means of Satisfying Needs

• Goods are physical objects from production or found in nature.
• Services are actions or activities performed for others.

Goods

• Free Goods are naturally available in unlimited amounts.
• Scarce goods have limited availability created by demand/production.
• Consumer goods directly fulfill needs and wants (food, cosmetics).
• Capital goods are used by other businesses to produce goods/services (machinery, tools).
• Tangible goods are physically touchable (computers, clothing).
• Intangible goods are not physically touchable (software, copyrights).

Services

• Services are non-physical, satisfy needs related to goods, or other non-physical needs.

Economic Decisions

• Economic decision-making involves understanding the different cost & benefit options and choosing the most advantageous option.
• A list of goods & services arranged by priority is known as a scale of preferences.

Production

• Production is essential for an economy's existence and performance.
• It transforms inputs (materials, ideas) into outputs (goods/services), utilizing resources.
• Production is influenced by new needs, higher levels of need satisfaction, or changes in desired goods/services.
• Flow production is often used with identical, standardized items on assembly lines.
• Batch production involves producing multiple items together before moving to another group of products.
• Job production is used for unique or customized items individually.
• Three Factors of Production are Land, Labor, and Capital

Factors of Production

• Land refers to natural resources used in production
• Labor refers to the human work input in production
• Capital refers to man-made goods used in production, can be physical, human, or financial.

Economic Systems

• Economic systems are ways governments organize and distribute resources (traditional, command, market, mixed)
• The three economic questions are: What to produce? How to produce it? And for whom to produce?
• Traditional systems are based on established trends (farming, family-based production).
• Command economies are centrally controlled by the government, often found in communist societies.
• Market economies rely on supply & demand, with limited government interference.
• Mixed economies combine aspects of market and command systems.

Market and Market Mechanism

• Markets are places where buyers and sellers meet to exchange goods and/or services.
• Market conditions must have a commodity, free interaction, and a single agreed price.
• Market functions include providing information about the market, influencing buyers/sellers, and establishing prices.
• Markets exist in various forms based on territory (local, national, international, world) and the goods/services being exchanged.

Market Failures

• A market failure occurs when a free market does not efficiently allocate goods/services.
• Externalities (side effects) cause issues for parties not directly involved in a transaction.
• Public goods (such as police or national defense) are consumed by many without increasing costs to consumers(non-rivalrous)
• Markets with imperfect information may not adequately reflect true benefits/costs, potentially leading to market distortion.

Market Control and Price Mechanisms

• Market control happens if buyers or sellers have the power/influence to dictate prices.
• Price mechanisms are designed to impact consumer/producer behavior.

Market Subjects

• Market subjects are involved in market exchange, including households, businesses, and governments.
• Households consume goods and services, and sell production factors.
• Businesses purchase production factors & make/sell goods and services.
• Governments regulate and provide goods and services.

Market Equilibrium

• Market equilibrium happens when supply and demand are equal (at a set price).
• If demand is higher than supply then prices rise, and if supply is higher than demand, then products may lower in price.
• Various processes impact the market equilibrium price and quantity.