Questions and Answers
What is the fundamental economic problem?
What is the value of the next best alternative that is given up when a choice is made?
What determines the price and quantity of a good or service?
What market structure has many firms, free entry and exit, and identical products?
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What is the total value of goods and services produced within a country's borders?
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What is a sustained increase in the general price level of goods and services?
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What is the use of government spending and taxation to influence the overall level of economic activity?
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What is the action of a central bank to control the money supply and interest rates?
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What is the term for a country producing a good or service more efficiently than another country?
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What does a country have if it can produce a good or service at a lower opportunity cost than another country?
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What are government policies that restrict international trade?
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What is the term for the price of one country's currency in terms of another country's currency?
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What economic system allocates resources based on market forces and private ownership?
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What economic system combines elements of market and command economies?
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Study Notes
Microeconomics
- Scarcity: The fundamental economic problem of unlimited wants and needs, but limited resources.
- Opportunity Cost: The value of the next best alternative that is given up when a choice is made.
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Supply and Demand: The price and quantity of a good or service are determined by the intersection of the supply and demand curves.
- Law of Supply: As the price of a good increases, the quantity supplied also increases.
- Law of Demand: As the price of a good decreases, the quantity demanded increases.
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Market Structures: Types of markets based on the number of firms, barriers to entry, and degree of competition.
- Perfect Competition: Many firms, free entry and exit, and identical products.
- Monopoly: One firm, barriers to entry, and a unique product.
- Monopolistic Competition: Many firms, free entry and exit, and differentiated products.
- Oligopoly: Few firms, barriers to entry, and interdependent decision-making.
Macroeconomics
- Gross Domestic Product (GDP): The total value of goods and services produced within a country's borders.
- Inflation: A sustained increase in the general price level of goods and services.
- Unemployment: The number of people able and willing to work, but unable to find employment.
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Fiscal Policy: The use of government spending and taxation to influence the overall level of economic activity.
- Expansionary Fiscal Policy: Increase government spending or cut taxes to stimulate economic growth.
- Contractionary Fiscal Policy: Decrease government spending or increase taxes to reduce inflation.
-
Monetary Policy: The actions of a central bank to control the money supply and interest rates.
- Expansionary Monetary Policy: Increase the money supply or lower interest rates to stimulate economic growth.
- Contractionary Monetary Policy: Decrease the money supply or raise interest rates to reduce inflation.
International Trade
- Absolute Advantage: A country has an absolute advantage if it can produce a good or service more efficiently than another country.
- Comparative Advantage: A country has a comparative advantage if it can produce a good or service at a lower opportunity cost than another country.
- Gains from Trade: Countries can increase their overall production and consumption by specializing in goods and services in which they have a comparative advantage.
- Trade Barriers: Government policies that restrict international trade, such as tariffs, quotas, and subsidies.
- Exchange Rates: The price of one country's currency in terms of another country's currency.
Economic Systems
- Market Economy: A system in which resources are allocated based on market forces and private ownership.
- Command Economy: A system in which resources are allocated by the government, and there is a significant role for state-owned enterprises.
- Mixed Economy: A system that combines elements of market and command economies.
- Socialist Economy: A system in which the means of production are owned and controlled by the state or by the workers themselves.
Microeconomics
- Scarcity: Unlimited wants and needs, but limited resources.
- Opportunity Cost: Value of the next best alternative given up when a choice is made.
- Supply and Demand: Price and quantity of a good or service determined by the intersection of supply and demand curves.
- Law of Supply: As price increases, quantity supplied also increases.
- Law of Demand: As price decreases, quantity demanded increases.
-
Market Structures: Types of markets based on number of firms, barriers to entry, and degree of competition.
- Perfect Competition: Many firms, free entry and exit, and identical products.
- Monopoly: One firm, barriers to entry, and unique product.
- Monopolistic Competition: Many firms, free entry and exit, and differentiated products.
- Oligopoly: Few firms, barriers to entry, and interdependent decision-making.
Macroeconomics
- Gross Domestic Product (GDP): Total value of goods and services produced within a country's borders.
- Inflation: Sustained increase in the general price level of goods and services.
- Unemployment: Number of people able and willing to work, but unable to find employment.
-
Fiscal Policy: Use of government spending and taxation to influence overall level of economic activity.
- Expansionary Fiscal Policy: Increase government spending or cut taxes to stimulate economic growth.
- Contractionary Fiscal Policy: Decrease government spending or increase taxes to reduce inflation.
-
Monetary Policy: Actions of a central bank to control money supply and interest rates.
- Expansionary Monetary Policy: Increase money supply or lower interest rates to stimulate economic growth.
- Contractionary Monetary Policy: Decrease money supply or raise interest rates to reduce inflation.
International Trade
- Absolute Advantage: Country can produce a good or service more efficiently than another country.
- Comparative Advantage: Country can produce a good or service at a lower opportunity cost than another country.
- Gains from Trade: Countries can increase overall production and consumption by specializing in goods and services in which they have a comparative advantage.
- Trade Barriers: Government policies that restrict international trade, such as tariffs, quotas, and subsidies.
- Exchange Rates: Price of one country's currency in terms of another country's currency.
Economic Systems
- Market Economy: Resources allocated based on market forces and private ownership.
- Command Economy: Resources allocated by the government, with significant role for state-owned enterprises.
- Mixed Economy: System that combines elements of market and command economies.
- Socialist Economy: Means of production owned and controlled by the state or by the workers themselves.
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Description
Test your knowledge of fundamental microeconomics concepts, including scarcity, opportunity cost, and supply and demand.
