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Questions and Answers
According to Investopedia, how is "economy" primarily defined?
According to Investopedia, how is "economy" primarily defined?
- A social structure that dictates resource allocation through tradition.
- A political system of governance and regulation of resources.
- A system of production, distribution, and consumption of activities that determines how resources are allocated among all of its participants. (correct)
- A financial market where goods and services are exchanged.
Economics is primarily concerned with how to eliminate scarcity by finding unlimited resources.
Economics is primarily concerned with how to eliminate scarcity by finding unlimited resources.
False (B)
Define the term 'opportunity cost' in the context of economic decision-making.
Define the term 'opportunity cost' in the context of economic decision-making.
the value of the next best alternative
Which principle explains that some costs are irrelevant when making future decisions because they cannot be recovered?
Which principle explains that some costs are irrelevant when making future decisions because they cannot be recovered?
The principle ensuring all resources are utilized optimally to minimize inefficiency in an economy is known as the ________ Principle.
The principle ensuring all resources are utilized optimally to minimize inefficiency in an economy is known as the ________ Principle.
The Equilibrium Principle says that market forces are balanced, and prices are stable, regardless of supply and demand.
The Equilibrium Principle says that market forces are balanced, and prices are stable, regardless of supply and demand.
What does the 'Comparative Advantage Principle' primarily refer to?
What does the 'Comparative Advantage Principle' primarily refer to?
Which of the following best illustrates the concept of scarcity?
Which of the following best illustrates the concept of scarcity?
Provide an example of a 'sunk cost' and explain why it should not influence future decisions.
Provide an example of a 'sunk cost' and explain why it should not influence future decisions.
An economy operating at its 'efficiency principle' guarantees that resources are being wasted.
An economy operating at its 'efficiency principle' guarantees that resources are being wasted.
In the context of 'cost-benefit analysis', what action should a firm take?
In the context of 'cost-benefit analysis', what action should a firm take?
Microeconomics primarily focuses on the structure, behavior, and performance of the economy at a national or global level.
Microeconomics primarily focuses on the structure, behavior, and performance of the economy at a national or global level.
Which of the following is generally studied within macroeconomics?
Which of the following is generally studied within macroeconomics?
Match the following terms with their descriptions:
Match the following terms with their descriptions:
Which factor of production involves the organization of all resources?
Which factor of production involves the organization of all resources?
According to economics, the term 'producers' refers to _____ or _____ that produce goods and services for the market.
According to economics, the term 'producers' refers to _____ or _____ that produce goods and services for the market.
Capital, as a factor of production, refers exclusively to financial assets such as stocks and bonds.
Capital, as a factor of production, refers exclusively to financial assets such as stocks and bonds.
List the four factors of production.
List the four factors of production.
Which category of producers includes entities providing services rather than tangible goods?
Which category of producers includes entities providing services rather than tangible goods?
What describes the state in which demand and supply balance?
What describes the state in which demand and supply balance?
Economies of scale only benefit large corporations; small businesses cannot achieve them.
Economies of scale only benefit large corporations; small businesses cannot achieve them.
Explain how increased production volume leads to economies of scale.
Explain how increased production volume leads to economies of scale.
What is a primary characteristic of 'internal economies of scale'?
What is a primary characteristic of 'internal economies of scale'?
Which of the following is an example of an external economy of scale?
Which of the following is an example of an external economy of scale?
Duplication of work is an internal economies of scale?
Duplication of work is an internal economies of scale?
Which of the following is most likely to cause internal diseconomies of scale?
Which of the following is most likely to cause internal diseconomies of scale?
How might a local university contribute to external economies of scale for businesses in its region?
How might a local university contribute to external economies of scale for businesses in its region?
The specialization of labor is an example of __________ economies of scale.
The specialization of labor is an example of __________ economies of scale.
An overreliance on cheap credit for expansion is considered a technical diseconomy of scale.
An overreliance on cheap credit for expansion is considered a technical diseconomy of scale.
A company improves operations with better machinery. This represents:
A company improves operations with better machinery. This represents:
What does it mean to get a discounted price by bulk buying, and which type of economies of scale?
What does it mean to get a discounted price by bulk buying, and which type of economies of scale?
Why might increased demand for raw materials lead to external diseconomies of scale?
Why might increased demand for raw materials lead to external diseconomies of scale?
Better access to credit is a concept of technical internal economies of scale
Better access to credit is a concept of technical internal economies of scale
Match the following with what each mean:
Match the following with what each mean:
Relocation of support businesses are apart of components economies, what type of scale is this?
Relocation of support businesses are apart of components economies, what type of scale is this?
Repetition as a result of specialization is apart of the Technical scale.
Repetition as a result of specialization is apart of the Technical scale.
What action should a business do to reduce risk?
What action should a business do to reduce risk?
Hiring of less qualified employees because the explosion/demand of skilled labor is not enough can lead to:
Hiring of less qualified employees because the explosion/demand of skilled labor is not enough can lead to:
Overuse causing damage and congestion are under which concept?
Overuse causing damage and congestion are under which concept?
Flashcards
Economy
Economy
A system of production, distribution, and consumption activities that determines how resources are allocated among participants.
Economics
Economics
Social science maximizing scarce resources for unlimited needs/wants, studying production, distribution & consumption of goods/services, and how people choose under scarcity.
Scarcity Principle
Scarcity Principle
A concept where demand for resources is high, but the availability is limited, creating a gap between limited resources and unlimited wants.
Cost-Benefit Analysis
Cost-Benefit Analysis
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Principle of Increasing Opportunity Cost
Principle of Increasing Opportunity Cost
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Principle of Unequal Cost
Principle of Unequal Cost
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Equilibrium Principle
Equilibrium Principle
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Efficiency Principle
Efficiency Principle
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Comparative Advantage Principle
Comparative Advantage Principle
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Producers
Producers
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Economies of Scale
Economies of Scale
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Internal Economies of Scale
Internal Economies of Scale
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External Economies of Scale
External Economies of Scale
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Internal Diseconomies of Scale
Internal Diseconomies of Scale
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External Diseconomies of Scale
External Diseconomies of Scale
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Microeconomics
Microeconomics
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Macroeconomics
Macroeconomics
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Land/Natural Resources
Land/Natural Resources
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Labor/Human Resources
Labor/Human Resources
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Capital
Capital
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Entrepreneurship Ability
Entrepreneurship Ability
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Study Notes
What is Economy
- An economy is a system of production, distribution, and consumption activities
- This system determines how resources are allocated among participants
What is Economics?
- Economics is a social science focused on maximizing scarce resources to meet unlimited needs and wants
- It studies the production, distribution, and consumption of goods and services within an economy
- It's the study of how people make choices given scarcity and the societal impact of those choices
Core Principles of Economics
- There are seven core principles of economics
Scarcity Principle
- Economic scarcity arises when demand for resources is high
- Availability of resources is limited
- This creates a gap between limited resources and unlimited wants
Cost-Benefit Analysis
- An entity should take action only if the marginal benefit exceeds the marginal costs
- If costs outweigh benefits, reducing the action is the better approach
Principle of Increasing Opportunity Cost
- The cost of any decision includes the sacrifices of alternatives required by that decision
- Opportunity cost is the loss of other alternatives when one alternative is chosen
Principle of Unequal Cost
- Some costs are relevant in decision-making, while others aren't
- Sunk Costs are costs that are irrelevant to current decisions, as they cannot be recovered
Equilibrium Principle
- Equilibrium is the state where market forces are balanced
- In equilibrium, current prices stabilize between supply and demand
Efficiency Principle
- This principle ensures all resources in an economy are utilized optimally
- It looks at how to minimize inefficiency
Comparative Advantage Principle
- This defines the ability of an economy to produce a good/service more efficiently and economically than its competitors
Two Economic Fields
- Economics are broken down into two fields; Macroeconomics and Microeconomics
Microeconomics (The Detail)
- Largely about firms and idividuals
- It studies the behavior and decisions of individuals, and businesses in markets across the economy
- Key terms include: demand, supply, price discrimination, elasticity of demand, producer, consumer, market equilibrium, and market structure
Macroeconomics (The General Picture)
- About the wider economy
- Deals with the structure, behavior, and changes in the wider economy at a national, regional, or global level
- Key terms: GDP, interest rates, unemployment, national income, inflation, exchange rates, fiscal/monetary policy
The Producers
- In economics, "producers" are individuals or firms that create goods and services for sale
- Producers are key economic players,responsible for supplying goods and services to meet consumer needs
Structures of Producers:
- Structures of producers include:
- Sole Proprietorship
- Partnership
- Corporation
- Cooperative
Categories of Producers:
- Producers include:
- Manufacturers
- Service Providers
- Agricultural Producers
Factors of Production
- There are four key factors of production
Land/Natural Resources
- Raw materials available from the earth
Labor/Human Resources
- The efforts of people
Capital
- Machinery, buildings, and equipment
Entrepreneurship Ability
- The skill to organize resources
How Supply and Demand are impacted by the factors of production
- Goods and services are produced (supply) to satisfy what people need and want (demand)
- The interaction of demand and supply determine the price (P) that people wil pay
Economies of Scale
- Economies of scale are cost advantages a company gains from increased production
- As output rises, the cost per unit decreases as fixed costs are spread over more units
Types of Economies of Scale
- Economies of scale are split into two types:
- Internal
- External
Internal Economies of Scale
- A firm achieves these advantages from its own growth and expansion
- They're generated internally by optimizing production processes and resource utilization
External Economies of Scale
- These advantages result from the growth of an entire industry or cluster of firms in a geographic area
- They benefit all firms in the industry, not just individual companies
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