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What is scarcity?
Scarcity refers to the limited availability of resources to meet unlimited wants and needs.
What are opportunity costs?
Opportunity cost is the value of the next best alternative forgone when making a decision.
What are the factors of production?
The factors of production are land, labor, capital, and entrepreneurship—resources used to produce goods and services.
What are the three fundamental questions of economics?
The three fundamental questions are: What to produce? How to produce? For whom to produce?
What is an economic system?
An economic system is the method by which a society organizes and allocates resources to produce goods and services.
What are the four types of economic systems? How do they differ?
Market Economy: Decisions made by individuals based on supply and demand. Command Economy: Central government controls production and distribution. Mixed Economy: Combines elements of market and command economies. Traditional Economy: Based on customs, traditions, and community decisions.
What is the ceteris paribus assumption?
The assumption that all other factors are held constant when analyzing the effect of one variable.
How are positive and normative economics different?
Positive Economics: Describes facts and relationships (what is). Normative Economics: Involves value judgments and opinions (what ought to be).
What is Say’s Law?
Say’s Law states that supply creates its own demand, suggesting production will naturally generate income to purchase goods.
What is behavioral economics?
Behavioral economics studies how psychological factors influence economic decision-making and market outcomes.
What is microeconomics?
Microeconomics focuses on individual markets, firms, and consumer behavior.
What is the law of demand?
The law of demand states that as the price of a good decreases, the quantity demanded increases, and vice versa.
What are the non-price determinants of demand?
Non-price determinants include income, preferences, expectations, and prices of related goods.
How does a movement along the demand curve differ from a shift of the demand curve?
Movement: Caused by a change in the price of the good. Shift: Caused by changes in factors other than price (e.g., income or preferences).
What is the law of supply?
The law of supply states that as the price of a good rises, the quantity supplied increases, and vice versa.
What are the non-price determinants of supply?
Non-price determinants include production technology, input costs, and government policies.
How does a movement along the supply curve differ from a shift of the entire curve?
Movement: Caused by a change in the price of the good. Shift: Caused by changes in factors other than price (e.g., technology or input costs).
What is market equilibrium?
Market equilibrium occurs when the quantity demanded equals the quantity supplied at a particular price.
How is market equilibrium achieved in a market system?
Market equilibrium is reached when the forces of supply and demand interact to set the price at which quantity demanded equals quantity supplied.
What is consumer and producer surplus?
Consumer Surplus: The difference between the price consumers are willing to pay and the price they actually pay. Producer Surplus: The difference between the price producers are willing to accept and the price they actually receive.
What is allocative efficiency?
Allocative efficiency occurs when resources are distributed in such a way that marginal benefit equals marginal cost.
What is price elasticity of demand?
Price elasticity of demand measures how much the quantity demanded changes in response to a change in price.
What are the determinants of price elasticity of demand?
Determinants include availability of substitutes, necessity vs. luxury, time period, and the proportion of income spent.
What is the significance of price elasticity of demand for producers?
It helps producers decide how to price goods and forecast changes in revenue based on price changes.
What is the significance of price elasticity of demand for government?
Governments use it to assess the impact of taxes, subsidies, and price controls on consumers and producers.
What is cross price elasticity of demand?
Cross price elasticity of demand measures how the quantity demanded of one good responds to changes in the price of another good.
What is income elasticity of demand?
Income elasticity of demand measures how the quantity demanded of a good changes in response to changes in consumer income.
What is price elasticity of supply?
Price elasticity of supply measures how much the quantity supplied changes in response to a change in price.
What are the determinants of price elasticity of supply?
Determinants include the availability of factors of production, time period, and production flexibility.
Why does government impose indirect taxes?
Governments impose indirect taxes to raise revenue and/or discourage consumption of certain goods.
How do unit taxes and ad valorem taxes differ?
Unit Taxes: A fixed amount per unit sold. Ad Valorem Taxes: A percentage of the value of the good.
What impact do indirect taxes have on producers? Consumers? Government?
Producers: Increased costs, may reduce production. Consumers: Higher prices. Government: Generates revenue.
Why does the government provide subsidies?
Governments provide subsidies to encourage production and consumption of certain goods.
What impact do subsidies have on producers? Consumers? Government?
Producers: Increased production. Consumers: Lower prices. Government: Increased expenditure.
Why do governments implement price ceilings?
Price ceilings are implemented to protect consumers by preventing prices from rising too high.
What are the consequences of price ceilings?
Price ceilings can lead to shortages, black markets, and lower quality goods.
What are the impacts of price ceilings on producers? Consumers?
Producers: Reduced profits and potential shortages. Consumers: Lower prices, but reduced availability.
Why do governments implement price floors?
Price floors are implemented to protect producers by ensuring prices do not fall too low.
What are the consequences of price floors?
Price floors can result in surpluses and inefficient resource allocation.
What are the impacts of price floors on producers? Consumers?
Producers: Higher prices, but potential surpluses. Consumers: Higher prices, reduced consumption.
What is market failure?
Market failure occurs when the free market fails to allocate resources efficiently, leading to overproduction or underproduction.
What are negative externalities?
Negative externalities are costs imposed on third parties not involved in the transaction, such as pollution.
What are positive externalities?
Positive externalities are benefits experienced by third parties, like the social benefits of education.
What are potential government remedies for externalities?
Government remedies include taxes, subsidies, regulation, or direct provision of goods.
What are public goods?
Public goods are non-excludable and non-rivalrous, like clean air or national defense.
How does the free-rider problem lead to the underallocation of public goods?
The free-rider problem occurs when people benefit from a good without paying for it, leading to underproduction.
What is sustainability?
Sustainability is the ability to meet current needs without compromising the ability of future generations to meet their needs.
What is the tragedy of the commons problem?
The tragedy of the commons occurs when individuals overuse a shared resource, leading to depletion.
What are the four types of market structures?
Perfect Competition: Many firms, identical products. Monopolistic Competition: Many firms, differentiated products. Oligopoly: Few firms, interdependent decisions. Monopoly: One firm dominates the market.
What is macroeconomics?
Macroeconomics is the study of the economy as a whole, including topics like inflation, unemployment, and economic growth.
What are considered leakages from the circular flow model?
Leakages include savings, taxes, and imports, which reduce economic activity.
What are considered injections into the circular flow model?
Injections include investments, government spending, and exports, which increase economic activity.
What is GDP?
GDP (Gross Domestic Product) is the total value of all final goods and services produced within a country.
How do GDP and NNI differ?
GDP measures total output, while NNI (Net National Income) adjusts for depreciation and reflects sustainable income.
What is real GDP?
Real GDP is GDP adjusted for inflation, reflecting the true growth in production.
What is green GDP?
Green GDP is GDP adjusted to account for environmental damage and depletion of natural resources.
What is the business cycle and what are its four phases?
The business cycle is the natural fluctuation of economic activity, with four phases: expansion, peak, contraction, and trough.
What is aggregate demand and what are its components?
Aggregate demand is the total demand for goods and services in an economy, consisting of consumption, investment, government spending, and net exports.
What is aggregate supply?
Aggregate supply is the total supply of goods and services that an economy is willing to produce at a given price level.
How do the new classical and Keynesian models of aggregate supply differ?
The New Classical model focuses on long-term supply and assumes markets clear, while the Keynesian model emphasizes short-term fluctuations and government intervention.
What are the four macroeconomic objectives?
The four macroeconomic objectives are low inflation, low unemployment, economic growth, and a balanced trade balance.
What are the types of unemployment?
The types of unemployment are frictional, structural, cyclical, and seasonal.
How do discouraged workers and the underemployed affect the unemployment rate?
Discouraged workers and underemployed individuals are not included in the unemployment rate, leading to an underestimation of true unemployment.
What are the potential consequences of unemployment?
Consequences include reduced income, lower standards of living, and social unrest.
What is inflation and how is it measured?
Inflation is the rise in the general price level. It is measured using the Consumer Price Index (CPI) or Producer Price Index (PPI).
What are the types of inflation?
The types of inflation are demand-pull inflation (due to increased demand) and cost-push inflation (due to rising production costs).
What are the possible consequences of inflation?
Inflation can lead to reduced purchasing power, income redistribution, and economic uncertainty.
What is deflation?
Deflation is the decline in the general price level, often linked to economic recessions.
What are the possible consequences of deflation?
Deflation can lead to reduced consumer spending, higher real debt burdens, and economic stagnation.
What is economic growth?
Economic growth is the increase in the production of goods and services in an economy over time.
What economic models are used to illustrate growth?
The Solow Growth Model and Endogenous Growth Theory are used to illustrate long-term economic growth.
How do progressive and regressive taxes differ?
Progressive Taxes: Tax rate increases with income. Regressive Taxes: Tax rate decreases as income increases.
What tools does government use to try to create a more equitable distribution of income?
Governments use taxes, transfer payments, and welfare programs to redistribute income.
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