EPF UNIT 1 TEST

What is economics, and what is the basic problem?

The study of how people make choices to satisfy unlimited wants with limited resources

Basic problem=scarcity

What are the 3 basic economic questions?

1. What to produce?

2. How to produce it?

3. For whom to produce it?

What is opportunity cost

The next-best choice you give up when making a decision.

Example: If you study instead of playing video games, gaming is your opportunity cost.

What are the 4 factors of production?

Land,Labor,Capital,Entrepreneurship

What's the difference between human and physical capital?

• Human capital = skills, education, training, experience

• Physical capital = tools, machines, buildings, equipment

What is productivity, and how can business increase it?

Productivity = how much output is produced from inputs.

Businesses can increase it through technology, training, or better methods.

What are the 4 economic systems

Traditional = customs/traditions

Command = government decides

Market = individuals/businesses decide

Mixed = government + individuals

What is the Law of Demand

price increase = quantity demanded decreased

price decrease = quantity demanded increased

Law of Supply

Price increase = quantity supply increase

price decrease = quantity supply decrease

What's the difference between equilibrium, shortage, and surplus?

Equilibrium = Qd = Qs

Shortage = Qd > Qs

Surplus = Qs > Qd

shortage = not enough, surplus = too much

What's the difference between elastic and inelastic?

elastic = quantity changes a lot when price changes

inelastic = quantity changes a little

What 3 things affect elasticity?

Substitutes available

Necessity vs. luxury

Time to adjust

gasoline = inelastic, candy = usually elastic

What are the 4 main business structures?

Sole proprietorship = 1 owner

Partnership = 2+ owners

Corporation = separate legal entity + limited liability

Franchise = uses an established company's brand/model

What are the 3 types of mergers?

Horizontal = same industry

Vertical = different stages of production

Conglomerate = unrelated industries

H = same, V = production chain, C = completely different

What's the difference between fixed and variable costs?

Fixed = stays the same as production changes → rent

Variable = changes with production → materials

Fixed = stays. Variable = varies.

What's the formula for Total Cost?

TC = FC + VC

200 fixed + $150 variable = $350 total cost.

What are the 4 market structures?

Perfect competition = many sellers, identical products

Monopoly = one seller

Monopolistic competition = many sellers, different products

Oligopoly = few large sellers

Perfect = many same, Monopoly = one, Mono-Comp = many different, Oligopoly = few

What is a cartel?

A group of businesses that work together to control prices or production instead of competing normally

If one product becomes cheaper, what happens to demand for its substitute?

Demand for the substitute decreases.

Apple computers become cheaper → demand for Windows computers likely decreases.

How do shortages, surpluses, and higher costs affect businesses/consumers?

Shortage → prices tend to rise

Surplus → prices tend to fall

Higher production costs → businesses may raise prices or cut costs

Taxes → products become more expensive → consumers usually buy less

If gasoline prices increase, what might airlines do?

Raise ticket prices, reduce flights, improve fuel efficiency, or cut other costs.

If a tax is placed on Japanese luxury cars, what will likely happen?

Their prices will increase, so consumers may buy fewer of them or choose substitutes.

If the supply of apples is greater than demand, what happens?

There is a surplus, so prices tend to decrease.

If Apple computers become cheaper, what happens to demand for Windows computers?

Demand for Windows computers likely decreases because Apple computers are a substitute.

During the pandemic, demand for toilet paper surged but prices stayed the same. Shortage or surplus?

shortage