Economics, basics unit test
1. What is the basic economic problem?
- The basic economic problem is scarcity, which refers to the unlimited wants and needs of individuals and societies in contrast to the limited resources available to fulfill those wants and needs.
2. What is opportunity cost?
- Opportunity cost is the value of the next best alternative that is given up when making a decision. It represents the forgone opportunity or benefit of choosing one option over another.
3. Define supply and demand.
- Supply refers to the quantity of a good or service that producers are willing and able to sell at a given price and time period. Demand, on the other hand, refers to the quantity of a good or service that consumers are willing and able to buy at a given price and time period.
4. Explain the law of supply and the law of demand.
- The law of supply states that, ceteris paribus (all other factors being equal), the quantity supplied of a good or service increases as its price increases, and vice versa. The law of demand, on the other hand, states that, ceteris paribus, the quantity demanded of a good or service decreases as its price increases, and vice versa.
5. What is an equilibrium price?
- An equilibrium price is the price at which the quantity demanded equals the quantity supplied in a market. It is the point where the supply and demand curves intersect and there is no inherent tendency for the price to change.
6. Explain the concept of elasticity of demand.
- Elasticity of demand measures the responsiveness of quantity demanded to a change in price. It shows how sensitive consumer demand is to changes in price by looking at the percentage change in quantity demanded relative to the percentage change in price.
7. What are the four types of market structures?
- The four types of market structures are perfect competition, monopolistic competition, oligopoly, and monopoly. Perfect competition is characterized by many firms selling homogeneous products, while monopolistic competition involves firms selling differentiated products. Oligopoly refers to a market structure with a few large firms dominating the market, and monopoly represents a market with a single supplier.
8. What is inflation?
- Inflation refers to the sustained increase in the general price level of goods and services in an economy over a period of time. It reduces the purchasing power of money and decreases the value of savings.
9. What is monetary policy?
- Monetary policy refers to the actions taken by a central bank, such as the Federal Reserve in the United States, to manage and control the money supply and interest rates in order to influence the overall economic growth, price stability, and employment levels.
10. What is fiscal policy?
- Fiscal policy refers to the use of government spending and taxation to influence the overall economic activity in a country. It involves the government's decisions on how much to spend, what to spend it on, and how much to tax individuals and businesses.