Introductory Economics
What is the basic economic problem?
Scarcity – unlimited wants but limited resources.
Define opportunity cost.
The next best alternative forgone when making a decision.
What are the three sectors in a three-sector model?
Households, Businesses, and Government.
What is demand?
The quantity of a good or service that consumers are willing and able to buy at different prices.
A business sells 100 units at $10 each. What is the revenue?
$1,000 (100 × 10).
Name the four factors of production.
Land, Labor, Capital, Entrepreneurship.
If you spend $10 on lunch instead of saving, what is the opportunity cost?
The savings or alternative item you could have bought with that $10.
What is an injection in the circular flow?
Money entering the economy, such as investment, government spending, or exports.
What is a substitute good?
A product that can replace another. Example: Coca-Cola and Pepsi.
If price increases for airline tickets, what happens to demand for train tickets?
Demand for train tickets increases (substitute goods).
What is scarcity and how does it affect decision-making?
Scarcity means limited resources, forcing individuals and businesses to make choices and trade-offs.
Identify the difference between being inside and on the PPC curve.
Inside the curve = underutilization of resources; On the curve = efficient use of resources.
Explain how taxation is a leakage in the economy.
Taxes take money out of the circular flow, reducing consumer and business spending.
What are PIRATES factors in demand shifters?
Population, Income, Related goods, Advertising, Tastes & Preferences, Expectations, Seasons
If smartphone production costs increase, what happens to the supply of smartphones?
Supply decreases.
What is a market economy?
An economy where businesses and consumers determine prices and production levels through supply and demand.
A farmer can grow wheat or corn. If he chooses wheat, what is the opportunity cost?
The corn he could have produced.
What are the five sectors in the circular flow model?
Households, Businesses, Government, Financial Sector, Overseas Sector.
What are PRESESNTS in supply shifters?
Production Costs
Related Goods
Expectations
Supply Shocks
Entry of new competitors
New Technologies
Taxes
Subsidies
How does an increase in fuel costs affect airline ticket prices?
Airline ticket prices increase due to higher operational costs.
Explain the role of entrepreneurship in economic growth.
Entrepreneurs innovate, create jobs, and drive economic expansion by introducing new businesses and products.
Draw and explain the shape of a PPC for two goods.
PPC is usually concave due to increasing opportunity costs when reallocating resources between two goods.
How do leakages and injections affect economic growth?
If injections (investment, govt. spending, exports) exceed leakages (taxes, savings, imports), the economy grows; otherwise, it shrinks.
If demand for a good increases but supply stays the same, what happens to price?
Price increases due to higher competition for the same amount of goods.
Explain how a fall in housing prices affects supply and demand in the housing market.
Lower prices increase demand (more buyers), but may decrease supply as sellers wait for better prices.