Fundamentals of Economics
What is economics and what does economics study?
Economics studies how individuals and societies allocate scarce resources to meet unlimited needs.
What is the traditional economy? Give a detailed response.
A traditional economy relies on customs, traditions, and family ties for resource allocation.
Why does technology exist in the market economy?
Technology increases productivity, lowers costs, and enhances living standards through innovation.
How can you explain “fixed costs” and “variable costs”?
Fixed costs remain constant regardless of output level; variable costs change with production volume.
How do you understand “oligopoly” and “monopsony”?
Oligopoly is dominated by few large companies influencing pricing; monopsony exists when there’s only one dominant buyer controlling purchases.
Who is Adam Smith and what can you tell about him?
Adam Smith was a Scottish economist who founded modern economic theory with his book Wealth of Nations.
What is the market economy? Give a detailed response.
In a market economy, supply and demand determine prices; private ownership dominates production decisions.
How can you explain “consumer choice,” what does it mean?
Consumer choice refers to buyers’ decisions regarding which goods or services to purchase based on preferences and budgets.
Why is an economy of scale good?
Economy of scale means lower average cost per unit when producing larger quantities due to efficiency gains.
What is deregulation?
Deregulation removes governmental regulations allowing markets greater freedom to operate.
What are microeconomics and macroeconomics?
Microeconomics analyzes individual decision-making; macroeconomics looks at national economies as a whole.
What is a free market?
A free market has minimal government intervention; prices form naturally through buyer-seller interactions.
What is budget constraint?
Budget constraint represents the limit of money available to spend on goods and services.
Why is a diseconomy of scale bad?
Diseconomy of scale occurs when increasing production raises average costs because of inefficiencies and management challenges.
What is the law of demand?
Law of demand states that quantity demanded decreases as price rises, assuming other factors stay constant.
What are positive and normative economics?
Positive economics describes facts ("what is"); normative economics evaluates outcomes ("what should be").
Why is competition a good thing?
Competition drives innovation, improves quality, reduces costs, and benefits consumers.
How do you understand the word “utility”?
Utility measures satisfaction derived from consuming a product or service.
Market structure, what does it mean?
Market structure defines the number of firms, degree of product differentiation, and price setting power within a market.
Advantages and disadvantages of planned economy?
Advantages: stability, reduced inequality; Disadvantages: lack of incentives, inefficient resource use.
Who are classical and neoclassical economists?
Classical economists include Adam Smith and David Ricardo; neoclassicals introduced mathematical models like Alfred Marshall.
What is the planned economy? Give a detailed response.
Planned economy involves central planning by governments that control major industries and set production targets.
The marginal utility, what does it mean?
Marginal utility is additional satisfaction gained from consuming one more unit of a product.
How can you explain “perfect competition” and “pure monopoly”?
Perfect competition features many small sellers offering identical products; pure monopoly exists when only one firm controls an entire industry.
What is mixed economy? Give a detailed response.
Mixed economy combines elements of both market-based systems and state-controlled interventions for public welfare purposes.