Scarce resources in Economic Systems
How do traditional economies determine what goods and services to produce?
Customs, traditions, and cultural beliefs passed down from generations.
What are the defining characteristics of a monopoly?
Single seller dominates the market, sets prices, and faces little to no competition.
What causes a shift in the demand curve?
Changes in income, consumer preferences, prices of related goods, or expectations.
How do profit incentives influence what businesses choose to produce?
Firms produce goods and services that offer the highest potential for profit.
What does GDP measure and why is it important?
GDP measures total economic output; it indicates the health and size of an economy.
What role does government play in allocating resources in a command economy?
Government makes all economic decisions, including production and distribution.
How does perfect competition affect pricing and consumer choice?
Prices are low and products are similar; consumers benefit from many choices and competitive pricing.
How does a shortage affect equilibrium price?
It drives prices up as demand exceeds supply.
Why are incentives important in a market economy?
They motivate individuals and businesses to innovate, work efficiently, and respond to consumer needs.
How does unemployment typically change during a recession?
Unemployment rises as business cut jobs due to falling demand.
In a market economy, how are scarce resources distributed?
Through voluntary exchange and price signals driven by supply and demand.
What role does product differentiation play in monopolistic competition?
Firms compete by offering slightly different products, allowing for brand loyalty and varied pricing.
What happens to the quantity supplied when market price increases?
Quantity supplied typically increase as producers seek higher profits.
How do consumer preferences shape production decisions?
Producers tailor goods and services to match what consumers want, increasing sales and profits.
What happens to inflation during the peak of the business cycle?
Inflation may increase due to high demand and full production capacity.
What are the advantages of a mixed economy in managing scarcity?
It combines market efficiency with government support for the public goods and welfare.
Why might the opportunity cost be higher in an oligopoly than in perfect competition?
Limited choices and strategic pricing may force consumers or firms to sacrifice better alternatives.
How do producers respond to changes in consumer demand?
They adjust output, pricing, and inventory to meet new demand levels.
What impact do government subsidies have on market incentives?
They encourage production of certain goods by reducing costs and increasing profitability.
In a Microeconomic Indicator, what effect do falling prices have on consumer behavior?
Consumers may delay purchases expecting further price drops, or increase spending if prices are attractive.
How do individual choices differ between command and market economies?
In a command economy, choices are limited by government control; in a market economy, individuals have freedom to choose based on preferences and income.
How do market structures influence business decision-making?
Firms adjust pricing, output, and marketing strategies based on competition and market power.
What is the relationship between equilibrium price and quantity produced?
Equilibrium occurs where quantity demanded equals quantity supplied, setting the market price.
How does the pursuit of profit affect the distribution of goods and services?
Goods are distributed where demand is highest and profit margins are strongest.
Why are microeconomics indicators important for understanding local economic trends?
They reflect individual and business behavior, helping to assess economic conditions at a community level.