Economic Systems
In a traditional economy, how are most economic decisions made?
Based on customs, traditions, and beliefs of the community.
Which market structure has many sellers and identical products?
Perfect competition.
What happens when demand increases but supply stays the same?
Price rises.
Why do producers want to maximize profit?
To earn more money and stay competitive.
Define GDP.
The total value of all final goods and services produced in a country in a year.
In a command economy, who decides what goods and services are produced?
The government.
In which structure does one company dominate the market?
Monopoly.
What is the equilibrium price?
The price which quantity demanded equals quantity supplied.
Give an example of a positive incentive for consumers.
Discounts, rewards programs, coupons.
What macroeconomic indicator measures unemployment?
Unemployment rate.
Which economy relies primarily on supply and demand to make decisions?
Market economy.
Collusion or price fixing.
If supply increases, what usually happens to equilibrium price?
It decreases.
How do profits influence what is produced in a market system?
Producers make goods that are profitable, reducing goods that are not.
In what phase of the business cycle is unemployment lowest?
Expansion/peak.
Name two ways individuals use scarce resources differently than governments.
Individuals choose based on personal wants and budget, and governments allocate based on national needs and priorities.
What role does opportunity cost play in monopolistic competition?
Firms differentiate products, and consumers weigh the costs of alternatives.
Give one example of a factor that shifts the demand curve.
Changes in income, tastes, or population.
Why might governments provide subsidies?
To encourage the production of essential or beneficial goods.
Give one example of a microeconomic indicator.
Price of a specific good, supply/demand for a product, business revenues.
What is a mixed economy, and why do most countries use this system?
A system combining elements of market and command economies, and it balances efficiency with government regulation.
Compare the role of consumers in a monopoly vs. perfect competition.
In a monopoly, consumers have little power; in perfect competition, they influence prices through demand.
What happens when a price ceiling is set below the equilibrium price?
A shortage occurs.
In command economies, incentives come from government goals; in market economies, from profits and consumer demand.
How do inflation and unemployment usually behave during a recession?
Inflation slows, unemployment rises.