Foundations of Economics
What is the basic economics problem that all societies face
Scarcity
What happens to price when demand increases but supply stays the same?
Price increases due to higher demand and constant supply.
What are the four main types of market structures?
Perfect competition, monopolistic competition, oligopoly, monopoly
Define globalization in your own words.
The increasing interconnectedness of countries through trade, ideas, tech, and migration
What is price elasticity of demand?
The responsiveness of quantity demanded to a change in price
What is a market failure? Give one example.
When the market on its own fails to allocate resources efficiently. Ex: pollution
Define opportunity cost and give an example
Opportunity cost is the next best alternative foregone when a choice is made. Ex: Choosing to study instead of going out means losing social time.
What does it mean when a market is in equilibrium?
Market equilibrium is when quantity demanded equals quantity supplied at a certain price.
What are two characteristics of perfect competition?
Many sellers, identical products, no price control
What is a tariff and how does it impact trade?
A tariff is a tax on imports; it raises prices and reduces foreign competition
What kind of goods tend to be inelastic? Give two examples.
Inelastic goods: gas, insulin (necessities)
What is a negative externality? Why might the government intervene?
A side effect on third parties—e.g., pollution from factories
What does comparative advantage mean? Why is it important in trade?
Comparative advantage is when a country can produce a good at a lower opportunity cost than others. It allows countries to trade efficiently.
Draw and label a basic supply and demand graph.
Graph should show the intersection of supply and demand curves.
Give an example of monopolistic competition
Monopolistic: Fast food (Burger King vs. McDonald’s).
What is the difference between a quota and a subsidy?
A quota limits imports; a subsidy is government money to lower production costs
If demand is elastic, what happens to total revenue when price increases?
Total revenue decreases when price increases if demand is elastic
How do subsidies encourage production?
Subsidies lower producer costs, encouraging more production
Give an example of a trade-off you’ve made in your own life.
Ex: Choosing to buy a new phone meant not being able to afford concert tickets.
Describe what happens when a price floor is set above the equilibrium price. (Ex: minimum wage)
A surplus is created because the price is artificially high.
How do oligopolies impact consumer choice and prices?
Oligopolies limit consumer choices and may keep prices high
Name one benefit and one drawback of globalization for developing nations.
Benefit: Jobs, investment, tech. Challenge: Exploitation, loss of local industries
Why is it important for businesses to understand elasticity when setting prices?
It helps businesses avoid losing customers and maximize revenue
What is the purpose of government regulation in a free market?
To protect consumers, ensure fair competition, and correct market failures
Explain how the concept of scarcity leads to the need for choice and prioritization in economics.
Because resources are scarce, individuals and societies must make choices about how to use them efficiently to meet unlimited wants.
Explain what causes a shift in the supply curve vs. a movement along the curve.
A shift in supply is caused by external factors (tech, costs), while movement is caused by price change alone.
In what type of market structure would branding and advertising matter most? Why?
Monopolistic competition—branding differentiates similar products (e.g., cereal brands)
What does the WTO do? Give an example of a trade dispute they might resolve.
The WTO resolves disputes and promotes free trade. Ex: Dispute over steel tariffs
Compare the elasticity of gasoline vs. luxury handbags and explain why they differ.
Gasoline is inelastic (few substitutes); handbags are elastic (luxury, many options)
Explain how tariffs can both help and hurt a domestic economy.
Tariffs help domestic industries but may lead to trade wars and higher consumer prices