10 - Microeconomics

Question 1

Define:

scarcity

Answer 1

Refers to the limited availability of resources relative to unlimited wants and needs.

This limitation forces individuals and societies to make choices about how to allocate resources.

Question 2

Define:

supply

Answer 2

• The quantity of a good or service that producers are willing and able to offer at various prices.
• As the price of a good increases, suppliers are generally willing to produce more.

Question 3

Define:

demand

Answer 3

• The quantity of a good or service that consumers are willing and able to buy at various prices.
• As the price of a good decreases, consumers are generally willing to buy more.

Question 4

Explain:

choice

Context of economics

Answer 4

• Because of scarcity, individuals and societies must make choices about how to allocate resources.
• Every choice involves trade-offs, meaning that to gain something, something else must be given up.

Question 5

Define:

opportunity cost

Answer 5

Refers to what you have to give up to buy what you want in terms of other goods or services.

Example: if you choose to spend your evening watching a movie, the opportunity cost is the value of the other things you could have done with that time, like studying, spending time with friends, or working.

Question 6

Identify:

3 main types of economic systems

Answer 6

1. Command Economy
2. Market Economy
3. Traditional Economy

Question 7

Explain:

command economy

Answer 7

• Economic system where a central authority, typically the government, controls the production and distribution of goods and services.
• This central authority makes decisions about what to produce, how much to produce, and who gets to consume the goods and services.

Examples: Soviet Union, Cuba, North Korea

Question 8

Explain:

market economy

Answer 8

• Economic system where the production and distribution of goods and services are primarily determined by supply and demand in markets.
• In this system, economic decisions are made by individuals and businesses, rather than by a central authority.

Question 9

Explain:

traditional economy

Answer 9

• Economic system where customs, traditions, and beliefs shape the production and distribution of goods and services.
• In this system, economic decisions are based on long-held cultural norms and practices, rather than on market forces or government intervention.

Examples: Indigenous communities in the Amazon rainforest, rural villages in Africa and Asia

Question 10

Define:

market structures

Answer 10

Different types of competitive environments in which firms operate.

Question 11

Identify:

4 types of market structures

Answer 11

1. Perfect Competition
2. Monopoly
3. Oligopoly
4. Monopolistic Competition

Question 12

Describe:

perfect competition

Answer 12

• Many buyers and sellers, identical products, perfect information, easy entry and exit.
• Efficient allocation of resources, low prices for consumers.
• Firms have little control over price, potential for low profits.

Example: Agricultural markets (e.g., wheat, corn)

Question 13

Describe:

monopoly

Answer 13

• Single seller, unique product, high barriers to entry.
• Potential for economies of scale, innovation.
• Higher prices, reduced consumer choice, potential for inefficiency.

Example: Public utilities (e.g., water, electricity)

Question 14

Describe:

oligopoly

Answer 14

• Few sellers, differentiated or identical products, significant barriers to entry.
• Potential for innovation, economies of scale.
• Collusion, price fixing, reduced consumer choice.

Examples: Automobile industry, airline industry

Question 15

Describe:

monopolistic competition

Answer 15

• Many sellers, differentiated products, low barriers to entry.
• Product differentiation, consumer choice.
• Inefficient allocation of resources, potential for advertising costs.

Examples: Restaurants, clothing stores

Question 16

Define:

specialization

Answer 16

Process of focusing on a specific task or activity to increase efficiency and productivity.

Question 17

Explain:

4 benefits of specialization

Answer 17

1. Increased Efficiency: By focusing on a specific task, individuals and businesses can become more skilled and efficient.
2. Higher Productivity: Allows for the division of labor, leading to increased output.
3. Innovation: Encourages innovation as individuals can focus on developing new techniques and ideas.
4. Economic Growth: Contributes to economic growth by increasing productivity and efficiency.

Question 18

Explain:

4 costs of specialization

Answer 18

1. Dependence: Can make individuals and economies dependent on specific skills or resources.
2. Reduced Flexibility: Specializing in one area can limit opportunities in other areas.
3. Increased Inequality: Can lead to income inequality if some individuals or regions specialize in low-paying industries.
4. Social Costs: Overspecialization can lead to a loss of diversity and cultural heritage.

Question 19

Define:

factors of production

Answer 19

• Fundamental resources used to produce goods and services.
• Building blocks of any economy.

Question 20

Identify:

4 factors of production

Answer 20

1. Land
2. Labor
3. Capital
4. Entrepreneurship

Question 21

Describe:

land

Within context of factor of production

Answer 21

• Natural Resources: includes all natural resources like fertile land, minerals, forests, water bodies, and climate conditions.
• Geographic Location: can influence its economic potential, especially for trade and resource extraction.

A nation rich in natural resources like oil, minerals, and fertile land has a significant advantage. However, scarcity of these resources can limit economic growth and development.

Question 22

Describe:

labor

Within context of factor of production

Answer 22

• Human Capital: refers to the skills, knowledge, and abilities of workers. A well-educated and skilled workforce is crucial for a productive economy.
• Physical Labor: includes manual labor and physical effort required to produce goods and services.

A skilled workforce is essential for productivity and innovation. Countries that invest in education and training often have higher economic growth rates.

Question 23

Describe:

capital

Within context of factor of production

Answer 23

• Physical Capital: refers to man-made goods used to produce other goods and services, such as machinery, tools, and buildings.
• Financial Capital: refers to money and other financial assets used to invest in businesses and other economic activities.

A well-developed infrastructure, including roads, bridges, and ports, is crucial for economic activity.

Question 24

Describe:

entrepreneurship

Within context of factor of production

Answer 24

• Innovation: Entrepreneurs introduce new ideas, products, and services.
• Risk-Taking: They take risks by investing their time, money, and resources in new ventures.
• Decision-Making: Entrepreneurs make critical decisions about resource allocation, production, and marketing.

Question 25

# Explain: How does **economic growth** impact economic decisions and outcomes in a country?

Answer 25

A country with abundant natural resources, a skilled workforce, and advanced technology is likely to experience higher economic growth.

Question 26

# Explain: How does the auto industry demonstrate the **factors of production**?

Answer 26

* **Land**: Raw materials like iron ore, rubber, and oil are extracted from the earth. * **Labor**: Workers assemble cars, engineers design them, and marketers promote them. * **Capital**: Factories, assembly lines, and robotic equipment are used in the production process. * **Entrepreneurship**: Henry Ford's innovation of the assembly line revolutionized car manufacturing.

Question 27

# Explain: How does the tech industry demonstrate the **factors of production**?

Answer 27

* **Land**: Silicon Valley, a region with a concentration of tech companies, benefits from its location and infrastructure. * **Labor**: Software engineers, data scientists, and designers create innovative products. * **Capital**: Computers, servers, and research facilities are essential for tech companies. * **Entrepreneurship**: Bill Gates and Steve Jobs founded Microsoft and Apple, respectively, and revolutionized the tech industry.

Question 28

# Identify: 4 roles of **institutions** in economics

Answer 28

1. Property Rights 1. Contract Enforcement 1. Regulatory Framework 1. Social Norms and Culture

Question 29

# Explain: property rights | Context of economics and institutions

Answer 29

* Institutions define and enforce property rights, which are essential for economic activity. * Secure property rights encourage investment and innovation.

Question 30

# Explain: contract enforcement | Context of economics and institutions

Answer 30

Strong institutions that enforce contracts facilitate economic transactions and reduce uncertainty.

Question 31

# Explain: regulatory framework | Context of economics and institutions

Answer 31

Institutions can regulate markets to ensure fair competition, protect consumers, and address market failures.

Question 32

# Explain: social norms and culture | Context of economics and institutions

Answer 32

* Informal institutions, such as social norms and cultural values, can significantly impact economic behavior and outcomes. * This influence can be seen in work ethic, risk tolerance, trust-building, and cooperation.

Question 33

# Identify: 5 roles of **government** in terms of economic functions

Answer 33

1. Providing public goods and services 2. Redistributing income 3. Stabilizing the economy 4. Correcting market failures 5. Promoting economic growth

Question 34

# Explain: How does the government provide **public goods** and **services**? | Context of economics

Answer 34

* **Infrastructure**: Governments invest in infrastructure like roads, bridges, and public transportation, which are essential for economic activity. * **Education**: Government-funded education improves human capital, leading to a more skilled workforce and economic growth. * **Healthcare**: Public health programs can improve the overall health of the population, leading to increased productivity.

Question 35

# Explain: How does the government **redistribute income**? | Context of economics

Answer 35

* **Welfare Programs**: Governments use taxes and transfer payments to redistribute income from the wealthy to the poor. * **Progressive Taxation**: Progressive tax systems tax higher incomes at higher rates, reducing income inequality.

Question 36

# Explain: How does the government **stabilize the economy**? | Context of economics

Answer 36

* **Monetary Policy**: Central banks use monetary policy tools like interest rates and open market operations to control inflation and promote economic growth.   * **Fiscal Policy**: Governments use fiscal policy, including government spending and taxation, to influence aggregate demand and stabilize the economy.

Question 37

# Explain: How does the government **correct market failures**? | Context of economics

Answer 37

* **Externalities**: Governments can intervene to address negative externalities like pollution and positive externalities like education. * **Market Power**: Antitrust laws can prevent monopolies and oligopolies from exploiting consumers.

Question 38

# Explain: How does the government **promote economic growth**? | Context of economics

Answer 38

* **Investment in Research and Development**: Governments can fund research and development to promote innovation. * **Trade Policy**: Governments can implement trade policies to encourage exports and attract foreign investment.