Whole Spec

Question 1

What is scarcity?

Answer 1

Limited resources vs. unlimited wants.

Scarcity forces individuals and societies to make choices about resource allocation.

Question 2

Define opportunity cost.

Answer 2

The next best alternative forgone when a decision is made.

It highlights the cost of choosing one option over another.

Question 3

What does demand refer to in economics?

Answer 3

The quantity of a good or service consumers are willing and able to buy at different prices.

Demand can change based on factors like consumer preferences and income levels.

Question 4

What is supply in economic terms?

Answer 4

The quantity of a good or service producers are willing and able to sell at different prices.

Supply is influenced by production costs and technology.

Question 5

What is market equilibrium?

Answer 5

The point where demand equals supply.

At this point, there is no excess supply or demand.

Question 6

Define Price Elasticity of Demand (PED).

Answer 6

How responsive quantity demanded is to a price change.

PED can help businesses set pricing strategies.

Question 7

What does Price Elasticity of Supply (PES) measure?

Answer 7

How responsive quantity supplied is to a price change.

PES indicates how easily producers can adjust their output.

Question 8

What is Income Elasticity of Demand (YED)?

Answer 8

How demand changes as income changes.

YED helps classify goods as normal or inferior based on consumer income changes.

Question 9

Define Cross-Price Elasticity of Demand (XED).

Answer 9

How demand for one good changes when the price of another good changes.

XED is used to determine whether goods are substitutes or complements.

Question 10

What are public goods?

Answer 10

Non-excludable and non-rivalrous goods.

Examples include street lighting and national defense.

Question 11

What are externalities?

Answer 11

Unintended side effects of market transactions.

They can be positive (benefits) or negative (costs) to third parties.

Question 12

What are the reasons for government intervention in the market?

Answer 12

• Correct market failure
• Promote social welfare

Governments intervene to enhance efficiency and equity.

Question 13

What is an indirect tax?

Answer 13

Taxes on goods and services to reduce consumption of harmful goods or generate government revenue.

Indirect taxes often lead to higher prices for consumers.

Question 14

What is a subsidy?

Answer 14

Government payments to producers or consumers to encourage the production or consumption of certain goods.

Subsidies can lower prices for consumers and increase supply.

Question 15

Define price ceiling.

Answer 15

A maximum price set by the government.

Price ceilings can lead to shortages in the market.

Question 16

What is a price floor?

Answer 16

A minimum price set by the government.

Price floors can lead to surpluses in the market.

Question 17

What are merit goods?

Answer 17

Goods that are under-consumed because people do not fully recognize their benefits.

Examples include healthcare and education.

Question 18

Define demerit goods.

Answer 18

Goods that are over-consumed due to a lack of understanding of their negative effects.

Examples include tobacco and alcohol.

Question 19

What is government failure?

Answer 19

When government intervention leads to a more inefficient allocation of resources.

Causes include lack of information and poor policy design.

Question 20

What is scarcity?

Answer 20

Limited resources vs. unlimited wants.

Scarcity forces individuals and societies to make choices about resource allocation.

Question 21

Define opportunity cost.

Answer 21

The next best alternative forgone when a decision is made.

It highlights the cost of choosing one option over another.

Question 22

What does demand refer to in economics?

Answer 22

The quantity of a good or service consumers are willing and able to buy at different prices.

Demand can change based on factors like consumer preferences and income levels.

Question 23

What is supply in economic terms?

Answer 23

The quantity of a good or service producers are willing and able to sell at different prices.

Supply is influenced by production costs and technology.

Question 24

What is market equilibrium?

Answer 24

The point where demand equals supply.

At this point, there is no excess supply or demand.

Question 25

Define Price Elasticity of Demand (PED).

Answer 25

How responsive quantity demanded is to a price change. ## Footnote PED can help businesses set pricing strategies.

Question 26

What does Price Elasticity of Supply (PES) measure?

Answer 26

How responsive quantity supplied is to a price change. ## Footnote PES indicates how easily producers can adjust their output.

Question 27

What is Income Elasticity of Demand (YED)?

Answer 27

How demand changes as income changes. ## Footnote YED helps classify goods as normal or inferior based on consumer income changes.

Question 28

Define Cross-Price Elasticity of Demand (XED).

Answer 28

How demand for one good changes when the price of another good changes. ## Footnote XED is used to determine whether goods are substitutes or complements.

Question 29

What are public goods?

Answer 29

Non-excludable and non-rivalrous goods. ## Footnote Examples include street lighting and national defense.

Question 30

What are externalities?

Answer 30

Unintended side effects of market transactions. ## Footnote They can be positive (benefits) or negative (costs) to third parties.

Question 31

What constitutes monopoly power?

Answer 31

A firm dominates the market, reducing competition. ## Footnote This often leads to higher prices and reduced consumer choice.

Question 32

What are the reasons for government intervention in the market?

Answer 32

* Correct market failure * Promote social welfare ## Footnote Governments intervene to enhance efficiency and equity.

Question 33

What is an indirect tax?

Answer 33

Taxes on goods and services to reduce consumption of harmful goods or generate government revenue. ## Footnote Indirect taxes often lead to higher prices for consumers.

Question 34

What is a subsidy?

Answer 34

Government payments to producers or consumers to encourage the production or consumption of certain goods. ## Footnote Subsidies can lower prices for consumers and increase supply.

Question 35

Define price ceiling.

Answer 35

A maximum price set by the government. ## Footnote Price ceilings can lead to shortages in the market.

Question 36

What is a price floor?

Answer 36

A minimum price set by the government. ## Footnote Price floors can lead to surpluses in the market.

Question 37

What are merit goods?

Answer 37

Goods that are under-consumed because people do not fully recognize their benefits. ## Footnote Examples include healthcare and education.

Question 38

Define demerit goods.

Answer 38

Goods that are over-consumed due to a lack of understanding of their negative effects. ## Footnote Examples include tobacco and alcohol.

Question 39

What is government failure?

Answer 39

When government intervention leads to a more inefficient allocation of resources. ## Footnote Causes include lack of information and poor policy design.

Question 41

What is the Market System?

Answer 41

A system where resources are allocated based on supply and demand. ## Footnote Real-World Application Example: During the COVID-19 pandemic, governments had to make difficult choices about allocating resources (e.g., hospital beds, vaccines) and the opportunity cost of spending money on healthcare vs. economic support packages.

Question 42

What is the Price Mechanism?

Answer 42

The process by which the prices of goods and services are determined in a market. ## Footnote Real-World Application Example: In the housing market, when interest rates fall, demand for homes increases as people can afford higher mortgages, shifting the equilibrium price and quantity.

Question 43

What is Price Determination?

Answer 43

The process of establishing the price of a good or service based on market forces. ## Footnote Real-World Application Example: The demand for Netflix subscriptions is relatively inelastic because despite price increases, people still subscribe, showing that entertainment services have low price elasticity of demand.

Question 44

What is Market Failure?

Answer 44

A situation where the allocation of goods and services is not efficient. ## Footnote Real-World Application Example: Overfishing in the seas is a market failure where the fish stocks are depleted by firms operating in their own interests without considering the long-term environmental costs.

Question 45

What is Government Intervention?

Answer 45

Actions taken by the government to influence the economy. ## Footnote Real-World Application Example: The UK Government’s Sugar Tax was introduced in 2018 to reduce the consumption of sugary drinks, addressing the negative health externalities (obesity, diabetes) linked to sugar consumption.

Question 46

What are Indirect Taxes?

Answer 46

Taxes imposed on goods and services rather than on income or profits. ## Footnote Real-World Application Example: Tobacco Tax in many countries like the UK, where higher taxes on cigarettes make them more expensive, leading to reduced smoking rates over time.

Question 47

What are Subsidies?

Answer 47

Financial assistance provided by the government to encourage the production or consumption of certain goods. ## Footnote Real-World Application Example: Electric Car Subsidies in countries like Norway, where the government provides financial incentives for individuals to purchase electric vehicles, helping reduce carbon emissions and promote green technology.

Question 48

What are Price Controls?

Answer 48

Government-mandated legal minimum or maximum prices for specific goods. ## Footnote Real-World Application Example: Minimum Wage Laws in the US, where the government sets a legal minimum pay rate, ensuring workers earn a baseline income, but also leading to potential unemployment if set too high in some regions.

Question 49

What are Public Goods?

Answer 49

Goods that are non-excludable and non-rivalrous in consumption. ## Footnote Real-World Application Example: Street Lighting is a classic example of a public good. It benefits everyone in an area, and no one can be excluded from using it, leading to the free rider problem if the government doesn’t fund it.

Question 50

What are Externalities?

Answer 50

Costs or benefits incurred by a third party who did not choose to incur those costs or benefits. ## Footnote Real-World Application Example: Air Pollution from factories is a negative externality. The health costs and environmental damage caused by pollution affect people who are not involved in the production or consumption of the goods being produced.

Question 51

What is Government Failure?

Answer 51

A situation where government intervention leads to an inefficient allocation of resources. ## Footnote Real-World Application Example: Rent Controls in New York have led to housing shortages, as landlords find it less profitable to rent properties under the controls, resulting in fewer available apartments.

Question 52

What are Merit Goods?

Answer 52

Goods that are deemed beneficial for individuals and society, often provided for free or at a subsidized rate by the government. ## Footnote Real-World Application Example: Government-funded Healthcare in the UK (NHS) is a merit good. The government promotes consumption of healthcare services because it benefits society as a whole, improving public health and productivity.

Question 53

What are Demerit Goods?

Answer 53

Goods that are considered harmful to individuals and society, often subject to regulation or taxation. ## Footnote Real-World Application Example: Tobacco products are often classified as demerit goods due to their negative health effects.