3C1 - Key Economics Terms

Question 1

What is demand in business?

Answer 1

The willingness of clients to buy commodities at particular prices.

Question 2

What does the law of demand indicate?

Answer 2

When prices of commodities are higher, the demand for those commodities goes down.

Question 3

What are the factors affecting demand?

Answer 3

• Consumers’ income.
• Price of the product.
• Consumers’ expectations.
• Preferences of clients.
• Number of customers.
• Prices of related goods.

Question 4

What is the difference between demand and quantity demanded?

Answer 4

• Demand is the number of commodities that consumers are willing to purchase during a period of time.
• Quantity demanded refers to the number of commodities people will purchase at a particular price at a specific time.

Question 5

What is the demand curve?

Answer 5

A representation of price against quantity demand for a period of time in a graph.

Question 6

What causes shifts in a demand curve?

Answer 6

• Incomes
• Preferences

Question 7

What does movement along the demand curve indicate?

Answer 7

A change in the quantity demanded.

Question 8

What is a Giffen good?

Answer 8

Products that customers consume more of when their prices rise.

Example: Bread during a famine:

Scenario: Imagine a poor community where bread is a staple food and a major part of their diet. When the price of bread rises, people can’t afford to buy more expensive foods that they might prefer (like meat or vegetables).
Behavior: As the price of bread goes up, they actually buy more bread because they can’t afford other foods and need to maintain their caloric intake. Thus, bread becomes even more essential.

Question 9

What is a Veblen good?

Answer 9

High-quality goods bought by wealthy consumers that do not follow the Law of Demand.

Question 10

What are the exemptions to the Law of Demand?

Answer 10

• Giffen goods
• Veblen goods
• Income changes

Question 11

How does income change affect demand?

Answer 11

A high-income individual is likely to purchase expensive items as their purchase power increases.

Question 12

Provide an example of the Law of Demand.

Answer 12

If a cup of coffee costs $5 and attracts many customers, a price increase to $50 will cause a reduction in purchases as customers seek alternatives.

Question 13

What is the definition of supply in economics?

Answer 13

The amount of an item that is available for use or purchase.

Question 14

What does the law of supply state in economics?

Answer 14

Supply will increase as price increases.

Question 15

How does the price of a good affect its supply?

Answer 15

The supply of a certain good will increase proportionately to an increase in price.

Question 16

What role do production conditions play in supply?

Answer 16

• Poor conditions result in less output and supply.
• Productive conditions result in better output and supply.

Question 17

What role do future expectations of price play in supply?

Answer 17

It influences the amount of goods producers are willing to supply.

Question 18

How does the number of suppliers affect supply?

Answer 18

More suppliers lead to higher prices, but competition brings prices and aggregate supply back down.

Question 19

What is the number of suppliers in a market indicative of?

Answer 19

Competition

More suppliers lead to higher prices, but competition forces prices down as suppliers compete for market share.

Question 20

How do government policies affect markets and supply?

Answer 20

They impact markets by influencing supply.

For example, a ban on importing precious metals can increase production costs for cars, leading to a decrease in car supply and higher prices.

Question 21

What is the main difference between individual and market supply?

Answer 21

• Individual supply refers to the amount of goods one seller offers.
• Market supply is the total amount offered by the entire market.

Question 22

What elements do the supply and demand curves in different market structures have in common?

Answer 22

• Price
• Supply
• Upward sloping supply curve.

The supply curve’s shape varies depending on the type of market structure.

Question 23

What does the law of supply state?

Answer 23

Supply increases as price increases to maximize profits.

Question 24

What are some factors that affect supply?

Answer 24

• Price of goods
• Price of related goods
• Production conditions
• Future expectations
• Input costs
• Number of suppliers
• Government policy

Question 25

What is scarcity in economics?

Answer 25

When there is a significant divide between finite resources and infinite demand for the resource.

Question 26

What is the scarcity principle?

Answer 26

Consumers place a higher value on resources that are scarce.

Scarcity principle is more psychologically based than economically based.

Question 27

According to Adam Smith, why do people value diamonds more than water?

Answer 27

Diamonds are harder to find and not easily accessible compared to water.

Diamonds have no utility value, whereas water has many uses including consumption to maintain life.

Question 28

What are the 2 types of scarce resources in economics?

Answer 28

• Relative scarcity: Limited by the demand for the resource.
• Absolute scarcity: Actual number on the amount of resources left in existence.

Question 29

How does scarcity impact consumers, businesses, and governments?

Answer 29

It causes choices on how to allocate resources and make economic decisions based on needs, wants, and utility of goods.

Scarcity leads to making choices based on the balance between needs and wants.

Question 30

What is a mixed market?

Answer 30

• Economic system that incorporates elements of both capitalism and socialism.
• Combines private and public ownership or control of resources and industries.

Examples: The United States, the United Kingdom, and most modern economies are examples of mixed markets.

Question 31

What are some characteristics of mixed markets?

Answer 31

• Private Sector: Businesses and individuals own and operate for-profit enterprises.
• Public Sector: The government may own and operate key industries or services and may regulate the private sector to varying degrees.
• Regulation and Welfare: The government typically enforces regulations to ensure fair competition, protect consumers, and address social welfare needs such as healthcare, education, and social security.

Question 32

What is bartering?

Answer 32

• direct exchange of goods and services without the use of money

Examples: Trading a bushel of apples for a basket of oranges or offering web design services in exchange for legal advice.

Question 33

What is a monopoly?

Answer 33

• Situation when a single company or entity controls the entire market for a particular good or service, eliminating any competition.

Standard Oil in the early 20th century and AT&T before its breakup in the 1980s.

Question 34

What is inflation?

Answer 34

• The rate at which the general level of prices for goods and services rises, eroding purchasing power.

Can be caused by demand-pull inflation (excess demand), cost-push inflation (rising costs), and built-in inflation (wage-price spiral).

Question 35

What is the difference between a bull and a bear market?

Answer 35

• Bull market: a period of rising prices in financial markets, typically associated with increased investor confidence, economic growth, and optimism.
• Bear Market: a period of declining prices in financial markets, often associated with declining investor confidence, economic slowdown, and pessimism.

Question 36

What is socialism?

Answer 36

• Economic system where the means of production (factories, resources, and capital) are owned and controlled by the state or public entities to ensure equal distribution of wealth and eliminate class distinctions.

Examples: The former Soviet Union and modern-day Cuba exhibit features of socialism.

Question 37

What is communism?

Answer 37

• Economic and political ideology advocating for a classless society where all property and resources are communally owned, eliminating private ownership.

Examples: The People’s Republic of China (especially in its early years), North Korea, and the former Soviet Union aspired to implement communism.

Question 38

What was feudalism?

Answer 38

• Medieval European economic and social system based on the hierarchy of lords, vassals, and serfs, where land ownership and duties are exchanged for military service and labor.

Examples: Medieval Europe, particularly between the 9th and 15th centuries, and feudal Japan with its samurai and daimyo.

Question 39

What was mercantilism?

Answer 39

• Economic policy prevalent in Europe from the 16th to the 18th centuries, aimed at accumulating national wealth through a favorable balance of trade and the control of colonial resources.

Examples: The economic policies of European powers like England, France, and Spain during the Age of Exploration and Colonialism.

Question 40

What is a command economy?

Answer 40

• Economic system where the government makes all decisions regarding the production and distribution of goods and services.

Examples: The former Soviet Union, North Korea, and Maoist China are examples where command economies were implemented.