Economics Part 1

Question 1

Economics definition

Answer 1

The study of how individuals, businesses and governments make choices on allocating resources to satisfy their wants and needs.

How business built and distribute wealth

Analysis of production and consumption of goods and services

Question 2

Macroeconomics

Answer 2

(Large economic unit)

Country’s overall economic performance and governmental fiscal / monetary policies

> the government sets taxes and interest rates

Question 3

Microeconomics

Answer 3

(Small economic unit)
Consumer and business decisions
Whatever the business size

Question 4

Identify macro and micro economics in following situation :
What would happen if the global price of coffee beans increased significantly? Or if the government decided to increase sales taxes on coffee by a large amount?

Answer 4

Micro : first sentence
Macron : second sentence

Question 5

Types of economies

Answer 5

Communism
Socialism
Capitalism

From controlled/planned economics (government owns everything) to free market

Question 6

Rights of capitalism

Answer 6

• right to own a business and keep after tax profits
• right to own private property
• right to freedom of choice regarding employment, spending, etc
• right to fair competition (all operate within the legal framework, equal chance)

Question 7

Degrees/levels of competition

Answer 7

Pure competition
Monopolistic competition
Oligopoly
Monopoly

Question 8

Explain pure competition

Answer 8

• theory of perfect conditions = perfect knowledge, rational decisions
• no barriers to entry, no regulations, lots of competing firms
• Commodities = what comes closest to this
• Intense competition drives the price down, competitors have little control over price
• supply & demand rules = efficient resource allocation

Question 9

Explain monopolistic competition

Answer 9

• Real world conditions
• Competitors try to be unique, different = marketing, branding = ability to influence
  prices
• Some barriers to entry, but they are low
• Some regulations, but they are not discriminatory

Question 10

Explain oligopoly

Answer 10

• higher barriers to entry
• little price competition

Question 11

Explain monopoly

Answer 11

Highest barrier to entry (high initial investment, laws & regulations)

Question 12

What determine the price in a free market economy

Answer 12

> Supply and demand

• Forces of supply and demand
drive equilibrium price
– Demand (willingness to purchase) increases as price decreases
– Supply (willingness to sell) increases as price increases
• Equilibrium price is the point where supply and demand intersect
– This is the market price