ECON Prelims Reviewer

• What is the main focus of economics?

  Economics studies how society manages its scarce resources.
• How does satisfaction relate to economics?


  Satisfaction is achieved through utilities or "utils".
• What does scarcity mean in economics?


  Scarcity refers to unlimited wants and limited resources.
• What are the four categories of factors of production?

  Land, Labor, Capital, and Entrepreneurial Ability.
• What is the role of labor in production?


  Labor includes human resources that contribute physical and mental abilities to production.
• How is capital defined in economics?


  Capital refers to investment goods that are manufactured aids to production.
• What does entrepreneurial ability entail?


  It combines resources needed in production and innovates new products and techniques.
• Why is it important to study economics?

  Because resources can only be used for one purpose at a time.
• What does the term "hedonism" refer to in economics?


  The pursuit of pleasure and avoidance of pain.
• What is the first principle of economics regarding trade-offs?


  People face trade-offs in their economic decisions.
• What are the three tax systems in economics?


  • Proportional tax: Same fraction for all income levels.
  • Regressive tax: High-income taxpayers pay a smaller fraction.
  • Progressive tax: High-income taxpayers pay a larger fraction.
• What is market equilibrium?


  Market equilibrium occurs when the buyer is willing to pay for a quantity that the seller is willing to sell.
• What is the relationship between efficiency and equality in economics?


  Efficiency involves maximizing resource use, while equality focuses on fair distribution of economic prosperity.
• What does opportunity cost refer to?


  Opportunity cost is what must be given up to obtain some item.
• How do rational people make decisions?


  Rational people think at the margin and make decisions to achieve their objectives.
• What are incentives in economics?

  Incentives are factors that induce a person to act, based on rewards or punishments.
• How does trade benefit countries?


  Trade allows countries to specialize and enjoy a variety of goods and services.
• What is a market economy?


  A market economy allocates resources through decentralized decisions of firms and households.
• What is market failure?


  Market failure occurs when a market fails to allocate resources efficiently.
• What does productivity measure?

  Productivity measures the quantity of goods and services produced from each unit of labor input.
• What is inflation?

  Inflation is an increase in the overall level of prices in the economy.
• What is the business cycle?


  The business cycle refers to fluctuations in economic activity such as employment and production.
• What is the Greek origin of the word "economics"?


  The Greek word "oikonomia" means household management.
• What is the difference between positive and normative economics?


  Positive economics is objective and fact-based, while normative economics is opinion-based.
• What is microeconomics?


  Microeconomics studies how households and firms make decisions and interact in markets.
• What is macroeconomics?


  Macroeconomics studies economy-wide phenomena, including inflation and unemployment.
• What does the circular flow diagram illustrate?


  The circular flow diagram illustrates the flow of goods, services, and money in an economy.
• What is the production possibilities frontier?


  The production possibilities frontier shows the maximum output combinations of two goods that can be produced with available resources.
• What is Pareto efficiency?


  Pareto efficiency is an economic state where resources cannot be reallocated to make one individual better off without making another worse off.
• What are the four fundamental economic questions?


  1. What to produce?
  2. How to produce?
  3. How much to produce?
  4. For whom to produce?
• What is economic freedom?


  Economic freedom allows members of society to undertake economic actions with minimal government intervention.
• What does economic equity refer to?


  Economic equity is a situation where the outcome of an economic transaction is fair to each party.
• What is economic efficiency?

  Economic efficiency is achieved when the output is maximized for a given input.
• What does economic security mean?

  Economic security refers to having stable income or resources to support a standard of living.
• What is economic stability?


  Economic stability is characterized by constant output growth, low inflation, and low unemployment.
• What does economic growth refer to?


  Economic growth is the increase in the capacity of an economy to produce goods and services over time.
• What is a traditional economy?


  A traditional economy is based on subsistence and answers economic questions based on tradition.
• What characterizes a command economy?


  A command economy features public ownership of resources and central planning by the government.
• What is a market economy?


  A market economy is characterized by private ownership of resources and minimal government intervention.
• What is a demand schedule?


  A demand schedule is a table showing the relationship between the price of a good and the quantity demanded.