Decision-making and Trade-offs in Economic Scenarios Quiz

Trade-offs involve sacrificing one thing to gain another.

Opportunity cost is the value of what you give up when you choose one alternative over another.

The Federal Reserve manages the nation's monetary policy, including issuing currency and regulating the money supply.

Positive externalities occur when a third party benefits from a transaction without paying for it, such as the positive impact of beekeeping on nearby farms through pollination.

The law of diminishing returns states that as more units of a variable input (such as labor) are added to fixed inputs (like capital), the marginal product of the variable input will eventually decrease.

Factors of production include land, labor, capital, and entrepreneurship.

The law of demand states that as the price of a good or service decreases, the quantity demanded increases, and vice versa, ceteris paribus.

Marginal refers to the change in an economic variable as one more unit of a good or service is produced or consumed.

Perfect competition implies no barriers to entry or exit in the market.

Price elasticity of demand measures the responsiveness of quantity demanded to changes in price.

Monopolistic competition is characterized by many firms and relatively easy entry and exit into the market.

Governments use a variety of tools including regulations, taxes, and subsidies to correct market failures.

Public goods are non-excludable and non-rivalrous, such as national defense, which benefits everyone and is difficult to exclude non-payers from enjoying.

Nominal GDP measures the value of goods and services produced in current prices, while real GDP adjusts for inflation to provide a more accurate picture of economic growth over time.

Diminishing marginal utility states that as consumption of a good increases, the additional satisfaction gained from each additional unit decreases.

Fiscal policy aims to influence the economy by adjusting government spending and taxation to stabilize employment levels and control inflation.

GDP measures the total value of goods and services produced in a country and is calculated as the sum of consumption, investment, government spending, and net exports.

Unemployment rate measures the percentage of unemployed individuals in the labor force.

The Laffer Curve demonstrates the relationship between tax rates and tax revenue, suggesting that there is an optimal tax rate that maximizes revenue.