Fundamentals of Economic Theory Quiz

Scarcity arises when unlimited wants exceed limited resources.

GDP represents the total monetary value of all goods and services produced within a country's borders in a specific time period.

Rational Choice Theory posits that individuals make decisions that maximize their own utility.

The law of demand states that there is an inverse relationship between price and quantity demanded.

Opportunity cost represents the value of the next best alternative forgone when a decision is made.

Inflation refers to the continuous increase in the general price level of goods and services.

The law of diminishing marginal utility states that as consumption of a good increases, the additional utility gained from each additional unit decreases.

Microeconomics studies individual markets and firms, while macroeconomics examines the economy as a whole.

Nominal GDP measures economic output at current market prices, while real GDP adjusts for inflation.

Comparative advantage suggests that countries should specialize in producing goods where they have a lower opportunity cost relative to other countries.

The law of supply states that as the price of a good rises, suppliers are willing to produce more of it.

Absolute advantage denotes superior efficiency in producing a good, while comparative advantage relates to the ability to produce at a lower opportunity cost.

Technological progress is considered the primary driver of economic growth in classical economic theory.

Perfectly competitive markets feature many buyers and sellers without any single entity having control over prices.

The Phillips curve illustrates the trade-off between inflation and unemployment.

Progressive taxes impose higher rates on higher incomes, while regressive taxes impose higher rates on lower incomes.

Aggregate expenditure (AE) equals consumption (C) plus investment (I) plus government spending (G) plus net exports (NX).

Elasticity measures the sensitivity of quantity demanded to changes in price.

Monetary policy controls the money supply and interest rates, while fiscal policy manages government spending and taxation.

Recessions entail decreased economic activity, while depressions involve severe economic downturns marked by high unemployment and reduced GDP for an extended period.

The tragedy of the commons refers to the overexploitation or depletion of shared resources due to individual self-interest.

Classical economic theory asserts that government should focus on providing public goods and ensuring property rights.

Monopolies have sole control over a market, whereas oligopolies feature a few dominant firms controlling the market.

The PPF illustrates the trade-offs an economy faces in allocating resources between the production of two goods.

The multiplier effect refers to the magnified impact of initial spending increases, causing subsequent rounds of spending and economic activity.