Principles of Economic Resource Allocation Quiz

Perfect competition entails numerous buyers and sellers, ensuring no single entity can influence market prices.

Opportunity cost denotes the value of the alternative that must be sacrificed when a choice is made.

The Federal Reserve oversees monetary policy, managing the money supply and interest rates to stabilize the economy and promote growth.

Scarcity refers to the fundamental economic problem of having unlimited desires in a world with finite resources.

Monopolistic competition features numerous firms selling differentiated products, allowing for some degree of market power for each firm.

Profit is an outcome of production rather than a factor of production itself, which typically includes land, labor, capital, and entrepreneurship.

The PPF illustrates the trade-offs between producing different goods, highlighting the maximum potential output given resource constraints.

Regressive taxes, like sales tax, take a higher percentage of income from low-income earners than from high-income earners.

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

Command economies rely on centralized authority to allocate resources and make economic decisions.

Product differentiation allows firms to create perceived uniqueness, thus enabling them to exert some degree of market power to maximize profits.

Monopolies, unlike competitive markets, have the power to set prices rather than accepting market prices as price takers.

Elasticity of demand quantifies how consumers alter their demand for a good or service when its price changes.

Positive externalities, like education, result in benefits to third parties not directly involved in the activity, leading to underproduction in a free market.

Price elasticity of demand quantifies the responsiveness of quantity demanded to changes in price, calculated as the percentage change in quantity demanded divided by the percentage change in price.