Basic Economics Quiz For Beginners!

Explanation
Goods/product/commodity markets:
Markets used to exchange final good or service. Product markets exchange consumer goods purchased
by the household sector, capital investment goods purchased by the business sector, and goods
purchased by government and foreign sectors. A product market, however, does NOT include the
exchange of raw materials, scarce resources, factors of production, or any type of intermediate goods.
The total value of goods exchanged in product markets each year is measured by gross domestic
product. The demand side of product markets includes consumption expenditures, investment
expenditures, government purchases, and net exports. The supply side of product markets is production
of the business sector.

Explanation
Factors markets:
Markets used to exchange the services of a factor of production: labor, capital, land, and
entrepreneurship. Factor markets, also termed resource markets, exchange the services of factors, NOT
the factors themselves. For example, the labor services of workers are exchanged through factor markets
NOT the actual workers. Buying and selling the actual workers are not only slavery (which is illegal) it's
also the type of exchange that would take place through product markets, not factor markets. More
realistically, capital and land are two resources and are legally exchanged through product markets. The
services of these resources, however, are exchanged through factor markets. The value of the services
exchanged through factor markets each year is measured as national income.

Explanation
Perfect competition refers to a market structure where there are numerous small firms and consumers, none of which have enough market power to influence the price. In a perfectly competitive market, all firms are price takers, meaning they have no control over the market price and must accept the prevailing price set by market forces of supply and demand. This ensures fair competition and prevents any single firm or consumer from having significant market power or monopolistic control. Therefore, the given answer of Perfect competition accurately describes a situation where no firm or consumer is big enough to affect the market price.

Explanation
Price mechanism is a signaling and rationing device that prompts consumers and producers to adjust their demand and supply. It works by adjusting prices based on the interaction of demand and supply in the market. When demand exceeds supply, prices increase, signaling consumers to reduce their demand and producers to increase their supply. On the other hand, when supply exceeds demand, prices decrease, signaling consumers to increase their demand and producers to reduce their supply. This constant adjustment of prices helps to balance the market and allocate resources efficiently.

Explanation
Giffen goods are a special type of inferior goods where an increase in price leads to an increase in quantity demanded. This is because Giffen goods are considered to be essential goods with no close substitutes. As the price of a Giffen good increases, consumers' purchasing power decreases, making them unable to afford other goods. Therefore, they are forced to continue purchasing the Giffen good, resulting in an increase in quantity demanded despite the increase in price.

Explanation
Income effect:
It is also one of two reasons for the law of demand and the negative slope of the market demand curve.
The income effect results because a change in price gives buyers more real income, or the purchasing
power of the income, even though money or nominal income remains the same. This causes changes in
the quantity demanded of the good.
Or more simply we can say that when price of any good increases, consumer’s real income falls and its
purchasing power also decreases. This is income effect.

Explanation
When the demand for a good equals the supply of that good, it means that the quantity of the good that buyers are willing to purchase is exactly equal to the quantity that sellers are willing to sell. This indicates a balance in the market, where there is no shortage or surplus of the good. Therefore, the market for good X is said to be in equilibrium.

Explanation
Equilibrium can shift if the demand curve shifts because a change in demand will lead to a change in the quantity demanded at a given price, causing a shift in the equilibrium point. Similarly, if the supply curve shifts, it will result in a change in the quantity supplied at a given price, leading to a shift in the equilibrium point. Finally, if both the demand and supply curves shift, it will cause a simultaneous change in both the quantity demanded and supplied, resulting in a shift in the equilibrium point.