Introduction to Economics and Stock Trading

What is the basic economic problem of scarcity? Explain with a real-life example.

• A. Unlimited resources and unlimited wants

• B. Limited resources and unlimited wants

• C. Unlimited resources and limited wants

• D. Limited resources and limited wants

Answer explanation

The basic economic problem of scarcity arises from limited resources not being able to satisfy unlimited human wants. For example, there is a limited amount of clean water available globally, but the demand for it is unlimited.

What is the law of demand? Illustrate with an example of a product you use daily.

• A. As price increases, quantity demanded increases

• B. As price decreases, quantity demanded decreases

• C. As price increases, quantity demanded decreases

• D. As price decreases, quantity demanded remains unchanged

Answer explanation

The law of demand states that as the price of a product increases, the quantity demanded decreases. For example, if the price of coffee increases, people may buy less coffee.

Calculate the price elasticity of demand if the price of a product increases from $10 to $12 and the quantity demanded decreases from 100 units to 80 units. What does this elasticity tell you?

• A. 0.5 (Inelastic)

• B. 1 (Unit Elastic)

• C. 1.5 (Elastic)

• D. 2 (Very Elastic)

Answer explanation

Price elasticity of demand = (% Change in Quantity Demanded) / (% Change in Price) = ((80-100)/((80+100)/2)) / ((12-10)/((12+10)/2)) = (-20/90) / (2/11) = -0.222 / 0.182 = -1.5. Since the result is greater than 1, the demand is elastic.

What is Gross Domestic Product (GDP)? Explain its significance with an example from a recent news event.

• A. The total value of goods and services produced within a country in a year

• B. The total income earned by a country's residents

• C. The total expenditure on a country's final goods and services

• D. The total value of a country's exports

Answer explanation

Gross Domestic Product (GDP) is the total value of goods and services produced within a country in a year. It is a key indicator of a country's economic health.

Which of the following is a macroeconomic indicator? Discuss its impact on the economy with a recent example.

• A. Price of a specific product

• B. Employment rate

• C. Production of a single company

• D. Price elasticity of demand

Answer explanation

The correct choice is B. Employment rate is a macroeconomic indicator that reflects the overall health of the economy. For example, a rise in the employment rate indicates economic growth and increased consumer spending.

What is market equilibrium? Provide an example from the stock market where market equilibrium is achieved.

• A. When quantity supplied is greater than quantity demanded

• B. When quantity demanded is greater than quantity supplied

• C. When quantity supplied equals quantity demanded

• D. When prices are fixed

Answer explanation

Market equilibrium is achieved when quantity supplied equals quantity demanded. For example, in the stock market, if the number of shares investors want to buy matches the number of shares sellers are willing to sell, market equilibrium is reached.

What are the three main types of economic systems? Compare their advantages and disadvantages with real-life country examples.

• A. Capitalism, socialism, communism

• B. Traditional, market, mixed

• C. Market, planned, mixed

• D. Command, traditional, capitalism

Answer explanation

The three main types of economic systems are market, planned, and mixed. Market economies have individual freedom but can lead to inequality. Planned economies have centralized control but lack innovation. Mixed economies combine aspects of both for balance. Examples include the US (market), China (planned), and Sweden (mixed).

What is the role of a broker in the stock market? Explain with an example of how a broker facilitates trading.

• A. To issue stocks

• B. To regulate the stock market

• C. To buy and sell stocks on behalf of investors

• D. To control the price of stocks

Answer explanation

The role of a broker in the stock market is to buy and sell stocks on behalf of investors. For example, a broker helps investors execute trades by matching buyers and sellers, ensuring smooth transactions.

What does the term 'opportunity cost' mean? Provide an example from your personal life where you had to consider opportunity cost.

• A. The cost of an alternative that must be forgone to pursue a certain action

• B. The financial cost of a business opportunity

• C. The potential gain from a missed opportunity

• D. The cost of resources used in production

Answer explanation

The term 'opportunity cost' means the cost of an alternative that must be forgone to pursue a certain action. For example, choosing to study for an exam instead of going out with friends represents an opportunity cost.

What is the difference between microeconomics and macroeconomics? Provide examples of issues each field might study.

• A. Microeconomics studies individual markets, while macroeconomics studies the overall economy

• B. Microeconomics focuses on national issues, while macroeconomics focuses on global issues

• C. Microeconomics studies government policies, while macroeconomics studies business strategies

• D. There is no difference between microeconomics and macroeconomics

Answer explanation

Microeconomics studies individual markets, while macroeconomics studies the overall economy. For example, microeconomics might study supply and demand in a specific industry, while macroeconomics might analyze inflation rates across the entire country.