Chapter 4- Economics Flashcards
define economics
the study of how people use scarce resources in order to satisfy unlimited needs and wants
define demand
when individuals attempt to satisfy their needs and wants by purchasing a good or service
define quantity demanded
the quantity of a good or service that an individual is willing and able to buy at a certain price.
When does the quantity demanded change?
When the prices changes.
what is the demand schedule?
a table that lists the quantify demanded for a good that people are willing and able to buy at all possible prices
What is the market demand schedule?
a table that lists the quantity demanded for a good or service that people throughout the whole economy are willing and able to buy at all possible prices.
What is supply?
the relationship between the quantity of a good or service and its price. it’s home much of a product or service is available for sale in a market.
What is the supply schedule?
a table that illustrates all the quantities supplied at different prices. the supply schedule shows you how the supply changes when you increase or decrease the price
What is the market supply schedule?
a table that lists the quantity supplied for a good or service that suppliers throughout the whole economy are willing and able to supply at all possible prices.
Define economy
the management of the resources of a country
What is the basic economic problem?
that needs and wants are unlimited, but resources are scarce.
what are resources?
Also known as factors of production, include land, labor, capital and entrepreneurship
what does scarcity mean?
that resources are limited, and because resources are scarce, people must make choices.
What are incentives?
rewards that motivate people to behave in certain ways.
What is the circular flow model?
includes households, businesses and governments and shows how money moves around in a simple market economy.
What are factors of production?
land, labor, capital and entrepreneurship.
define prices
rent, wages and profits
what role do households play in the circular flow model?
they buy goods and services from businesses as well as sell their labor, land and capital in exchange for income.
what role do businesses play in the circular flow model?
they sell goods and services to households, earning revenue and generating profits. they also pay wages, interest and profits to household in return for the use of their factors of production
what role does government play in the circular flow model?
levy taxes on households and businesses in order to provide certain benefits to everyone.
what are injections in the circular flow model?
include investments, government purchases and exports
what are leakages in the circular flow model?
include savings, taxes and imports
what is an economic system
the manner in which our society has structured the way goods and services are produced, distributed, and consumed to satisfy our needs and wants
What are the categories of economic systems?
market-oriented systems
command-oriented systems
Define a market system?
one which relies on market forces to determine production, distribution, and consumption of goods and services. most property and economic decisions are in the hands of private individuals.
define command system?
relies on the state rather than individuals or markets. the state owns most property and most economic activities are directed through central state planning.
Define a socialistic economic system.
the government owns most land and capital goods, but individuals still control their own labor. Economic decisions of production, distribution, and consumption are centrally planned.
define communism
all factors of production, land, capital, and even labor are controlled by the state.
define mixed economic systems
where the government blends different features of two or more systems.
What are excess reserves?
funds that are held by a bank that exceed the federal reserve’s minimum reserve requirement. It can be determined by subtracting required reserves from legal reserves.
What is a fractional-reserve system?
a banking system where banks only hold a fraction of the money deposited with them is reserves. the deposits not held in reserves are used to make loans or are invested.
What are required reserves?
the level of reserves that the Federal Reserve requires that member banks hold to honor withdrawals.
What are legal reserves?
include the cash held by the bank for daily banking transactions (vault cash) and its deposits at one of the Federal Reserve regional banks.
What are primary reserves?
Refers to the bank’s cash and deposits.
What are secondary reserves?
high-quality securities that are easily convertible to cash, such as treasury bonds.
What is the excess reserve formula?
Excess reserves = legal reserves - required reserves
