econ final elzenga section 3 Flashcards
US Economy Divisions
Businesses; Households; Government
Factor Market
market in which households supply labor and other factors of production to businesses and are paid by businesses for doing so
Goods Market:
the market in which businesses produce goods and services and sell them to households and governments
Business:
private producing units in our society; decide what to produce, how much, and for whom based on its own self-interest and market incentives
Consumer Sovereignty
the consumer’s wishes determine what is produced
Forms of Business:
Sole Proprietorships, Partnerships, Corporations, Flexible purpose/benefit corporations
Households:
groups of individuals living together and making joint decisions; most powerful economic institution; ultimately control government and business
Externality:
the effect of a decision on a third party not taken into account by the decision maker
Roles of Government:
o Providing a stable set of institutions and rules
o Promoting effective and workable competition
o Correcting for externalities
o Ensuring economic stability and growth
o Providing public goods
o Adjusting for undesirable market results
Public good:
a good that if supplied to one person must be supplied to all and whose consumption by one individual does not prevent its consumption by another individual
Private good:
a good that, when consumed by one individual, cannot be consumed by another individual
Demerit goods or activities:
goods or activities that government believes are bad for people even though they choose to use the goods or engage in the activities
Merit goods and activities:
goods and activities that government believes are good for you even though you may or may not choose to engage in the activities or to consume the goods; often there are subsidies and tax benefits to encourage these
Government Failures:
situations in which the government intervenes and makes things worse (almost always)
Demand:
not want, willingness and ability to pay; refers to a schedule of quantities of a good that will be bought per unit of time at various prices, other things constant
Law of Demand:
Quantity demanded rises as price falls, other things constant; converse is also true
Quantity demanded:
refers to a specific amount that will be demanded per unit of time at a specific price, other things constant; changes in this indicate a shift along the demand curve
Positive Shift Demand
and normal good
price of substitute good increases
society’s income increases
Negative Demand Shift
price of complement good increases
Factors that shift demand
society’s income, price of other goods, tastes, expectations, and taxes/subsidies
Market Demand Curve:
the horizontal sum of all individual demand curves; firms aren’t choosy about who buys as long as someone does
