Econ u2 - allocation of resources Flashcards
What is Microeconomics?
Economics relating to induviduals or single businesses
What is Macroeconomics?
Economics involving entire industries, counties economy or something involving the whole world
What are the 3 basic economic question?
What to produce?
How to produce? machines, labor etc
For who to produce? elderly, children etc
What are the 3 different economic systems?
Free market, planned and mixed economies
What is a free market economy?
An economic system that allocates resources through the market forces of demand and supply with minimal government intervention. Also known as a capitalist economy.
Characteristics of a free market system
No government interference in economic activities
Prices and allocation of resources depends on demand and supply
Private ownership of resources
Self-interest
Competition
Advantages and disadvantages of free market economies.
Consumers have a wide array of choice, profit motive incentifies the reduction on costs to be innovative, individuals can choose careers and goods without government restriction
Products can be too expensive for the poorest people, inequality in the distribution of income, can create economic instability, they won’t produce public goods, lack of merit goods
What is a planned economy
An economy where the government makes all the choices.
Characteristics of a planned economy
government owns means of production
government decides what’s produced and quantity
slow to respond to to economic changes
entrepreneurship is suppressed
What is a mixed economy
A mixture of planned and free market and is what we find in most countries.
Characteristics of a mixed economy
means of production controlled by private businesses and the state
government influences supply and demand through regulation and intervention policies
capital is relocated based on need
Profic is the mean driver
What is demand
Demand is an induviduals ability and willingness to purchase a good at different prices
Demand is affected by ability and utility of a customer
What is ceteris paribus
The fact that we ignore other factors other that price and quantity demanded
What is market and individual demand?
individual demand is the relationship between quantity demanded of a good by one individual and its price
Market demand is relationship between total quantity demanded of a good and its price.
What are the determinants of demand?
seasons, income levels, price of substitutes, price of complements, interest rates, trends etc
