Economic Concepts Flashcards
1
Q
Law of Demand
A
- higher prices reduce the demand for an item and lower prices increases the demand for an item.
- there is an inverse relationship between the price consumers are willing to pay for an item and the amount they are willing to purchase.
- The demand curve slopes down and to the right, indicating that as a price drops, the quantity demanded will increase.
2
Q
Elastic
A
- a small price change causes a rather large change in the amount purchased.
- common with goods that have many substitutes.
- Perfect elasticity results in a horizontal demand curve.
3
Q
Inelastic
A
- a large price change may not cause much of a change in the quantity demanded.
- there are not many substitutes.
- Perfect in-elasticity is represented by a demand curve the is vertical.
4
Q
Second law of demand
A
- time has the greatest effect of elasticity.
- when the price of a product increases, consumers will reduce their consumption more in the long run than in the short run.
- the demand for goods is more elastic in the long run than in the short run.
5
Q
Factors causing a shift in the demand curve
A
- changes in consumer income (consumers will buy more if they have more money)
- Changes in the price of related goods. The price of substitute goods influences demand. If the price of one good rises, the demand for the other good will rise.
- Changes in consumer expectations. If the price is expected to rise in the future, the consumer will buy more now.
- Changes in the number of consumers in the market. When cities increase, there are more people affecting demand.
- Demographic changes.
- changes in consumer tastes and preferences.
6
Q
Law of Supply
A
- a higher price will increase the supply of a good.
- there is a direct relationship between the price of a good and the amount of the good supplied in the market place.
- the supply curve slopes up and to the right
7
Q
Change in quantity supplied
A
- represented as a movement along the supply curve.
- it is the willingness of producers to offer a good at different prices.
8
Q
Factors resulting in a shift of the supply curve
A
- factors that increase the opportunity cost of producing a good will discourage production and shift the supply curve inward and to the left.
- Changes in resource prices
- changes in technology
- Natural disasters and political disruptions
9
Q
Income elasticity
A
- the sensitivity of demand to change in consumer income.
- a inferior good has negative income elasticity which means when income increases, the quantity demanded decreases. When income decreases, the quantity demanded increases.
- a normal good has positive income elasticity.
10
Q
Expansionary Fiscal Policy
A
- reducing taxes
- increasing government spending
-results in higher GDP and higher price levels
11
Q
Restrictive Fiscal Policy
A
- decreasing spending
- increasing taxes
-will slow the economy down
12
Q
3 ways the Federal Reserve uses monetary policy to influence the money supply
A
1) increasing or decreasing the reserve requirements
2) increasing or decreasing the discount rate
3) Open market operations
13
Q
Leading Economic Indicators
A
- Housing starts
- orders for durable goods
- changes in consumer sentiment
14
Q
Coincident Economic Indicators
A
- unemployment rate
- level of industrial production
- corporate profits
15
Q
Lagging economic indicators
A
- prime rate
- changes in CPI
- Average duration of unemployment
