economics Flashcards
the branch of economics that studies the economy of consumers or households or individual firms
microeconomics
Most important function of money: facilitates exchange of goods or services
medium of exchange
something that keeps its value if it is stored rather than spent
store of value
a means for comparing the values of goods and services; comparing a $35 jacket at 1store; a $30 jacket at another
unit of account
a model that shows how households and firms circulate resources, goods, and incomes through the economy
circular flow of goods and services
The movement of goods and services in the economy
flow of money
Groups of individuals living together and sharing income
households
the market in which households purchase the goods and services that firms produce
product market
market in which firms purchase the factors of production from households
factor market
the principle that suppliers will normally offer more for sale at higher prices and less at lower prices
law of supply
All other things being equal, consumers buy more of a good when price decreases; less when price increases
law of demand
a measure of how consumers react to a change in price
elasticity of demand
A measure of the way quantity supplied reacts to a change in price
elasticity of supply
a change in the quantity demanded of a good or service at every price; a shift of the demand curve to the left or right
change in demand
a movement along the demand curve that occurs in response to a change in price
change in wuantity demanded
A change in the quantity supplied of a good or service at every price; a shift of the supply curve to the left or right.
change in supply
A movement along the supply curve that occurs in response to a change in price
change in quantity supplied
Products or services that can be used in place of each other. When the price of one falls, the demand for the other product falls; conversely, when the price of one product rises, the demand for the other product rises.
substitute goods
when consumers react to an increase in a good’s price by consuming less of that good and more of a substitute good
substitution effect
The change in the quantity demanded of a good that results from the effect of a change in the good’s price on consumers’ purchasing power
income effect
the price at which the amount supplied is equal to the amount demanded
equilibrium price
maximum price set below equilibrium price, causes shortage, may cause illegal markets to form
price ceilings
establishes minimum prices that buyer must pay for a given good or service
price floors
Factors that motivate and influence the behavior of individuals and organizations–Ex. profit motive, ownership of prive property and prices are economic incentives in a market economy.
economic incentives
Rational decision making involves marginal benefits that equal or exceed the marginal costs
marginal cost analysis
a market structure in which many companies sell products that are similar but not identical
monopolistic competition
a market that meets the conditions of (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market
perfectly competitive market
A measure of how responsive demand for a product is to changes in price
price elsticity
