Economics SEM1 Flashcards
Capitalism
Economic System in which individuals own and control many resources and the factors of production…encourages entrepreneurship
Pure market
Describes the ultimate situation or condition in which All production is through private industry/individual, etc -the Entrepreneur is “king” (free-enterprise, capitalism)
Microeconomics
(the part) The study of economics as it relates to particular markets -Agriculture, Automotive, industries, technology, entertainment, etc
Macroeconomics
(the whole) The study of economic behavior as it relates to whole societies -economy of GB., or US. Focus is Monetary/Fiscal Policy, unemployment, etc
Pure Command
Economy in which ALL production is decided by a central authority
Mixed/Transitional Economy
Economic system that moves from a command economy towards a market system - brought about by a change in leadership, government- usually a movement away from a dictatorship, etc
Economic System
Basically decides on matters of production
Pure command, Mixed/transitional, Pure Market ( left to right)
socialism capitalism
Cuba China Russia W.Europe| Japan U.S
Communism
Change in Quantity Demand
Movement along the demand curve in response to a change in price, Ceteris Paribus
Shift left (decrease) in demand
Shift right (increase) in demand
Substitution Effect
When consumers substitute a similar, lower priced product for a Product which is relatively more expensive
Demand Schedule
Table demonstrating the number of units of a Good demanded at various points
Law of Demand
Quantity of a good demanded is inversely related to its price; law stating that as the price of a good increases (P^) the quantity of that good demanded will decrease (Qd->), SIMILARLY, as the price of a good decreases, (P->) the quantity of that good demanded will increase (Qd^) Ceteris Paribus
Demand
…relationship demonstrating the quantity of Good consumers are willing and able to purchase at various prices
Shortage
Condition in which the Quantity demanded is greater than the Quantity Supplied
Creates upward pressure on prices
Equilibrium Price
Price at which a good is brought and sold in market equilibrium
Supply Curve
…Graph representing the amount of a good supplied at various prices during a given time period
Market Supply
…sum of the amount supplied at each price by all of the individual suppliers
Public Good
…good whose benefits are distributed to the whole of society -available without charge (schools, library, parks)
Private Good
…good whose benefits are the sole property of its owner-only available to the paying customer
Tangible
Good: any tangible (Can touching it) element of the product market
Intangible
Service: intangible (can’t touch it) element of the product market
Complementary Good
…goods related in such a way that an increase in the Price (P) of one leads to a decrease in Demand (D) for the other
Substitute Good
…goods related in such a way that an increase in the Price (P) of one leads to an increase in Demand (D) for the other
Opportunity Cost
…value of the best alternative foregone when an item/activity is chosen
Scarcity
…condition in which our wants are greater than available resources
Consumer
One who makes an active choice in the purchase of a Good or Service in a world of scarcity
Producer
One who engages in the business of manufacturing or supplying Good and Service to the consumer in order to satisfy unlimited needs and wants
Entrepreneurial Ability
…managerial and organizational skills used in production combined with the willingness to take risks
Profit
Labor
…physical and mental efforts used to produce goods and services
Wages
Rent
…payment resources owners receive for the use of land, ect
Wages
…payment resources owners receive for their labor
Interest
…payment resource owners receive for the use of their capital
Profit
…return resources owners receive for their entrepreneurial ability
Capital
…machinery, technology and human skill used in production
Interest
Land
…physical land/all other natural resources (water, trees, dirt (minerals), oil)
Rent
Inferior Good
…good for which D decreases as consumer income increases (D -> as CI ^)
Neutral Good
…good for which D remains unchanged as consumer income rises (increases) or falls (decreases)
Normal Good
…good for which D rises as income rises (D-> as CI^)
Perfectly Elastic Demand
Where D curve is horizontal, reflecting situation in which any change in P reduces Qd to “O”. The result of a competitive market… consumers will go elsewhere to purchase the product
Perfectly Inelastic Demand
Where D curve is vertical, reflecting a situation in which a change in P has no effect on Qd (zero elasticity value). Insulin, medications, etc
Unit elastic Demand
When the % change in Qd= the %change in P
Elastic Demand
When the %change in Qd is > the % change in P
Inelastic Demand
When the %(change) in Qd is < the % change in P
Demand Elasticity and Total Revenue
Total Revenue (TR) P of a G multiplied by the # of units sold
TR= P x Q
Price Elasticity Of Demand
Relationship between the % change in Qd and the % change in P
%change in Qd/%change in P
Law of Demand
Quantity of a good demanded is inversely related to its price; law stating that as the price of a good increases(P^) that quantity of that demanded will decrease (Qd ->), SIMILARLY, as the price of a good decreases, (P->) the quantity of that good demanded will increase (Qd^), Ceteris Paribus
Shift in supply curve
Shift left is decrease
Shift right is increase
Change in Supply
%change in Qs and %change in price
Movement along supply curve
Movement along the S curve in response to a change in price, ceteris paribus
Formula of elasticity of supply
%change in Qs/%change in P
Products exhibiting Elastic supply can be made:
*Quickly *Inexpensively *with few resources
Products exhibiting Inelastic supply require:
*time *money *Resources, which may be scarce, or not readily available
Shortage
Condition in which the Quantity demanded is greater than the Quantity supplied Qd>Qs
Occurs only at Prices below equilibrium
Creates upward pressure on prices
Surplus
Condition in which the Quantity supplied is greater than the Quantity Demanded
Qs>Qd
Occurs only at Prices above equilibrium Creates downward pressure on Prices
Price Floor
Government regulation setting the minimum legal price for a Good or Service
-benefits the Producer with a minimum selling price
Price Ceiling
Government regulation setting a maximum legal price for a G or S
-benefits consumer with a maximum purchase price
Rent Control
Government (Federal, state, local) regulation of the maximum rental Price for housing —artificial manipulation of the market
Price floors and price ceiling create an imbalance in the market
Price floors above the equilibrium price creates surplus
Price ceiling below the equilibrium price creates shortages
Equilibrium Price
Price at which a good is brought and sold in market equilibrium
Underground Economy
All market activity that goes unreported to the Government, either to Avoid taxes, or because the activity is illegal. Illegal, and unreported legal activities
Four Phases of the business cycle
Expansion (Recovery)
Peak
Contraction (Recession/Depression)
Trough
Influences on the Business Cycle
Business Investment
Money and Credit
Public Expectations
External factors
Consumption
…personal consumption expenditures; consist of the purchases of final Good and Services by households annually. Includes durable and non-durable goods as well as services
Investment
…gross private domestic investment. Consist of spending annually during the year or current output that is not used for present consumption. Includes Physical Capital; or manufactured items used to produce goods and services. i.e Equipment, machinery, facilities. (Excludes purchases of existing buildings).
Government Purchases
…government consumption and gross investment, includes spending by all levels of government for goods and services—Government payroll (excludes SS/ welfare payments)
Net Exports
…the value of U.S exports, MMS the value of U.S imports, includes merchandise trade, as well as tourism insurance, consulting etc,
