Economics Test Two Flashcards
What are goods?
An Item; useful or satisfies
What are services?
Something you pay someone else to do. EX) Mowers
What are resources?
Land, Labor, Capital, and Entrepreneurship
What is scarcity?
Unlimited wants and needs with limited resources
What are Economic Systems?
The method used by a society to produce and distribute goods and services
Who answers the economic questions for a Traditional Economy?
Economic questions are answered by habits and customs.
EX) Eskimos and The Amish
Who answers the economic questions for a Command Economy?
The government answers the economic questions for a Command Economy.
EX) Communist Countries (Vietnam, North Korea, Etc.)
What are the advantages to a Command Economy?
Government is able to act quickly in emergencies and provides for all people equally.
What are the disadvantages to a Command Economy?
Government can be inefficient and no incentive to work hard
Who answers the economic questions for a Free Market Economy?
Individual buyers and sellers answer the economic questions for a Free Market Economy.
EX) U.S, Western Europe, Japan
Influences on Free Market Economy?
Supply and Demand, Self-interest (free market economy is like free enterprise or capitalism).
Give an example of a Mixed Economy?
The U.S is a free market economy with elements of a command economy. This is to prevent things like monopolies.
What are the features of the American free market economy?
- Economic Freedom
- Competition
- Private Property
- Self-Interest
- Voluntary Exchange
- Profit Motive
What are the features of the American command economy?
- Gov. regulates some business practices EX) wages, labor hours, and safety practices
- Gov. limits certain choices EX) can’t buy/produce weed
- Gov. provides aid to those in need EX) medicare, medicaid, and welfare
What is the invisible hand principle?
-people are selfish
-human demand is greed, greed is the invisible hand
What is the Lassez Faire?
Government should not intervene in economy activities.
Adam Smith’s two main points?
-Market competition acts like an “invisible hand” so that self-interest behavior can work to benefit of all society
-Individual self-interest and competition ensures that resources are used in ways that promote economic growth and national prosperity
What is demand? D
Demand is the different quantities of goods that consumers are WILLING and ABLE to buy at different prices.
What is the law of demand? QD
The INVERSE relationship between price and quantity demanded.
Why does the Law of Demand occur?
because of three separate behavior patterns that overlap. (the substitution effect, the income effect, and the law of diminishing marginal utility)
What is the Substitution Effect?
if the price goes up for a product, consumer buy less of that product and more of another substitute product. (the want)
What is the Income Effect?
if the price goes down for a product, the purchasing power increases for consumers; allowing them to purchase more. (being able)
What is the Law of Diminishing Marginal Utility?
as you consume anything, the additional satisfaction that you receive will eventually decrease. (eating chickfila over and over again)
What doesn’t shift the demand curve?
PRICE
