Exam 1 (for real) Study Guide Flashcards
What is economics?
The study of how people make decisions in the face of scarcity
What is Macroeconomics?
The study of the economy as a whole
What is an economic model?
- simplified versions of real world economics situations used to predict human behavior?
Why is the supply and demand model important?
- it’s the force that makes market economies work
- determines the price and quantity sold of a good or service
- shows how buyers and sellers interact with each other
What are the assumptions of a supply and demand model?
- large number of buyers and sellers
- All sell identical goods
- Consumers have perfect information
- free entry and exit
What are some factors that influence demand for a product?
- consumer income
- price of product
- price of substitutes
- demographics
- taste
- government policy
What is the primary factor of consumers buying decision?
The price of the product
What is a demand schedule?
a table that shows the relationship between price and quantity demanded
What is a demand curve?
A curve on graph that shows the relationship between price and quantity demanded
What is the Law of Demand?
As price goes up quantity demanded goes down and as price goes down quantity demanded increases
What is the substitution effect?
Consumers replace more expensive items with a cheaper alternative
What is the income effect?
A change in quantity demanded of a good or service because a change in price changed a consumers buying power
What’s the difference between a movement on the demand curve and a shift?
- A movement tells of an increase or decrease in quantity demanded due to price
- A shift shows and increase or decrease in demand
What is a normal good?
Goods you buy more of as your income increases
What are inferior goods?
Goods you buy less of as your income increases
