Exam 2 Review Flashcards
Market price system
a system in which resources are allocated via a market price
Command system
a system in which resources are allocated by the government
Resource allocation
we have to allocate/distribute resources that are produced in a given economy (who gets what)
Market
any arrangement that brings buyers and sellers together to facilitate a transaction
Quantity Demanded
the amount one is willing and able to buy at a specific price
The law of demand
if the price increases, quantity demanded decreases & if the price decreases, quantity demanded increases
Demand schedule
a table that shows both price and corresponding quantity demanded
Demand
the relationship between price and quantity demanded
Demand shifter
a factor that changes one quantity demanded at all prices
Price elasticity of demand
a measure of the responsiveness of quantity demanded to a change in price
Inelastic demand
quantity demanded is not very responsive to a change in price
Elastic demand
quantity demanded is very responsive to a change in price
Quantity supplied
the amount one is willing and able to sell at a specific price
Law of supply
as price increases, quantity supplied increases and as price decreases, quantity supplied decreases
List of Demand Shifters
-Price of related goods
-Expected future price of a good
-Income
-Expected future income
-Number of consumers
-Preferences
List of Supply Shifters
-Price of related goods
-Price of inputs
-Expected future prices
-Number of sellers
-Productivity
Substitutes
goods bought in place with other goods
Complements
goods bought with other goods
Expected Future Price of a good
when prices are expected to increase, demand increases today
Normal good
a good for which demand increases when income increases
Inferior good
a good for which demand increases when income decreases
PED Formula
the absolute value of the percent change of quantity demanded divided by the percent change of price
Substitute in Production
goods that can be replaced for another (price of a substitute in production increases, then supply decreases, and vice versa)
Complement in production
goods that are jointly used (price of a complement increases, then supply increases, and the same)
Price of inputs
price of inputs increases, then supply decreases
Number of sellers
the number of sellers increase, supply increase
Expected Future Prices
if expected future prices increase, supply today decreases
P*
market equilibrium price
Q*
equilibrium quantity
