Lecture 3 Applications of Demand & Supply Flashcards
Planned Economy vs Market Economy?
Planned Economy: Centralized decisions are made about what is produced, how, by whom, and who gets what.
Market Economy: Each individual makes their own production and consumption decisions, buying and selling in markets.
Equilibrium?
The point at which there is no tendency for change. A market is in equilibrium when the quantity supplied equals the quantity demanded.
Equilibrium Quantity?
The quantity demanded and supplied in equilibrium
market-clearing price?
The price at which the market is in equilibrium
Surplus?
quantity supplied is greater than quantity demanded
Shortage?
quantity demanded is
greater than quantity supplied
What does capital refer to in microeconomics?
Not monetary, rather manufacturing innovation
Market Economy?
Economy where government does not intervene (no country is actually like this)
Command Economy?
Government determines what, how and for whom to produce goods ex) North Korea
Mixed economy?
Mix of command and market economies ex) Canada & US
Invisible Hand?
Supply & demand determine the equilibrium price and quantity products (no government intervention)
Market Failure? Ex?
A market left on its own fails to allocate resources (like workers & money) efficiently
ex) If there was no tax on cigarettes too many people would be smoking and working in the cigarette industry
Externality?
Impact of one person/s actions on the WELL-BEING of a bystander
Negative & positive externality examples?
Negative: second hand smoke
Positive: other people get vaccinated leaving the unvaccinated better off
CPI? What does it measure?
The price of a fixed basket of good. It is used to measure the average price level in the economy
