Micro revision Flashcards
opportunity cost
is the benefit forgone of the next best alternative to the activity you have chosen
3 big economic questions
- what goods are produced
- how
- for whom
free market economy
economic system in which economic decisions and the pricing of goods and services are guided by interactions of a country’s individual citizens and business
traditional system
an economic system that does things as it always has
planned system
an economic system in which central authority, such as a government, makes economic decisions regarding the manufacturing and the distribution of products
production possibility curve
the boundary between those combinations of goods and services that can be produced and those that cannot (resources are fixed in quantity but can be shifted around)
circular flow diagram
households, firms (goods & services, wages, interest, rents and profits to households; profits & FOP to firms); government, financial institutions, foreign sector
injections: I, G, X
leaks: M, savings, taxes
monopoly
company without close substitutes
oligopoly
a few companies dominate in the market
monopolistic competition
competition with monopolistic characteristics because consumers aren’t willing to substitute
perfect competition
many buyers, sellers
identical products
freedom of entry
demand
the quantity of a good or service we are willing and able to buy given your income and the price of the good
marginal utility
the utility of each additional product
causes of the law of demand
real income effect
substitution effect (price rises → consumers buy alternatives)
price elasticity
a measure that indicates the degree of consumer response to a price change (inelastic - PED < 1)
