Midterm 1 Flashcards
What happens to interest rates if inflation goes down?
- Interest rates go up.
What are some common economic Goals?
- Hight rate of growth
- Full employment
- Price Stability
- Equitable distribution of income
- Viable balance of payments
What does it mean to have a high rate of growth?
- Increase of productivity of 4 to 5%
What does it mean to have full employment?
- Suitable jobs for those looking for jobs.
What does it mean to have price stability?
- Avoiding a rapid increase or decrease in prices.
What does it mean to have equitable distribution of income?
- Progressive tax system
What is economic efficiency?
- Max output with minimum input.
What is economic freedom?
- High degree of freedom and choice.
What is economic Security?
- Provided for poor and elderly.
What are the four economic resource categories?
- Land
- Labour
- Capital
- Entrepreneurial Ability
What are assumptions made when making a diagram?
- Products, employment, production, fixed resources and fixed technology.
What is opportunity cost?
- Cost of sacrificing parts of one sector of the economy to produce more elsewhere.
Advancement in technology leads to what?
- Economic growth.
What are the economic systems?
- Market Economy
- Command System
- Mixed Economy
What are the five primary questions to economic systems?
- What to produce
- How to produce
- For whom to produce
- How the system can accommodate change
- How the system can promote growth on progress
What is command system?
- There is no private ownership of land, all decisions are according to a central planning board.
What are some important points of Market economy?
- Private ownership of property
- Private ownership of land and capital by individuals
- Private property rights
- Freedom of choice and enterprise
How does the market system answer what to produce?
- Consumer decides what should be produced.
- Causes demand of resources
How does the market system decide how to produce?
- Maximum output with minimum input and move resources to industries where out put is high.
How does the market system decide who to produce for?
- Consumer income and wages will determine who can afford to pay for resources.
How does the market system determine how to accommodate change?
- Consumer taste and preference will determine which industries need to expand and contract.
How does the market system determine how to promote growth?
- Technological advancement and capital accumulation.
What is a market?
- Place where buyers and sellers exchange goods and services.
What is a perfect competition market?
- Large number of buyers and sellers in the market.
What is the law of demand?
- Inverse or negative relationship between price of product and quantity demanded.
What are some determinants of demand?
- Change in taste
- Price of related products
- Income
- Expectation
- Population
What is a compliment?
- Products used with another product
What is the Law of Supply?
- There is a positive relationship between quantity supply of product and price of the same product
What are some determinants of supply?
- Price of resources
- Technology
- Taxes and subsides
- Expectation
- Number of sellers in the market
What does a surplus do to price?
- Causes downward pressure on price.
What does a shortage do to price?
- Causes price to go up.
What is a price floor?
- Minimum price that is set for goods and services.
What is a price ceiling?
- Maximum price that is set for goods and services.
What is the price elasticity of Demand?
- Responsiveness of quantity demanded for a product by change in price of the same product
If % ^ QD > % ^P then?
Demand is elastic
If % ^ QD < % ^P then?
Demand is inelastic
If % ^ QD = % ^P then?
Demand is unitary elastic
No change in QD is what?
Perfectly inelastic
Insignificant change in price is what?
Perfectly elastic
What is the mid point formula?
Reference notes
If demand is elastic what is Ed (Elasticity of Demand)
> 1
If demand is inelastic what is Ed
<1
If demand is unitary elastic what is Ed
=1
