Mod 3 Flashcards
Command economy
Government decides what is produced and in which quantities
Mixed economy
Private enterprises and the government provide goods and services
Market Economy
Market participants (producers + buyers) decide what is produced
Quantity demanded
Quantity buyers are willing to buy at a particular price during a specific period
Demand schedule
Table that shows quantities of a good or service demanded at different prices during a period
Demand curve
Present info in demand schedule in a graph
Law of demand
The lower the price of a good, the larger the quantity consumers wish to purchase (all else equal)
Market demand
Horizontal summation of demand curves of potential buyers in a market
Aggregate demand for all consumers
Price elasticity of demand
How sensitive the quantity demanded is to a change in price
Inelastic Demand
Change in price has relatively small effect on the quantity of a good demanded
Price increases → total expenditure increases
Elastic Demand
Change in price has relatively large effect on the quantity of a good demanded
Price increases → total expenditure decreases
Determinants of price elasticity (2)
Availability of substitutes
Time
Normal good
Incomes rise → demand increases
Inferior good
Incomes rise → demand decreases
Complements
Goods consumed together
Consumption of both will rise or fall together due to price change
Substitutes
Goods that replace each other
Supply schedule
Table that shows quantity supplied at different prices
Quantity supplied
Quantity sellers are willing to sell at a certain price during a certain period
Supply curve
Shows relationships between price and quantity supplied
Law of supply
The higher the price of a good, the larger the quantity firms want to produce (all else equal)
Market supply
Aggregate supply of all producers
Horizontal summation of supply curves of potential sellers in a market
Elastic Supply
Small change in price causes large increase in production
Inelastic Supply
Small change in price causes small increase in production
Surplus
Excess supply of a good due to price above equilibrium
Shortage
Excess demand for a good due to price below equilibrium
Equilibrium
Demand = Supply
Price and quantity increase
Demand shifts out
Price and quantity decrease
Demand shifts in
Price decrease + quantity increase
Supply shifts out
Price increase + quantity decrease
Supply shifts in
Change in demand
Shift in a demand curve due to changes in non-price factors
Non-price factors (demand) (5)
Preferences
Price of related goods
Income
Demographic characteristics
Buyer expectations
Change in supply
Shift in a supply curve due to changes in non-price factors
Non-price factors (supply) (6)
Price of inputs
Opportunity cost of alternative activities
Technology
Seller expectations
Natural events
Taxes and subsidies
Change in quantity demanded
Change in the amount buyers will purchase due to a change in price
Change in quantity supplied
Change in the amount producers will sell due to a change in price
Preferences
Feelings of consumers about the desirability of different goods
Price elasticity of demand
How sensitive the quantity demanded is to a change in price
Price elasticity of supply
How sensitive the quantity supplied is to a change in price
Total expenditure
The total amount of money spent on a good or service at a given price
(P x Q)
