S.Intro to Econ Flashcards
What is the law of demand?
There is an inverse relationship between price of product and quantity of product demanded. When price rises consumers buy less of quantity and vice versa.
What is substitution effect?
The substitution effect is the decrease in sales for a product that can be attributed to consumers switching to cheaper alternatives when its price rises
What is income effect?
The income effect identifies the change in consumers’ demand for goods and services based on their incomes. In general, as one’s income rises, they will begin to demand more goods and vice versa.
What is market economy
A market economy is an economic system where the prices of goods and services are determined by supply and demand, with minimal government intervention. In this system, individuals and businesses make most economic decisions, such as the 4 questions when producing things.
Characteristics of Market Economy
Individuals and businesses own property and resources.
Freedom of Choice: Consumers and businesses can freely choose what to buy, sell, and produce.
Self-Interest: Economic decisions are driven by personal gain.
Competition: Multiple businesses compete, which influences prices and quality.
Price Mechanism: Prices are set by supply and demand.
Limited Government Intervention
Importance of economic models
Predict and Understand Economic Behavior: Economic models help predict and understand how economic agents (individuals, businesses, and governments) will behave under different conditions, aiding in decision-making and policy formulation.
Micro and Macro
Microeconomics studies individual economic units like households and firms, while macroeconomics examines the economy as a whole, including issues like inflation, unemployment, and GDP.
