96 terms

Economics

STUDY
PLAY

Terms in this set (...)

Market
an institution or mechanism that brings together buyers and sellers
demand
A schedule or curve that shows the various amounts of a product that consumers are willing and able to purchase at each of a series of possible prices during a specified period of time.
law of demand
as price falls, the quantity demanded rises, and as price rises, the quantity demanded falls
substitution effect
at a lower price buyers have the incentive to substitute what is now a less expensive product for similar products that are now relatively more expensive
determinants of demand
consumers tastes, the number of consumers, consumers incomes, prices of related goods, consumer expectations
normal goods
demand varies directly with income
inferior goods
demand varies inversely with money income
substitute goods
one that can be sed in place of another good
complementary good
one that is used together with another good
substitutes
the price of one and the demand for the other move in the same direction
complements
good that are used together and usually demanded together
directions of complementary goods
the price of one good and the demand of the other good move in opposite directions
independent goods
goods that are not related to one another
change in demand
shift of the entire demand curve to the right which occurs because the consumer's state about purchasing the product has been altered in response to one of the determinants of demand
change in quantity demanded
movement from one point to another point
supply
a schedule or curve showing the various amounts of a product that producers are willing and able to make available for sale at each of a series of possible prices during a specific period
determinants of supply
resource prices, technology, taxes and subsidies, prices of other goods, producer expectations, and the number of sellers in the market
change in supply
change in entire schedule and a shift of the curve to the right
change in quantity supplied
movement from one point to another on a fixed supply curve
Freedom of enterprise
entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods and services and to sell them in their chosen markets
Freedom of choice
enables owners to employ or dispose of their property and money as they see fit
What does competition require?
Independently acting sellers and buyers operating in a particular product or resource market and freedom of sellers and buyers to enter or leave markets on the basis of economic self interest
Specialization makes use of differences in ability
enables individuals to take advantage of existing differences in their abilities and skills
Specialization fosters learning by doing
Even if skills are exactly the same, it can still be advantageous to devote all time into a single skill to better abilities
Specialization saves time
Devoting all time to one thing, you save the time you would spend switching from one task to another
Superior goods
demand varies directly with money income
Inferior goods
demand varies inversely with money income
Substitute good
one that can be used in place of another good in which the price of one and demand for the other move in the same direction
Complementary good
One that is used with another god
Changes in demand
A shift of the curve to the right or left
Change in quantity demanded
a movement from one point to another on a fixed demand curve
Supply
A schedule or curve showing the amounts of a product that producers are willing and able to make available for sale at each of a series of prices during a specific period
five determinants of demand
consumers tastes, the number of consumers, consumer income, price of related goods, consumer expectations
law of supply
as price rises, the quantity supplied rises; as price falls, the quantity supplied falls
six determinants of supply
resource prices, technology, taxes and subsidies, prices of other goods, price expectations, number of sellers in the market
lower resource prices
reduce production costs and increase profit
higher resource prices
raise production costs and squeeze profits, assuming a particular product price
technology
produces units of output with fewer resources
taxes and subsidies
An increase in sales or property taxes will increase production costs and reduce supply
surplus
excess supply
shortage
excess demand
where is price established
where the supply decisions of producers and the demand decisions of buyers are mutually consistent
rationing function of prices
the ability of the competitive forces of supply and demand to establish a price at which selling and buying decisions are consistent
what do property rights facilitate
exchange
freedom of enterprise
ensures that entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods and services and to sell them in their chosen markets
freedom of choice
enables owners to employ or dispose of their property and money as they see fit
self interest
the motivating force of all the various economic units as they express their free choices
what is the basis of competition
exercising of freedom of choice in pursuit of a monetary return
what does competition diffuse?
economic power
specialization makes use of differences in ability
enables individuals to take advantage of existing differences in their abilities and skills
specialization fosters learning by doing
by devoting all your time to a single task, you are more likely to develop the skills it requires and to devise improved techniques than you would by working at a number of different tasks
specialization saves time
by devoting all time to a single task, you avoid the loss of time incurred in shifting from one job to another
barter
swapping goods for goods
derived demand
demand for resources derived from the demand for goods and services that the resources help produce
economic growth
produce more and better goods and services
full employment
provide suitable jobs for all citizens who are willing and able to work
economic efficiency
achieve the maximum fulfillment of wants using the available productive resources
price level stability
avoid large upswings and downswings in the general price level
economic freedom
guarantee that businesses, workers, and consumers have a high degree of freedom in their economic activities
equitable distribution of income
ensure that no group of citizens faces poverty while most others enjoy abundance
economic security
Provide for those who are chronically ill, disabled, laid off, aged, or otherwise unable to earn minimal levels of income
balance of trade
seek a reasonable overall balance with the rest of the world in international trade and financial transactions
positive economics
focuses on facts and cause-and-effect relationships
normative economics
incorporates value judgments about what the economy should be like or what particular policy actions should be recommended to achieve a desirable goal
capital
all manufactured aids used in producing consumer goods and services
consumer goods
satisfy wants directly
productive efficiency
The production of a good in the least costly way
allocative efficiency
production of that particular mix of goods and services most wanted by society
full employment and productive efficiency
the economy is employing all its available resources and is producing goods and services at least cost
fixed resources
the available supplies of the factors of production are fixed in both quantity and quality
fixed technology
the. state of technology doesn't change during our analysis
law of increasing opportunity cost
the more of a product that is produced, the greater is its opportunity cost
market system
capitalism
command system
socialism
resource market
the place where resources or the services of resource suppliers are bought and sold
product market
the place where goods and services produced by businesses are bought and sold
circular flow model
interrelated web of decision making and economic activity involving businesses and households
efficiency
promotes the efficient use of resources by guiding them into the production of the goods and services most wanted by society
incentives
encourages skill, acquisition, hard work, and innovation
freedom
coordinates economic activity without coercion
invisible hand
term economists use to describe the self-regulating nature of the marketplace
creative destruction
the creation of new products and production methods completely destroys the market positions of firms that are wedded to existing products and older ways of doing business
fallacy of consumption
the false assumption that what is true for a part will also be true for the whole
investment
process of producing and purchasing capital goods
Goods and services flow
US exports goods and services to other nations and imports goods and services from them
capital and labor flows
New capital gained in another country or immigration
Information and technology flows
The US transmits info to other nations about US products, prices, interest rates, and investment opportunities. The US receives the same info from abroad.
financial flows
Money is transferred between the United States and other countries
uses for financial flows
paying for imports, buying foreign assets, paying interest on debt, providing foreign aid
transportation technology
transportation costs acting as an aid or barrier to a type of trade, particularly traders who are distant from one another
communications technology
Technology that makes communication easier and more efficient
multinational corporations
firms that have sizable production and distribution activities in other countries
protective tarrifs
excise taxes or duties placed on imported goods
import quotas
limits on the quantities or total value of specific items
nontariff barriers
nontax methods of increasing the cost or reducing the volume of imported goods
export subsidies
government payments made to domestic firms to encourage exports