Basic Economic Laws Flashcards
(25 cards)
What is the law of supply?
When price goes up, more goods and services will be supplied.
What is the law of demand?
When prices go up, less goods and services will be demanded.
What are extraordinary profits?
When supply cannot increase fast enough to keep pace with demand, usually in monopolistic industry.
What is market equilibrium price?
Achieved when supply and demand are equal; the prices are stable.
What are ordinary profits?
Usually found in a competitive market with many buyers and sellers, and goods and services are generic.
What are the factors of demand?
Income, price, taste and preferences, season, advertisement.
What are the factors of supply?
Price, cost of raw materials, technology, availability of substitutes.
What are the factors of production?
Labor, capital, land, entrepreneur.
What does money supply usually mean?
How much ‘fiat money’ is in the market. Fiat money is paper backed by governments.
What is inflation?
Prices of goods and services increase over time.
What is deflation?
Prices of goods and services decrease over time.
What are the types of markets/industry?
Monopoly, oligopoly, competitive.
What is scarcity?
Limited resources and unlimited wants.
What is income inequality?
When income is not equally distributed amongst people.
What does risk averse mean?
Higher reward needed for higher risk; lower risk, lower reward.
What is elasticity of demand?
Describes how sensitive demand for goods and services is to price changes.
Example: medicine and petrol.
What is marginal utility?
The added satisfaction that a consumer gets from having one more unit of a good or service; it usually decreases as quantity increases.
What does quantity measure?
How many units of goods and services.
What is profit?
Total revenue minus total costs.
What are interest rates?
The cost of borrowing money and the returns from lending money.
What is the time value of money?
One dollar is worth more today than in the future (after a certain period of time).
What is comparative advantage?
An economy’s ability to produce a particular good or service at a lower opportunity cost than its trading partners; used to explain why companies, countries, or individuals can benefit from trade.
What is the cost-benefit principle?
Action should only be taken if the benefits derived from it are greater than the costs.
What are incentives?
Benefits given to encourage people to do something they don’t want to do.
