Economics 1 Flashcards
(25 cards)
What is relative scarcity?
Relative scarcity refers to the basic economic problem that arises because resources (land, labor, capital) are limited, but human wants are unlimited.
What are the three productive resources?
- Land (Natural Resources)
- Labor (Human Resources)
- Capital (Man-Made Resources)
How do the household sector and the business sector interact?
Households provide resources (labor, land, capital) to businesses in exchange for income (wages, rent, interest). Businesses produce goods and services and sell them to households in exchange for money, creating a circular flow of income.
What is demand?
Demand refers to the quantity of a good or service that consumers are willing and able to buy at different price levels over a given period.
What is supply?
Supply refers to the quantity of a good or service that producers are willing and able to sell at different price levels over a given period.
What is the law of demand?
The law of demand states that as the price of a good or service decreases, the quantity demanded increases, and vice versa.
How is the demand curve drawn?
The demand curve is downward sloping from left to right, showing the inverse relationship between price and quantity demanded. X-axis: Quantity Demanded, Y-axis: Price.
What is an expansion of demand?
Expansion of demand occurs when demand increases due to a fall in price, moving down the demand curve.
What is a contraction of demand?
Contraction of demand occurs when demand decreases due to a rise in price, moving up the demand curve.
What causes movement along the demand curve?
Movement along the demand curve is caused by price changes only. A price increase leads to a contraction (upward movement), and a price decrease leads to an expansion (downward movement).
What is the law of supply?
The law of supply states that as the price of a good or service increases, the quantity supplied increases, and vice versa.
What is an expansion of supply?
Expansion of supply occurs when supply increases due to a rise in price, moving up the supply curve.
What is a contraction of supply?
Contraction of supply occurs when supply decreases due to a fall in price, moving down the supply curve.
What is market equilibrium?
Market equilibrium occurs when quantity demanded equals quantity supplied at a specific price, creating a stable market condition.
How to identify the equilibrium point, price, and quantity in a graph?
Equilibrium point: Where the demand and supply curves intersect.
Equilibrium price: The price at which demand = supply.
Equilibrium quantity: The quantity exchanged at the equilibrium price.
What is a market shortage?
A market shortage occurs when demand exceeds supply at a given price, causing upward pressure on prices.
How does a market return to equilibrium from a shortage?
When there’s a shortage, producers raise prices. This reduces demand and increases supply, moving the market back to equilibrium.
What is a market surplus?
A market surplus occurs when supply exceeds demand at a given price, causing downward pressure on prices.
How does a market return to equilibrium from a surplus?
When there’s a surplus, producers lower prices. This increases demand and reduces supply, restoring equilibrium.
How to identify in a graph where a shortage and surplus occur?
Shortage: Below the equilibrium point (quantity demanded > quantity supplied).
Surplus: Above the equilibrium point (quantity supplied > quantity demanded).
How to demonstrate in a graph how equilibrium is reached from a shortage and from a surplus?
Shortage: Price increases until equilibrium is reached.
Surplus: Price decreases until equilibrium is reached.
What is the difference between movement along a supply and demand curve and a shift in the supply and demand curve?
Movement: when prices change.
Shift: non-price factors, move the curve left or right.
What are non-price factors that affect the demand for goods and services?
- Consumer income (higher income → more demand).
- Tastes and preferences (trends, advertising).
- Price of substitutes/complements.
- Expectations about future prices.
- Population size.
How does the demand curve shift due to changes in demand?
Increase in demand: Curve shifts right.
Decrease in demand: Curve shifts left.
