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Flashcards in Test 2 Deck (40):
1

Market (Under Capitalism)

A group of buyers and sellers of a particular good or service. The buyers determine the demand for the product
The sellers determine the supply of the product

2

Competitive market

A market in which there are so many buyers and sellers that each has very little impact on the market price

3

Perfectly Competitive

The goods offered for sale are all exactly the same
Buyers and sellers are so numerous that no one person can affect the market

4

Demand

The schedule of the quantity of a product which consumers are both willing and able to
buy at various prices

5

The Law of Demand

The quantity demanded of a good falls when the price rises
(Raised prices, demand goes down)

6

Demand Schedule

A table that shows the relationship between the price of a good and the
quantity demanded

7

Variables That Influence Demand?

1. Income
2. Price of related goods
3. Taste (what people like)
4. Expectations
5. Number of Buyers

8

Supply

The schedule of the quantity of a product which producers are both willing and able to
produce and make available for sale at various prices

9

The Law of Supply

The quantity supplied of a good rises when the price of a good rises

10

Supply Schedule

A table that shows the relationship between the price of a good and the quantity supplied

11

Supply Curve

A graph of the relationship between the price of a good and the quantity supplied

12

Variables That Influence Supply

1. Input Prices
2. Technology
3. Expectations
4. Number of Sellers

13

Input Prices

The cost of producing the product

14

3 Situations That Are Represented on the Supply and Demand Graph

1. Equilibrium
2. Surplus
3. Shortage

15

Equilibrium

A situation in which the market price has reached the level at which quantity
supplied equals quantity demand

16

Surplus

A situation in which quantity supplied is greater than quantity demanded

17

Shortage

A situation in which quantity demanded is greater than quantity supplied

18

Types of Goods

1. Normal Goods
2. Inferior Goods
3. Substitute Goods
4. Complimentary Goods
5. Independent Goods

19

Normal Goods

Goods that people buy more of as their income increases
(Clothing)

20

Inferior Goods

Goods that people buy less of as their income increases
(Spam)

21

Substitute Goods

Two or more products that can be used for the same purpose
(Fan and Air Conditioner)

22

Complimentary Goods

Products that are normally used together
(Shoes and Shoelaces)

23

Independent Goods

Products that have no direct relationship with each other

24

Utility

The ability of a product or service to satisfy some consumer want

25

The Law of Diminishing Marginal Utilities

Within a limited time period, as an individual consumes
additional units of a product, that person will receive less additional satisfaction from the unit consumed

26

Elasticity of Demand

Measure of how responsive consumers are with a change in price

27

How do you compute the Price Elasticity of Demand?

Percentage change in quantity/
Percentage change in price

28

What is considered elastic?

If the coefficient is more than 1

29

What is considered inelastic?

If the coefficient is less than 1

30

What is considered unitary?

If the coefficient is equal to 1

31

Capital Assumption Allowance

That part of a given year's production which is necessary to replace capital goods destroyed in generating that years production

32

Cross Price Elasticity of Demand

The measure of how the quantity demanded of one good changes as the price of another good changes

33

How to find Cross Price Elasticity of Demand

Percentage of the change of the quantity demanded of good #1/
Percentage of the change of quantity demanded of good #2

34

Options when finding Cross Price Elasticity of Demand

It will either be:
1. Positive (substitute goods)
2. Negative (complementary goods)

35

Income Elasticity of Demand

A measure of how much the quantity demanded of a good responds to a change in consumers income

36

How to find Income Elasticity of Demand

Percentage in the change of the quantity demanded/
Percentage in the change of income

37

Options when finding Income Elasticity of Demand

It will either be:
1. Positive (normal goods)
2. Negative (substitute goods)

38

Price Elasticity of Supply

Measures how much the quantity supplied responds to the changes in
price

39

How to find the Price Elasticity of Supply

Percentage in the change of quantity supplied/
Percentage in the change of price

40

Options when finding the Price Elasticity of Supply

It will either be:
1. Positive (elastic)
2. Negative (inelastic)