Week 3 Flashcards
(43 cards)
describe traditional economic systems
resource allocation determined by “what was before”
children follow the same jobs their parents had
wealth distribution linked to social status
pre-modern
EX. caste systems, Amish, indigenous populations
desceibe a command economic system
a central board in power that determines the allocation of people and resources
central or planned economy
direction of growth is determined by the authorities
ex. USSR, communist China
describe market economic systems
production and consumption are dispersed
price and profit govern distribution of wealth
production depends on consumer demand
supply/demand relationship
“invisible hand”
ex. Canada, USA
describe mixed economic systems
government intervention versus free market forces
combinations
varying proportion
ex. most of contemporary world
what is supply
available products, production, manufacturing, amount willing to produce
what is aggregated supply
sum of individual supplies
list the determinants of supply
cost of resources
technology
taxes, subsidies
price of other goods
expectations
labour
time
MARKET PRICE
what is demand
how much consumers are willing and able to pay for a product
what is aggregated demand
sum of individual demands
list the determinants of demand
tastes
income
prices of other goods
expectations
number of buyers
MARKET PRICE
describe the graph function for supply and demand
supply graph = positive function
demand graph - negative function
define market equilibrium
an optimal price ad quantity
assumption that people will always act rationally (which is not accurate)
where the demand curve and supply curve intersect
describe what happens if the price is above the equilibrium
below equilibrium?
above = price too high which leads to a surplus
below = price to low which leads to a shortage
describe market equilibirum in market economic systems
changes in demand/supply are represented by a different curve and drive to a different equilibrium
challenged by recent events
consider economic theory
decribe market equilibrium in command economic systems
price and quantity are decided by authorities
shortages are measured by line-ups outside stores
excess is measured by the stock in warehouses
specialized branch of economic theory
list the 4 types of markets
pure competition
monopolistic competition
oligopoly
pure monopoly
describe supply side pure competition
very large number of firms producing a product
new firms can easily enter the market
ex. corn, wheat
describe supply side pure monopoly
one firm is the sole seller of a product or service
entry of other firms is blocked or controlled
ex. oil, post stamps
describe supply side monopolistic competition
relatively large number of sellers
competition based on differentiation, promotion
competition is easy
ex. clothes
describe supply side oligopoly
few sellers
pricing and output decisions are interdependent
product may be standardized or differentiated
ex. OPEC
what are the factors of production
traditionally the factors are capital and labour
capital = (K)
labour = (L)
production function = Q = f(K,L)
describe factor substitution
same output can be yielded with another combination of production factors
factor subsitution has very important economic and social consequences
ex. jobs
law of diminishing return
as the use of an input increases (with other inputs fixed), at some point additions to the input will result in decreasing increases of output
Isoquant
all combination of two or more production factors
curve of equal quantity
banana like graph
