Supply and Demand
Comparative and Absolute Advantage
Equilibrium
Resource Allocation
Elasticity
100
What is the law of supply?
There is a direct relationship between price and quantity supplied.
100
Define comparative advantage
The producer with the lowest opportunity cost
100
Define equilibrium
The quantity of the good that buyers are willing and able to buy exactly balances the quantity that sellers are willing and able to sell
100
What are the three different economic systems
Command economy
Free market
Mixed economy
100
What is elasticity
Determining how much more or how much less
200
What is the law of demand?
There is an inverse relationship between price and quantity demanded.
200
Define absolute advantage
The producer that can produce the most output or requires the least amount of input (resources)
200
Define shortage
Any price below equilibrium, the quantity demanded is higher than the quantity supplied
200
What three questions must every society answer
What goods and services should be produced?
How should these goods and services be produced?
Who consumes these goods and services?
200
The price elasticity of demand is
The percent change in quantity demanded of good x / percent change in good x
300
List the five shifters of demand
Taste and preferences
Number of consumers
Price of related goods
Income
Future expectations
300
Linda Roads can produce 20 pens or 200 pencils. Marie Streets can produce 100 pens or 200 pencils.
What is Linda's opportunity cost for one pen in terms of pencils?
1 pen costs 10 pencils
300
Define surplus
Any price above equilibrium, the quantity supply will be higher than quantity demanded.
300
What is the invisible hand
Concept that society's goals will be met as individuals seek their own self interest
300
The price elasticity of supply is
The percent change in quantity supply of good x / percent change in price of good x
400
List the five shifters of supply
Price/availability of inputs (resources)
Number of sellers
Technology
Government actions: taxes and subsidies
Expectations of future profit
400
Linda Roads can produce 20 pens or 200 pencils. Marie Streets can produce 100 pens or 200 pencils.
What is Linda's opportunity cost for one pencil in terms of pens
1 pencil costs 1/10 pen
400
What is the double shift rule
If two curves shift at the same time either price or quantity will be ambiguous (indeterminate)
400
What is the most common economic system for countries to have
Mixed economy
400
General characteristics of elastic goods
Many substitutes
Luxuries
Large portion of income
Time to decide
Elasticity coefficient greater than one
500
A product that can be used in conjunction with another product
Complement
500
A producer with a comparative advantage has the ability to produce a good or service at...
A lower opportunity cost than the competitor.
500
Difference in change in demand versus change in quantity demanded
Change in demand - shift in curve
Change in quantity demanded - movement along the line
500
Why do centrally planned economies face problems of poor quality goods, shortages, and unhappy citizens
There is little incentive to work and planners have difficulty predicting preferences
500
inelastic or elastic demand?
Inelastic