determinants of demand correct answers change in consumer tastes and preferences.
change in number of buyers.
change in income (affects normal vs inferior goods).
change in prices of related goods (complementary or substitute goods).
change in buyer expectations (future prices vs future incomes...
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determinants of demand correct answers change in consumer tastes and preferences.
change in number of buyers.
change in income (affects normal vs inferior goods).
change in prices of related goods (complementary or substitute goods).
change in buyer expectations (future prices vs future incomes).
supply correct answers amount producers are willing and able to sell.
individual supply.
market supply.
market equilibrium correct answers occurs where demand curve and supply curve intersect.
equilibrium price and equilibrium quantity.
surplus and shortage.
rationing function of prices.
efficient allocation.
productive efficiency correct answers producing goods in the least costly way.
using the best technology.
using the right mix of resources.
allocative efficiency correct answers producing the right mix of goods.
combination of goods most highly valued by society.
rationing function of prices correct answers ability of the competitive forces of demand and
supply to establish a price at which selling and buying decisions are consistent.
determinants of supply correct answers change in resource prices.
change in technology.
change in number of sellers.
change in taxes and subsidies.
change in prices of other goods.
change in seller expectations.
law of supply correct answers other things equal, as price rises, the quantity supplied rises and as
price falls, the quantity supplied falls.
price acts as an incentive to producers.
at some point, costs will rise.
price system correct answers (market system)
The price system forms through interaction of millions in the market without centralized decision
making.
- is carried out by voluntary exchange in the market
- both parties in the exchange are better off
, market correct answers interactions between buyers and sellers.
price is discovered in the interactions of buyers and sellers.
individuals use the market to decrease the costs of exchange or the transaction costs
transaction cost correct answers all of the costs enabling exchanges to occur.
the less organized the market, the higher the transaction costs.
specialization correct answers extensive in market systems: enhances efficiency and output by
enabling individuals and regions to produce for which their resources are best suited.
division of productive activities so that no entity is self sufficient leads to increase in production
but increases risk of dependency and bankruptcy.
relative price for the buyer correct answers what the buyer must give up to obtain product.
ex: a $100 price of a loaf of bread and an income of $500 an hour is similar to a $1 price of a loaf
of bread and an income of $5 an hour. In relation to income the price of a loaf of bread is the
same at 1/5 hrs--this tells you how expensive the bread really is.
relative price for the seller correct answers amount of resources given up to produce the product.
when the relative price of the product (bread) increases the product (bread) becomes relatively
scarcer. The bread now commands a higher relative price. Therefore sellers increase the
resources going to the production of bread.
Resources are allocated in the market system (price system), and there is no need for central
agency to allocate resources.
what to produce correct answers depends on incentives.
due to scarce resources, a mix of goods that maximize economic profit.
economic profit correct answers total revenue - all implicit costs (accounting costs) +
opportunity costs = total cost
movement of resources correct answers - resources are continuously searching for higher return
- firms move resources out of declining industries into expanding industries
- moves from lower to higher value uses
consumer sovereignty correct answers (proportional, as opposed to majority vote)
"dollar votes" causes shift in demand from one product to another
technical efficiency correct answers utilizing production techniques that do not waste inputs
economic efficiency correct answers - resources are used to their highest valued uses
- demand and supply guide resources to their most efficient uses through self interest and the
"invisible hand"
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