What is a distinguishing feature of a command system?
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Central Planning
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"Laissez-Faire" suggests that..
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Government should not interfere with the operation of the economy. Also known as "pure" capitalism.
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What's the difference between the Command System(communism or socialism) and Laissez-Faire Capitalism?
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The division of output is decided by central planning rather than by individuals operating freely through markets.
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Property rights are important because they...
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Encourage cooperation by improving the chances of mutually agreeable transactions.
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Copyrights and trademarks are examples of:
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Property Rights
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Competition means that:
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There are independently-acting buyers and sellers in each market.
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The division of labor means that:
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Workers specialize in various production tasks.
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Barter:
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Entails the exchange of goods for goods.
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Economic profits and losses:
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Are essential to the reallocation of resources from less desired to more desired goods.
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If a competitive industry is neither expanding nor contracting, we would expect:
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Economic profits to be zero.
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A Market:
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An institution that brings together buyers and sellers. Characteristics: private property, freedom of enterprise & choice, self-interest, competition among buyers & sellers, markets & prices, reliance on technology & capital goods, specialization & the division of labor, use of money as a medium of exchange.
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The law of demand states that, other things equal:
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Price and quantity demanded are inversely related.
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The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____.
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Direct; inverse.
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The income and substitution effects account for:
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The downward-sloping demand curve.
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When the price of Nike soccer balls fell, Ronaldo purchased more Nike soccer balls and fewer Adidas soccer balls. Which of the following best explains Ronaldo's decision to buy more Nike soccer balls?
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The substitution effect.
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If two goods are complements:
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A decrease in the price of one will increase the demand for the other.
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A shift to the right in the demand curve for product A can be most reasonably explained by saying that:
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Consumer preferences have changed in favor of A so that they now want to buy more at each possible price.
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If Z is an inferior good, an increase in money income will shift the:
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Demand curve for Z to the left.
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Suppose an excise tax is imposed on product X. We expect this tax to:
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Decrease the demand for complementary good Y and increase the demand for substitute product Z.
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The term "quantity demanded" means:
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Refers to the amount of a product that will be purchased at some specific price.
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The upward slope of the supply curve reflects the:
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Law of supply.
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An improvement in production technology will:
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Shift the supply curve to the right.
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An increase in the excise tax on cigarettes raises the price of cigarettes by shifting the:
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Supply curve for cigarettes leftward.
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A market is in equilibrium:
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If the amount producers want to sell is equal to the amount consumers want to buy.
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If the demand and supply curves for product X are stable, a government-mandated increase in the price of X will:
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Increase the quantity supplied of X and decrease the quantity demanded of X.
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If price is above the equilibrium level, competition among sellers to reduce the resulting:
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Surplus will increase quantity demanded and decrease quantity supplied.
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If the supply and demand curves for a product both decrease, then equilibrium:
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Quantity must decline, but equilibrium price may rise, fall, or remain unchanged.
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With a downsloping demand curve and an upsloping supply curve for a product, an increase in consumer income will:
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Increase equilibrium price and quantity if the product is a normal good.
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With a downsloping demand curve and an upsloping supply curve for a product, a decrease in resource prices will:
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Decrease equilibrium price and increase equilibrium quantity.
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Economic System
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A particular set of institutional arrangements and a coordinating mechanism. A society who has limited resources.
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Market
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an institution or mechanism that brings buyers (demanders) and sellers (suppliers) into contact.
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Medium of exchange:
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the use of money for the buying & selling of goods & services.
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Barter
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Exchange of goods for goods.
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Coincidence of wants
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Lacking medium of exchange (mainly barter)
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Demand curve
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A schedule which shows the various amounts of a product consumers are willing and able to buy at various prices.
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Law of demand
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States that an inverse relationship exists between price and quantity demanded.
Income effect- price rises, reduces quantity, decrease in real income.
Substitution effect- price rises, demand for cheaper product increases.
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Quantity demanded
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a specific point on the individual demand curve.
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Determinants of demand:
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1. taste
2. # of buyers
3. Change in income: normal and inferior goods
4. prices of related goods: substitute & complimentary goods: affect demand due to a change in price.
5. Consumer expectations
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Marginal consumer
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Consumers whose demand only exists at a particular price.
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Price Ceiling
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sets the maximum legal price a seller may charge for a product or a service. A price at or below the ceiling is legal; above it is not. Results in shortages. (Rent controls, interest rates)
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Determinants of supply:
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1. Resource prices 2. technology 3. taxes & subsidies 4. prices of other goods 5. producer expectations 6. # of sellers in the market.
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Price Floor
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Dictates an above equilibrium minimum price. Results in surplus. (Agriculture price supports, minimum wage)
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Policy Factors:
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Return of UK to the gold standard, federal's failure to increase money supply, Smoot Howley Trade Act.
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