MICROECON CH. 2

the concept of demand can be summarized by a schedule or curve showing the quantity of a product that would be

consumed at various possible prices(purchased or consumed represents the demand curve described)

what is produced is ultimately determined by

consumers because if the goods offered are not what consumers want, consumers will not buy them

"each day, central planners in the old Soviet Union were tasked with setting 27 million prices-correctly"

coordination problem

"if you compare a list of today's most powerful and profitable companies with a similar list from 30 years ago, you will see lots of new entries"

creative destruction

a shortage results from an excess of quantity (supplied/demanded)

demanded

with a price ceiling, quantity (supplied/demanded) will exceed quantity (supplied/demanded), resulting in a persistent shortage of product

demanded; supplied

BARTER requires that you

find a person who has what you want and a person who needs what you have to offer

the freedom of firms to obtain economic resources, decide what products to produce with those resources, and sell those products in market of their choice

freedom of enterprise

a change in quantity demanded is caused by an increase or decrease in the (price/supply) of the product under consideration and nothing else

price

the use of money

provides a common value that makes buying and selling transactions simpler than would be the case with barter

in the circular flow model there is a flow of

real goods and services and a slow of money

an increase in (supply/demand) while holding (supply/demand) constant results in a decrease in equilibrium price but an increase in equilibrium quantity

supply; demand

in a command economy scarce goods are allocated by

a government appointed planning board based on the board's long term priorities

in the circular flow model

resource markets provide for the exchange of labor and product markets provide for the exchange of goods and services

what each individual or firm believes is best for itself and seeks to obtain

self interest

market (supply/demand) is a schedule or curve showing the various amounts of a product that PRODUCERS are willing and able to make available for sale at each possible price during a specific period

supply

some large hardware stores such as Home Depot boast of carrying as many as 20,000 different products in each store. this volume of goods is the result of

the choice of consumers regarding what to purchase to satisfy their wants and the choice of producers regarding what to produce to maximize profits

self interest helps achieve society's economic goals because

as consumers and producers exercise their freedom to act in their own self interest markets will produce the desired goods at the lowest possible cost

an economic unit, meaning a household, firm or government, should continue to engage in an activity as long as the marginal (cost/benefit) exceeds the marginal (cost/benefit)

benefit; cost

a woman who wants to start a flower shop finds she cannot do so unless the central government has already decided to allow a flower shop in her area

command system

the presence in a market of independent buyers and sellers who compete with one another and who are free to enter and exit the market as they see fit

competition

in the circular flow model

BUSINESSES sell goods and buy labor; HOUSEHOLDS buy goods and sell labor

T/F: Households sell finished products to businesses

FALSE

T/F: Money must be issued by a government for people to accept it

FALSE

T/F: "the market system is a profit and loss system"

TRUE; because producers decisions are motivated by the attempt to earn profits

T/F: "competition is the disciplinarian of the market economy"

TRUE; because when producers face competition they are driven to provide goods and services at the lowest possible cost

the freedom of resource owners to dispose of their resources as they think best, of workers to enter any line of work for which they are qualifies; and of consumers to spend their incomes in whatever way they feel is most appropriate

freedom of choice

the use of capital in the production process

improves efficiency, increases output, and provides for growth

in market economies, firms rarely worry about the availability of inputs to produce their products, whereas in command economies input availability is a constant concern because

in market economies, buyers of inputs know that sellers want to earn profits

"managers in the old Soviet Union often sacrificed product quality and variety because they were being awarded bonuses for quantitive, not qualitive, targets"

incentive problem

there is a wide variety of desired goods and services in a market system because

individual wants are diverse

"it's not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest"

invisible hand

the emergence of the MP3(iPod) technology is an example of "creative destruction" because

it has replaced compact discs as a technology used for the storage and transfer of music

the only taxes levied by the government are to pay for national defense, law enforcement, and a legal system designed to enforce contracts between private citizens

laissez faire system

if the cost of production rise, the producer has an incentive to produce (more/less) output

less

the added cost of producing one more unit of output

marginal cost

an institution that brings buyers and sellers together

market

"invisible hand"

market prices provide info to consumers regarding products they wish to purchase and to producers regarding products they wish to produce

in a market system scarce goods are allocated through the operation of

market prices that are determined by consumers and producers acting in their own self interest

shops stock and sell the goods customers want but the government levies a sales tax on each transaction to fund elementary schools, public libraries, and welfare programs

market system

economic transactions willingly undertaken by both the buyer and the seller because each feels that the transaction will make him/her better off

mutually agreeable

price and quantity supplied have a (positive/negative) relationship

positive

the right of private persons and firms to obtain, control, employ, dispose of , and bequeath land, capital, and other property

private property

millions of economic resources tend to get arranged logically and productively rather than haphazardly and unproductively because

private property owners are motivated to protect and maximize the benefits from their property

the market system depends on private property ownership and the protection of private property rights to

provide an incentive to maintain property and allow for the orderly transfer of property ownership

"division of labor" means that workers

specialize in tasks that take advantage of their individual abilities and skills

consider the statement: "we want money only to part with it." when ppl express a desire to "have money," they really want

the goods and services that money can buy

when an economy relies on specialization

trade enables individuals to obtain the goods in which they don't have a specialization