Economics Lecture Flashcards: Systems, Supply, Demand, and Equilibrium

100 vocabulary-style flashcards covering basic economic systems, market structures, supply and demand mechanics, and market equilibrium based on the lecture transcript.

Households

An institutional category that buys goods and services, sells productive resources (labor, land, capital, entrepreneurship), and receives wages, rent, interest, and profit.

Firms

An institutional category that buys productive resources and produces goods and services to sell as products.

Government

An institutional category that protects property rights, provides public goods, regulates markets, and promotes efficiency, equity, and stability.

Foreign Sector

The institutional category involved in imports, exports, and international trade.

HFGF

A memory trick representing the four institutional categories: Households, Firms, Government, and Foreign Sector.

Economic System

The method a society uses to organize the production, distribution, and consumption of goods and services; it answers what, how much, how, where, and for whom.

What goods and services should be produced?

The first basic economic question societies must answer because resources are limited while human wants are unlimited.

How much should be produced?

The second basic economic question regarding the quantity of output for a society.

How should they be produced?

The third basic economic question regarding the methods used to create goods and services.

Where should they be produced?

The fourth basic economic question regarding the location of production.

For whom should they be produced?

The fifth basic economic question regarding the distribution of goods and services among citizens.

Centrally Planned Economy

An economic system where the government owns many resources, sets prices, and decides production with limited private property or consumer choice.

Advantages of Centrally Planned Economy

Includes the ability to quickly direct resources toward national goals and potentially reduce some income inequality.

Disadvantages of Centrally Planned Economy

Includes less innovation, less competition, less efficiency, and fewer consumer choices.

Capitalism

An economic system characterized by private property, competition, the profit motive, consumer sovereignty, and voluntary exchange.

Consumer Sovereignty

The power of consumers to determine what businesses produce through their purchasing decisions.

Pure Market Economy

An economic system with very little government involvement where markets make nearly all decisions.

Mixed Economy

An economic system where markets exist but the government also regulates, taxes, and provides public goods (e.g., the United States).

Totalitarian Government

A political system where the government controls political power with limited freedoms and little citizen influence.

Democratic Government

A political system where citizens elect leaders and enjoy greater freedoms and political participation.

Promote Efficiency

An economic function of government focused on protecting competition and preventing monopolies.

Promote Equity

An economic function of government involving programs like Medicaid, SNAP, and Social Security.

Promote Stability

An economic function of government aimed at reducing unemployment, controlling inflation, and encouraging growth.

Product Market

A market where households buy and businesses sell finished goods and services.

Resource Market

A market where businesses buy and households sell productive resources like labor, land, capital, and entrepreneurship.

Financial Capital Market

The market where money is borrowed, lent, and invested through items like student loans, bank loans, stocks, and bonds.

Sole Proprietorship

A business structure with one owner that is easy to start but carries unlimited liability.

General Partnership

A business structure with two or more owners who share management and have unlimited liability.

Corporation

A separate legal entity that offers limited liability to owners and can sell stock to raise capital.

Unlimited Liability

The legal obligation where a business owner is personally responsible for all business debts.

Limited Liability

The legal protection where owners are generally protected from personal responsibility for business debts.

Circular Flow Model

A model showing how resources, goods, services, and money move continuously between households and firms.

Law of Supply

The principle that as price increases, quantity supplied increases, and as price decreases, quantity supplied decreases, ceteris paribus.

Determinant of Supply

A non-price factor, such as technology or resource prices, that shifts the entire supply curve.

Supply

The entire relationship between price and quantity supplied, represented by the entire curve.

Quantity Supplied

One specific amount supplied at one specific price, represented by a single point on the curve.

Change in Quantity Supplied

A movement along the curve caused by a change in the price of the product.

Change in Supply

A shift of the entire curve caused by a change in a non-price determinant.

Efficient Production

Represented by any point directly on the supply curve where businesses produce exactly what they are willing and able to produce.

Inefficient Production

Represented by a point inside (left of) the supply curve where resources are underutilized.

Unattainable Production

Represented by a point outside (right of) the supply curve that current resources and technology cannot achieve.

Producer Supply Curve

A curve representing a single firm's willingness to supply goods.

Market Supply Curve

A curve created by adding together the quantities supplied by every producer in the market at each price.

Supply Shift Right

Result of an increase in productive capacity, such as better technology or lower input costs.

Supply Shift Left

Result of a decrease in productive capacity, such as natural disasters or higher business taxes.

Utility

The satisfaction or happiness a consumer receives from consuming a good or service.

Consumer Preferences

The tastes, wants, and priorities that influence purchasing decisions unique to each individual.

Marginal Utility

The additional satisfaction received from consuming one more unit of a product.

Law of Diminishing Marginal Utility

The principle that each additional unit of a good usually provides less satisfaction than the previous unit.

Substitution Effect

One explanation for the Law of Demand where consumers switch toward relatively cheaper products as prices change.

Income Effect

An explanation for the Law of Demand where lower prices increase consumer purchasing power, allowing them to afford more.

Determinants of Demand

Non-price factors such as income, preferences, number of buyers, and prices of related goods that shift the demand curve.

Demand

The entire relationship between price and quantity demanded, represented by the entire curve.

Quantity Demanded

The amount consumers buy at one specific price, represented by one point on the demand curve.

Change in Quantity Demanded

A movement along the demand curve caused by a change in price.

Change in Demand

A shift of the entire demand curve caused by a change in a determinant.

Demand Shift Right

Occurs when planned purchases increase due to factors like higher income for normal goods or more buyers.

Demand Shift Left

Occurs when planned purchases decrease due to factors like lower income or worse consumer preferences.

Normal Good

A good for which demand increases as consumer income increases.

Inferior Good

A good for which demand decreases as consumer income increases (e.g., instant ramen).

Substitute Goods

Products that replace each other; an increase in the price of one leads to an increase in demand for the other.

Complementary Goods

Products used together; an increase in the price of one leads to a decrease in demand for the other.

Market Equilibrium

The point where Quantity Demanded equals Quantity Supplied ($QD = QS$) and the market is stable.

Equilibrium Price

The price found at the intersection of the supply and demand curves on the Y-axis.

Equilibrium Quantity

The quantity found at the intersection of the supply and demand curves on the X-axis.

Homogeneous Products

A condition for a competitive market where consumers see products as essentially identical, such as regular gasoline.

Perfect Information

A condition for a competitive market where consumers and producers know prices, quality, and alternatives.

Fair Price

Another name for the equilibrium price because buyers and sellers voluntarily agree to the exchange.

Consumer Surplus

The difference between the maximum willingness to pay and the market price, representing extra value for consumers.

Consumer Surplus Formula

$\frac{1}{2} \times \text{Base} \times \text{Height}$ where Height is the highest willingness to pay minus market price.

Producer Surplus

The difference between the market price and the minimum acceptable price businesses were willing to accept.

Producer Surplus Formula

$\frac{1}{2} \times \text{Base} \times \text{Height}$ where Height is the market price minus the minimum acceptable price.

Shortage

A situation where Quantity Demanded is greater than Quantity Supplied, occurring when price is below equilibrium.

Surplus

A situation where Quantity Supplied is greater than Quantity Demanded, occurring when price is above equilibrium.

Impact of Supply Increase

With demand constant, equilibrium price decreases and equilibrium quantity increases.

Impact of Supply Decrease

With demand constant, equilibrium price increases and equilibrium quantity decreases.

Impact of Demand Increase

With supply constant, equilibrium price increases and equilibrium quantity increases.

Impact of Demand Decrease

With supply constant, equilibrium price decreases and equilibrium quantity decreases.

Same Direction Shift Rule

When supply and demand shift the same way, the change in quantity is certain, but the change in price is ambiguous.

Opposite Direction Shift Rule

When supply and demand shift in opposite directions, the change in price is certain, but the change in quantity is ambiguous.

Labor Demand

The number of workers businesses are willing and able to hire at different wage rates.

Labor Supply

The number of workers willing and able to work at different wage rates, supplied by households.

Equilibrium Wage

The 'price' of labor determined by the intersection of labor demand and labor supply.

Labor Surplus

A condition occurring when the wage is above equilibrium, leading to unemployment because more people want jobs than firms want to hire.

Labor Shortage

A condition occurring when the wage is below equilibrium, where businesses want more workers than are available.

Productivity

A determinant of labor demand; more productive workers usually lead to higher labor demand from businesses.

Wages

The income received by households in exchange for selling their labor in the resource market.

Rent

The income received by households in exchange for selling their land resources.

Interest

The income received by households in exchange for providing capital resources.

Profit

The income received by households for providing entrepreneurship, or what firms attempt to maximize.

Ceteris Paribus

A Latin phrase meaning 'all other factors remain constant,' used when defining the Law of Supply and Law of Demand.

Scarcity

The fundamental economic problem where resources are limited, influencing use value and requiring economic systems.

Substitution Effect Example

If chicken becomes cheaper than beef, people buy more chicken; this illustrates the Law of Demand.

Complementary Goods Example

If gas prices rise, the demand for SUVs decreases because the products are used together.

Subsidy

A government payment to a business that acts as a determinant to increase supply (shift right).

Technology (Supply)

Improvements in this determinant allow businesses to produce more at every price, shifting supply right.

Consumer Expectations

A determinant of demand; if consumers expect future price increases, current demand may shift right.

Producer Expectations

A determinant of supply where what firms expect to happen in the future impacts current production levels.

Free Entry and Exit

A competitive market condition where businesses can enter if profits are high and leave if profits are low.

Three E's

A memory trick for the economic functions of government: Efficiency, Equity, and Economic Stability.