Applied Economics Reviewer Flashcards

General review of basic economic concepts including market structures, demand, supply, equilibrium, and economic indicators, and consumer/producer behavior.

Commodity

A term used in economics that pertains to a homogenous good that commands a price.

Market

The meeting place for buyers and sellers where the buyer can purchase goods from a seller for a price that is agreeable to both.

Depression

A period of prolonged recession.

Laissez-faire system

An economic system whose English translation means, "Leave alone".

Central Planning

A distinguishing feature of a centralized economic system.

Mixed Economy

An economic system that incorporates both free system and centralized systems.

Economic growth

The increase in the capacity of an economy to produce goods and services for the increasing population.

Trough

It refers to the lowest point following a recession.

Barter

A mechanism where goods are exchanged for another good.

Frictional Unemployment

A type of unemployment caused by workers voluntarily changing jobs or first entering the workforce.

Price stability

Normally the absence of prolonged inflation and deflation.

Exchange rate

An indicator of the current state of the Philippine economy which measures the strength of the domestic currency.

Law of Demand

States that, ceteris paribus, there is an inverse relationship between the price of a good or service and its quantity demanded ($P \uparrow \rightarrow QD \downarrow$; $P \downarrow \rightarrow QD \uparrow$).

Demand Curve

A graphical representation showing the relationship between price and quantity demanded; typically slopes downward from left to right.

Substitution Effect

When product prices change, consumers are inclined to purchase larger amounts of the now cheaper products and less of the now more expensive products.

Income Effect

A concept stating that as consumers' income rises, the quantity of demanded goods also increases; a change in price changes the consumer's real purchasing power.

Demand

The quantity of a good or service that consumers are willing and able to buy at different prices during a given period, assuming other factors remain constant.

Ceteris paribus

A Latin phrase meaning "all other things remaining equal".

Diminishing Marginal Utility

As a consumer consumes more units of a product, the additional satisfaction from each additional unit tends to decrease.

Demand Schedule

A table showing the relationship between price and quantity demanded.

Disposable Income

The net amount after taxes and other mandatory contributions have been deducted.

Income elasticity of demand

The sensitivity of the quantity demanded for a certain good to a change in income, relating to the change in quantity demanded in response to an adjustment in income.

Normal Goods

Goods that display attributes of the income effect where demand increases with income.

Inferior Goods

Goods that exhibit a decline in quantity demanded as consumer income rises ($\eta < 0$).

Luxury Goods

Goods that exhibit an increase in demand more than the proportionate increase in income ($\eta > 1$).

Necessity Goods

Goods that exhibit an increase in demand less than the proportionate increase in income ($\eta < 1$).

Substitutes

Goods that meet the same requirements or fulfill the same needs as another good.

Complementary Goods

Goods that are generally consumed or used together, demonstrating interdependence between two goods.

Supply

The quantity of a good or service that producers are willing and able to offer for sale at different prices during a given period, assuming other factors remain constant.

Law of Supply

States that, ceteris paribus, there is a direct relationship between the price of a good or service and its quantity supplied ($P \uparrow \rightarrow QS \uparrow$; $P \downarrow \rightarrow QS \downarrow$).

Supply Curve

A graphical representation of the relationship between price and quantity supplied, which typically slopes upward from left to right.

Profit Incentive

When prices increase, producers can potentially earn higher profits, encouraging them to produce and sell more.

Supply Schedule

A table showing the relationship between price and quantity supplied.

Quantity Supplied

The specific amount producers are willing and able to sell at a particular price.

Excise Tax

A tax imposed on manufactured goods, applicable to producers and sellers as opposed to consumers.

Subsidy

Monetary assistance by the government in support of target industries or sectors of the economy.

Import Quota

The limit to the volume of raw materials that local producers can bring into the country.

Market Price

The price that has been agreed for an exchange of goods to happen.

Market Equilibrium

The point in the intersection of demand and supply where consumer and suppliers' expectations meet ($QD = QS$).

Shortage

Happens in the market when there is excess in demand ($QD > QS$), usually occurring when the price is below equilibrium.

Surplus

Happens in the market when there is excess in supply ($QS > QD$), usually occurring when the price is above equilibrium.

Slope Formula (Demand or Supply)

$m = \frac{P_2 - P_1}{Q_2 - Q_1}$ or $m = \frac{\Delta P}{\Delta Q}$