Modern Principles of Economics - The Price System

These flashcards cover key terms and concepts from the lecture on the Price System in economics, helping students grasp essential definitions and applications.

Price System

A mechanism that uses prices as signals to distribute resources and coordinate economic activities.

Great Economic Problem

The challenge of efficiently arranging scarce resources to satisfy as many wants as possible.

Arbitrage

The act of buying an item at a low price and reselling it at a higher price.

Speculation

The attempt to profit from future price changes.

Futures

Standardized contracts to buy or sell specified quantities of a commodity or financial instrument at a specified price, with delivery set at a specified time in the future.

Prediction Market

A speculative market designed so that prices can be interpreted as probabilities and used to make predictions.

Price Gouging

The practice of raising prices on essential goods to an unfair level, especially during emergencies.

Signal Watching

The practice of observing price movements to infer information about future market conditions.

Incentive

A factor that motivates individuals to perform an action or make a decision.

Opportunity Cost

The value of the next best alternative that is forgone when making a decision.