Allocation of Resources and Market Dynamics

Flashcards based on lecture notes about the allocation of resources, economic systems, and market dynamics.

What is a planned economy?

An economy where decisions about production are made solely by the government.

What are the key features of a pure command economy?

State ownership of land and capital, government control of labor, and planned production and distribution.

What is a market economy?

An economy where decisions about production are made by consumers and producers interacting via the price mechanism.

What are the key features of a pure market economy?

Limited government intervention, private property, freedom of choice, self-interest maximization, and the price mechanism.

What is a mixed economy?

An economy where decisions about production are made by both the government and the private sector.

What are the key features of a mixed economy?

A combination of features from both planned and market economies, including shared ownership of resources and mixed motivations.

What is demand?

The willingness and ability of consumers to buy goods or services at different prices in a given time period.

What does the law of demand state?

There is an inverse relationship between price and quantity demanded, ceteris paribus.

What is market demand?

The sum of all individual demands for a particular good or service.

What is supply?

The willingness and ability of producers to sell goods or services at different prices in a certain time period.

What does the law of supply state?

There is a direct relationship between the price of a good or service and the quantity supplied, ceteris paribus.

What is market supply?

The sum of all individual supplies for a particular good or service.

When does the market achieve equilibrium?

When the quantity demanded equals the quantity supplied.

What are the two fundamental laws of the market?

A surplus puts pressure on price to fall, and a shortage puts pressure on price to rise.

What are the main factors influencing demand (conditions of demand)?

Disposable income, population, preferences, price of related goods, expected future price, and availability of finance.

What are the main factors influencing supply (conditions of supply)?

Cost of inputs, technology, government policy, weather conditions, price of substitutes-in-production, price of complements-in-production, expected future price, resources, and number of firms.

What are substitute goods?

Goods that can be used in place of each other.

What are complementary goods?

Goods that need to be consumed together.

What is an indirect tax?

A tax imposed on producers.

What is a subsidy?

Money given by the government to producers to reduce costs.

What are substitutes-in-production?

Goods that can be produced using the same resources.

What are complements-in-production?

Goods that are jointly produced using a given resource.