Untitled Flashcards Set

Money

An asset that is socially and legally accepted as a medium of exchange.

Functions of Money

Three functions: medium of exchange, store of value, and unit of measure.

Medium of Exchange

An asset used as payment when purchasing goods/services.

Store of Value

An asset that serves as a means of holding wealth.

Unit of Measure

A basic measure of economic activity.

Demand

The relationship between the price of a good and the quantity that consumers are willing and able to purchase.

Supply

The relationship between the price of a good and the quantity that firms are willing and able to sell.

Law of Demand

As price decreases, the quantity demanded increases (demand curves are downward sloping).

Law of Supply

As price increases, the quantity supplied increases (supply curves are upward sloping).

Buyer's Reservation Price

The maximum amount of money a buyer is willing to pay for an item.

Seller’s Reservation Price

The minimum amount of money a seller is willing to accept for an item.

Equilibrium

A stable state for a system which will persist as long as outside factors do not change.

Excess Supply

A situation in which quantity supplied is greater than quantity demanded.

Excess Demand

A situation in which quantity demanded is greater than quantity supplied.

Increase in Demand

A change in demand where consumers are more willing to purchase the good, illustrated as a rightward shift of the demand curve.

Decrease in Demand

A change in demand where consumers are less willing to purchase the good, illustrated as a leftward shift of the demand curve.

Increase in Supply

A change in supply where firms are more willing to sell the good, illustrated as a rightward shift of the supply curve.

Decrease in Supply

A change in supply where firms are less willing to sell the good, illustrated as a leftward shift of the supply curve.

Determinants of Demand

Factors that change demand, such as prices of related goods, income, preferences, market size, and future price expectations.

Determinants of Supply

Factors that change supply, such as production costs, technology, natural events, market size, and future price expectations.

Role of Profits

Profits serve as a vital signaling device in free market economies.

Entrepreneur

Someone who organizes and manages a business, typically with considerable initiative and exposure to risk.

Spontaneous Order

The natural and undirected emergence of order out of seeming chaos.

Insights from 'I, Pencil'

1. No one person possesses the know-how to make a pencil. 2. Most contributors did not intend to specifically make a pencil. 3. The process produces valued goods without a planner overseeing it.