Unit 2 quiz 1 10/9 notes ECON

first quiz of the second unit in econ

Free Enterprise

Another name for the market. starting a business that provide usefulness to consumers. business is free to use scarce resources as they please. Managers and workers operate businesses in exchange for pay.

Consumer decisions

they look for goods and services for the best possible values “best quality at lowest price”

what and how

Privately-owned businesses

For Whom

Consumers

Limits of free enterprise (how)

Government limits this in small ways. Some emerging nations use this to control the economy earlier on/starting out.

5 Freedoms of Free Enterprise

Right to Private Property. Open Opportunity. Legal Equality. Free-Contract. Profit Motive.

Right to Private Property

ability to own your own land, thoughts and material items.

Open Opportunity

Anyone can take part in the market by free choice. creates wide range of goods and services to choose from.

Legal Equality

Everyone in the economy is protected by some economic rights under law. Everyone has the right to succeed or fail.

Profit Motive

Force that encourages people to improve their wealth through economic activity. Your own decision for the sake of something else.

Demand

The desire to own something and the ability to pay for it.

Law of Demand

If the price of a good is lower, the demand for the good will be higher. If the price of a good is higher, the demand for the good will be lower.

Substitution Effect

Happens when consumers react to an increase in a goods price by consuming less of that good and more of other goods.

Income Effect

A change in our consumption because there has been a change in our income. We either have more money, or less money which can effect how we spend it on goods.

Demand Schedule (Table)

A table that lists quantity of a good a person will buy at each different price. Can be on the individual level or on the market level when we can take into account everyone’s demands.

Demand Curve (Graph)

Always slopes downwards from left to right. follows law of demand. Price is always y axis. only shows relationship between the price of the good and the quantity that will be purchased. Any other factors are assumed to be constant.

Shifts in Demand

Works with the ideas that it (____) is only based on price.

What Causes shifts in demand?

Income, Consumer Expectations, Population, Consumer tastes and Advertising, Prices of Related Goods

Normal Good (Income)

Something that consumers demand more when their (income) increases.

Inferior Good (income)

Something that consumers demand less of when their income increases. Once you have money, you are less likely to buy one of these things.

Consumer Expectations

Whether or not we expect a good to increase or decrease in price greatly affects our demand of the good today.

If we think price of good will go up in future (consumer expectations)

We are more likely to buy it now.

If we think price of good will go down in the future (consumer expectations)

We are more likely to wait to buy it.

Population

Changes in size of this also effects demand for most products

If population grows

More needs have to be met meaning more options of stores

If population drops

Less options will be needed to meet needs and wants

Consumer tastes and Advertising

Plays an important role in many trends and therefore influences demand

Trends

Lasting impacts

Fads

Brief Moments of popularity

Price of related goods

The demand curve for one good can be affected by a change in demand for another good.

Compliments

Two goods that are bought and used together. ex:shirt compliments pant

Substitutes

Goods that are used in place of one another. ex:pants substituted for shorts