Economics Flashcards #41-80 Unit 2 Microeconomics

41. Microeconomics Studies the interaction of people and businesses (or firms) within a single market. Managers make decisions about how much to produce, how to price the product, and how much workers should be paid.

42. Circular Flow Diagram Illustration showing how households and businesses use markets to exchange money, products, and resources.

43. Factor Market Market in which firms purchase the factors of production from households. Inputs such as land, labor, capital Example for lemonade stand: Lemons, sugar, water (land) Person operating stand (labor) Knives and stirring spoon (capital)

44. Product Market The market in which households purchase the goods and services that firms produce. Outputs, such as goods and services. Example for lemonade stand: Glass of cold lemonade (good)

45. Law of Demand Price and demand have an inverse relationship. As price goes up, demand goes down and as price goes down, demand goes up.

46. Demand Curve Graphical representation of a demand schedule.

47. Change in Quantity Demand Movement along a single demand curve by a change in price.

48. Change in Demand Shows a shift in the demand curve. Represented by 2 curves. (Assuming prices do not change)

49. Demand Shifters Number of consumers Price of other goods Substitutes goods Complimentary goods Income change Consumer tastes and preferences Expectations for the future

50. Complimentary Goods Goods that go together. Change in the demand for one has the same effect on the other. (PB and J)

51. Substitute Goods Goods that can be used in place of the other. Change in demand for one has the opposite effect on the other.

52. Law of Supply Price and supply have a direct relationship. Price goes up, supply goes up, and as price goes down, supply goes down.

53. Supply Curve A graphical representation of a supply schedule.

54. Change in Quantity Supplied Movement on a single supply curve because of a change in price.

55. Change in Supply Shows a shift in the supply curve. Represented by 2 curves. (Assuming price does not change)

56. Supply Shifters Number of producers Cost of inputs/resources Technological improvements Expectations for the future (profit motive) Government regulations Education

57. Equilibrium Price Point where quantity supplied and quantity demanded are the same. Also called Market Clearing Price.

58. Price Controls The government sometimes views the equilibrium price as too high or low so they have either price floors or price ceilings as a result.

59. Price Floor The government sets a minimum price for how much a product can be sold for. Typically the price is higher than equilibrium and causes a surplus. (Ex. Minimum wage, Agriculture Products)

60. Surplus Excess Supply. Supply exceeds demand.

61. Price Ceiling The government sets a maximum price at which a good can be sold. Typically this price is lower than equilibrium and causes a shortage. (Ex. NYC rent control)

62. Shortage Excess demand. Demand exceeds supply.

63. Elasticity How much supply or demand reacts to a change in price.

64. Inelastic Demand or Supply Demand or supply has little change when price changes.

65. Elastic Demand or Supply Demand or supply has a lot of change when price changes.

66. Business Organizations There are 3 types of business organizations: Sole Proprietorship Partnerships Corporations

67. Sole Proprietorship Business owned by only 1 person.

68. Partnerships Business owned by 2 or more people.

69. Corporations Business owned by shareholders (stockholders).

70. Market Structures There are 4 basic market structures: - monopoly - pure (perfect) competition - monopolistic competition - oligopoly

71. Pure (perfect) Competition Market structure where there are many buyers and sellers selling identical products. (ex. - farm products)

72. Monopolistic (Imperfect) Competiton Market structure where there are many buyers and sellers selling similar products that can be differentiated by brand. (ex. - soaps, blue jeans, tennis shoes)

73. Oligopoly Market structure where a few businesses dominate the market. (Ex. - Direct and Dish/ AT&T and Verizon)

74. Monopoly Market structure dominated by a single business. (Ex. – Standard Oil, Demorest water)

75. Natural Monopolies When the market runs more efficiently by having one business control the market (ex. - public utilities)

76. Barrier to Entry How difficult it is to get into a market.

77. Government Involvement The government gets involved in the economy by doing these things: Produce public goods and services Redistribute income Protect property rights Resolve market failures

78. Market Failures Occur when the private market is unable to produce goods and services with a marginal benefit that is equal to or greater than the marginal cost to society. Obesity epidemic as a market failure

79. Externalities A type of market failure that occurs when a third party is hurt (or benefits) from the use of the good. In this example, the bicycle rider is the 3rd party who is hurt by the auto industry.

80. Deregulation The reduction or elimination of government power in an industry. May help to increase competition, which could improve business profits and reduce costs for consumers.