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Study Guide 3-7

Traditional, Command, Market, and Mixed Economies

  • Traditional Economy: Decisions about production and consumption are based on tradition and customs.
  • Command Economy: A central authority makes all decisions about production and consumption.
  • Market Economy: Decisions are made by individual producers and consumers based on supply and demand.
  • Mixed Economy: Combines elements of command and market economies; both government and individuals have a role in decision making.

Public Works

  • Government-financed projects such as dams, highways, and sewer systems that aim to benefit the public.

Free Enterprise System

  • Individuals own the factors of production and make decisions within the legal framework.

Property Rights

  • The rights to use, own, and dispose of one's possessions.

Specialization and Division of Labor

  • Specialization: Developing expertise in a particular activity.
  • Division of Labor: Allocating different tasks to different people or regions.

Voluntary Exchange

  • Willingly trading goods or services, with both parties expecting to benefit.

Barter and Money

  • Barter: Direct exchange of goods or services without money.
  • Money: A universally accepted medium of exchange.

Economic Interdependence

  • People rely on others for goods and services, resulting from specialization and trade.

Absolute Advantage and Comparative Advantage

  • Absolute Advantage: Producing goods using fewer resources than others.
  • Comparative Advantage: Producing goods at a lower opportunity cost than others.

Wealth and Mass Production

  • Wealth: Money and the things money can buy.
  • Mass Production: Large-scale manufacturing, often leading to lower costs.

Demand, Law of Demand, and Demand Schedules and Curves

  • Demand: Quantity of a good consumers are willing to buy at various prices.
  • Law of Demand: As price increases, quantity demanded decreases, and vice versa.
  • Demand Schedule: A table showing quantities demanded at different prices.
  • Demand Curve: A graph showing the relationship between price and quantity demanded.

Substitute and Complementary Goods

  • Substitute Good: A product that can replace another.
  • Complementary Good: A product used in conjunction with another.

Supply, Law of Supply, and Supply Schedules and Curves

  • Supply: Quantity of a good producers are willing to sell at various prices.
  • Law of Supply: As price increases, quantity supplied increases, and vice versa.
  • Supply Schedule: A table showing quantities supplied at different prices.
  • Supply Curve: A graph showing the relationship between price and quantity supplied.

Changes in Quantity Demanded and Supplied

  • Change in Quantity Demanded: Caused by a change in price.
  • Change in Quantity Supplied: Also primarily influenced by price changes.

Income and Substitution Effects

  • Income Effect: Changes in quantity demanded due to changes in consumer income.
  • Substitution Effect: Changes in quantity demanded due to changes in relative prices of goods.

Quantity Supplied, Market Supply, and Changes in Supply

  • Quantity Supplied: Amount of a good producers are willing to sell at a specific price.
  • Market Supply: Total quantity of a good available across all producers.
  • Change in Supply: Shifts in the supply curve due to various external factors.

Government Intervention in Supply and Demand

  • Setting price floors or ceilings to influence market conditions.

Supply Chain

  • The sequence of processes and parties involved in producing and delivering a product.

Equilibrium Price and Market Equilibrium

  • Equilibrium Price: Price at which quantity demanded equals quantity supplied.
  • Market Equilibrium: State where supply and demand are balanced.

Shortages, Price Floors, and Price Ceilings

  • Shortage: Demand exceeds supply.
  • Price Floor: Minimum legal price, e.g., minimum wage.
  • Price Ceiling: Maximum legal price, e.g., rent control.

Monopolies and Market Structure

  • Monopolies: Single producer dominates the market.
  • Market Structure: The characteristics and level of competition in a market.

Oligopoly and Market Failure

  • Oligopoly: A few firms dominate the market.
  • Market Failure: Inefficient allocation of resources in a market.

Competition Types

  • Perfect Competition: Many firms, identical products.
  • Imperfect Competition: Market structures that lack the characteristics of perfect competition.