policies quiz 1

demand schedule

a table that shows the relationship between the price of a good and the quantity demanded

supply schedule

a table that shows the relationship between the price of a product and the quantity of the product supplied

inverse relationship

between price and quantity demanded

substitution effect

as prices rise � or income decreases � consumers will replace more expensive items with less costly alternatives.

supply curve

if price goes up, willing to supply more to the market

change in price

movement along demand curve, change in quantity demanded

A supply curve

can curve in or curve out(shifting outward better for the economy)

positive slope

supply schedule

negative slope

change in quantity

Equilibrium point

The point at which the quantity demanded equals the quantity supplied

Non-price determinants of demand

The variables that can influence demand: Income, Preferences, Prices of related goods (Substitution and Complementary), expectation of future price change, Demographic changes/population.

Non-price determinants of supply

prices of inputs, expectations of future price change, number of firms, technology, taxes and subsidies

circular flow model

A model that shows the flow of goods and services and the interaction among households, businesses, and banks


Gross Domestic Product- the total market value of all final goods and services produced annually in an economy

the market value

is the price

Measure GDP

Consumer(70%)+investment(15%)+gov spending(20%)+exports(-5%)

factors of production

land-(rents, labor-(wages), capital-(interest & dividends), entrepreneurship skills-(profits)

Economist Say law

if you make it, someone will buy it(his law supply creates its own demand)

Stock vs. Flow

Stock- quantity measured at a point in time(money)
Flow- quantity measured per unit of time(the many times it goes around)

opportunity cost

the most desirable alternative given up as the result of a decision

production possibility curve

the law of increasing opportunity costs makes the ppc concave

Adam Smith Invisible Hand Theory

capitalistic economy goes through this cycle, people will lose their jobs, and prices will lower

Kane "helping hand

government needs to step in

fiscal policy

Government policy that attempts to manage the economy by controlling taxing and spending.