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Four main steps of CFM
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What flows from households to markets for goods/services?
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Econ Ch 4
Ch 4 Econ
| Question | Answer |
|---|---|
| Four main steps of CFM | Households, markets for good/services, firms, markets for FOP |
| What flows from households to markets for goods/services? | Consumer expenditures |
| What flows from markets for goods/services to firms? | Firm revenues |
| What flows from firms to markets for factors of production? | Wages and rents paid |
| What flows from markets for FOP to households? | Income |
| What flows from households to markets for FOP? | Supply of factors of production |
| What flows from markers for FOP to firms? | FOP hired |
| What flows from firms to markets for goods/services? | Output of finished goods/services |
| What flows from markets for good/services to households? | Consumption of finished goods/services |
| How is most property acquired? | By purchase |
| Capitalism has purchases by..? | Voluntary exchange |
| When is voluntary exchange valid? | When an act is by choice and there is exchange of valuable consideration |
| Buyer's Reservation Price | Highest price voluntary paid for a good |
| Seller's Reservation Price | Lowest price voluntary accepted for a good |
| Bargaining Range | Difference between BRP and SRP (BRP-SRP=BR) |
| Positive Sum Outcomes | Total gains of winners is greater than total losses of losers (win win) |
| Negative Sum Outcomes | Total gains of winners is less than the total losses of losers (win lose) |
| Law of Demand | As price of good increases, people buy less of it // as price of good decreases, people buy more of it |
| Law of Supply | As price of good increases, business people make more of it // as price of good decreases, business people sell less of it |
| What type of interaction is the model of supply and demand? | Voluntary |
| Law of Increasing Cost | Marginal cost of production will increase as output expands |
| What is the equation of profit? | Total revenue-total cost |
| Equilibrium | Stable state of a system |
| Market Equilibrium | Stable price/quantity pair in which an indiv. market could not improve the outcome for himself by altering his behavior |
| Entrepenuer | Person who starts/finances/manages a company, searches for markets, and absorbs risk of venture |
| Bankruptcy | Legal procedure to strip owners of assets when they can't pay debts |
| Costs of bankruptcy | Owner loses investment in property, innocent workers are laid off |
| Benefits of bankruptcy | Assets moved out of hands of poor stewards, assets no longer deployed in activity that consumers don't want |
| Subsidy | Payment by gov to indiv/company to cover costs with no obligation to repay |
| Costs of Subsidy | Leaves assets on hands of incompetent owners, leaves asset deployed in areas that people don't value, transfers asset from taxpayers to others involuntary |
| Benefits of Subsidy | Prevents failure/bankruptcy, prevents lay offs |
| What system uses creative destruction? | Capitalism |
| Creative destruction | Process of constant industrial mutation where economy is always changing |
Created by:
MikalahQuillen
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