Macroeconomics CLEP prep (2022/2023) Rated A+

Macroeconomics CLEP prep (2022/2023) Rated A+ LRAS Long Run Aggregate Supply, The natural level of GDP, shown vertical on a graph. When LRAS shifts, SRAS (Short Run Aggregate Supply) will follow . Tangible Assets Real Estate, Equipment, and Cash (physical assets) Intangible Assets Patents, Goodwill, and Trademarks (lack physical substance) Substitution effect Economic rule stating that if two items satisfy the same need and the price of one rises, people will buy the other. Equilibrium price The price at which the number of products that businesses are willing to supply equals the amount of products that consumers are willing to buy at a specific point in time. Excess Supply When quantity supplied is more than quantity demanded. The formula for excess supply is: Supply - Demand = Excess Supply Reservation price Maximum price that a customer is willing to pay for a good Buyer's surplus The difference between a buyer's reservation price (the price they want to pay) and the actual price paid for a good or service Seller's surplus The difference between the price received by the seller and the seller's reservation price Total surplus The difference between the buyer's reservation price and the seller's reservation price. Consumer surplus + Producer surplus Free market A market with unrestricted trading of goods, where the prices of goods are determined by supply and demand. Traditional economic system In a traditional economic system, the availability of resources is based on inheritance. Goods are only produced for consumption and surpluses do not occur. This type of economy is normally found in South American, Asian, and African countries. Command economic system An economic system in which all factors of production are owned and controlled by the government. Often referred to as a centrally planned economic system. Example: Former Soviet Union. Mixed market Combines pure market and command. Example: Japan Law of Diminishing Marginal Utility A law stating that as a person consumes additional units of a good, eventually the utility gained from each additional unit of the good decreases. Law of Demand A law stating that as the price of a product increases the demand of that product decreases, while if the price of a product decreases the demand for that product increases. Law