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67 Cards in this Set
- Front
- Back
scarcity
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the limited nature of society's resources
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economics
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the study of how society manages its scarce resources
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efficiency
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the property of society getting the most is can from its scarce resources
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equality
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the property of distributing economic prosperity uniformly among the members of society
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opportunity cost
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whatever must be given up to obtain some item
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Ten Principles of Economic
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1. People Face Trade-offs (trade offs between efficiency and quality)
2. The Cost of Something Is What You Give Up to Get It (opportunity cost) 3. Rational People Think at the Margin (comparing marginal benefits and marginal costs- decisions aren't black and white) 4. People Respond to Incentives 5. Trade Can Make Everyone Better Off 6. Marketers Are Usually a Good Way to Organize Economic Activity (economic decisions made by millions of firms and households) 7. Governments Can Sometimes Improve Market Outcomes 8. A Country's Standard of Living Depends on Its Ability to Produce Goods and Services 9. Prices Rise When the Government Prints Too Much Money 10. Society Faces a Short-Run Trade-off Between Inflation and Unemployment |
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rational people
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people who systematically and purposefully do the best they can to achieve their objectives
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marginal changes
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small incremental adjustments to a plan of action
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incentives
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something that induces a person to act
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market economy
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the economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services
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property rights
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the ability of an individual to own and exercise control over scarce resources
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market failure
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a situation in which a market left on its own fails to allocate resources efficiently
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externality
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the impact of one person's actions on the wellbeing of a bystander
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market power
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the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices
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productivity
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the quantity of goods and services produced from each unit of labor input
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inflation
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an increase in the overall level of prices in the economy
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business cycle
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fluctuations in economic activity, such as employment and production
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Circular-Flow Diagram
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a visual model of the economy that shows how dollars flow through markets among households and firms
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factors of productions (Circular- Flow Diagram)
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labor, land, and capital used by firms to produce goods and services
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markets for goods and services (Circular- Flow Diagram)
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households buy the output of goods and services that firms produce
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markets for factors of production (Circular- Flow Diagram)
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households provide the inputs that firms use to produce
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The Production Possibilities Frontier
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a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology
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Microeconomics
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the study of how households and firms make decisions and how they interact in markets
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Macroeconomics
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the study of economy wide phenomena, including inflation, unemployment, and economic growth
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positive statements
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claims that attempt to describe the world as it is
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normative statements
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claims that attempt to describe how the world should be
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market
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a group of buyers and sellers of a particular good or service
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competitive market
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a market in which there are many buyers and many sellers so that each has a negligible impact on the market price
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quantity demand
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the amount of a good that buyers are willing and able to purchase
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law of demand
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the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises
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demand schedule
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a table that shows the relationship between the price of the good and the quantity demand
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demand curve
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a graph of the relationship between the price of a good and the quantity demand
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normal good
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a good for which, other things equal, an increase in income leads to an increase in demand
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inferior good
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a good for which, other things equal, an increase in income leads to a decrease in demand
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substitutes
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two goods for which an increase in the price of ones leads to an increase in demand for the other (often things that replace each other: hotdogs and hamburgers, movie tickets and video rentals)
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complements
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two goods for which an increase in price of one leads to a decrease in the demand of the other (often things used together: automobiles and gas, peanut butter and jelly)
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quantity supplied
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the amount of a good that sellers are willing and able to sell
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law of supply
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the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises
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supply schedule
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a table that shows the relationship between the price of a good and the quantity supplied
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supply curve
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a graph of the relationship between the price of a good and the quantity supplied
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equilibrium
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a situation in which the market prices has reached the level at which quantity supplied equals quantity demanded
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equilibrium price
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the price that balances quantity supplied and quantity demanded
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equilibrium quantity
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the quantity supplied and the quantity demanded at the equilibrium price
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surplus
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a situation in which the quantity supplied is greater than the quantity demanded
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shortage
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a situation in which quantity demanded is greater the quantity supplied
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law of supply and demand
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the claim that the price of any good adjusts to bring the quantity supplied and quantity demanded for that good into balance
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Three Steps to Analyzing Changes in Equilibrium
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1. Does the even change the supply curve, the demand curve, or both?
2. Does the curve shift left or right? 3. Use supply and demand diagrams to compare initial and new equilibrium |
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total revenue
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the amount a firm receives for the sale of its output
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total cost
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the market value of the inputs a firm uses in production
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profit
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total revenue minus total cost
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explicit costs
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input costs that require an outlay of money by the firm
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implicit costs
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input costs that do not require an outlay of money by the firm
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economic profit
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total revenue minus total cost cost, including both implicit and explicit costs
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accounting profit
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total revenue minus total explicit costs
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production function
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the relationship between the quantity of inputs used to make a good and the quantity of output of that good
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marginal product
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the increase in output that arises from an additional unit of input
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diminishing marginal product
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the property whereby the marginal product of an input declines as the quantity of the input increases
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fixed costs
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costs that do not vary with the quantity of output produced
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variable costs
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costs that vary with the quantity of output produced
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average total cost
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total cost divided by the quantity of output
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average fixed cost
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fixed costs divided by the quantity of output
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average variable cost
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variable cost divided by the quantity of output
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marginal cost
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the increase in total cost that arises form an extra unit of production
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efficient scale
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the quantity of output that minimizes the average cost
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economies of scale
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the property whereby the long-run average total cost falls as the quantity of output increases
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diseconomies of scale
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the property whereby the long-run average total costs increases as the quantity of output increases
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constant returns to scale
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the property whereby long-run average total cost stays the same as the quantity of output changes
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