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54 Cards in this Set
- Front
- Back
economics
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social science that studies the choices we make as we cope with scarcity and the incentives that influence and reconcile our choices.
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scarcity
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available resources are insufficient to satisfy wants
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4 categories of resources
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land
labor capitol entrepreneurship |
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incentive
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reward ot penalty that encourages or discourages an action
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positive analysis
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factual
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normative analysis
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judgement
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opportunity cost
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value of best alternative
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sunk cost
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inevitable/irreversible cost
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marginal benefit (MB)
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benefit of one additional unit of a good
MB decreases as Q increases |
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marginal cost (MC)
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cost of an additional unit
MC increases as Q increases |
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absolute advantage
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produce more in same amount of time OR produce same in less time
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comparative advantage
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produced at lower cost
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2 rules of advantage
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1) If one person has comparative advantage in one task, the other will have comp advantage in other task.
2) NO ONE can have comp advantage in everything. |
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production possibility frontier (PPF)
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graph of maximum output that can be produced
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characteristics of individual PPF
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1) negative slope
2) magnitude of the slope reflects the MC of "x" |
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characteristics of economy-wide PPF
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1) negative slope
2) maginitude of slope reflects MX of "x" 3) slope gets steeper as "x" increases |
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production efficiency
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produce combination of goods at lowest cost
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allocative efficiency
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resources are used where they are most highly valued
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shift in PPF
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anything that changes either the level of resources OR anything that changes the productivity of resources
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demand
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maximum quantity a consumer is willing and able to purchase at various prices
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law of demand
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as Q increases, D decreases and vice versa
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changes in demand
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1) changes in income
2) change in prices of "related goods" 3) changes in expectations 4) change in # buyers 5) changes in tastes or preferences |
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normal good
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good where D rises when income rises and D falls when income falls
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inferior good
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good where D rises when income falls and D falls when income rises (ex. Ramen noodles)
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substitutes in consumption
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goods that are used in place of one another (ex. Thin Mints and Oreos)
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compliments in consumption
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goods that are used together )ex. milk and cookies)
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supply
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maximum quantity a seller is willing and able to sell at various prices
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law of supply
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positive relationship between price and quantity supplied
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changes in supply
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1) change in input prices
2) change in prices of related goods 3) expectations 4) change in # of sellers 5) change in technology |
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substitutes in production
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goods that can be produced with same resources (ex. corn and soybeans)
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compliments in production
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goods that are produced together; biproducts (ex. beef and leather)
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surplus
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Q supplied > Q demanded
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shortage
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Q supplied < Q demanded
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equilibrium
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Q supplied = Q demanded
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elasticity
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responsiveness
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price elasticity of demand
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measure of the responsiveness of consumers to a change in price
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inelastic demand
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Ed < 1
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elastic demand
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Ed > 1
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"unit elastic"
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E = 1
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determinants of Ed
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1) availability of substitutes
2) proportion of income 3) time |
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total revenue
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price x Q demanded
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elasticity and revenue
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when D is elastic, revenue follows Q demanded.
when D is inelastic, revenue follows P. |
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cross-price elasticity
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cpe > 0 : substitutes in consumption
cpe < 0 : compliments in consumption |
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determinants of Es
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1) availability of substitutes inputs
2) time |
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consumer surplus
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MV-price
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producer surplus
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price-MC
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dead weight loss
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decrease in CS and PS as a result of inefficient level of production
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equity
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fairness
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symmetry principle
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people in similar situations should be treated similarly
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utilitarianism
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achieve the greatest happiness for the greatest number
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maximum principle
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make the poorest person as well off as possible
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excise tax
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per unit tax
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tax incidence
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division of the burden of a tax between buyer and seller
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quota
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upper limit on Q of a good that can be sold
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