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66 Cards in this Set
- Front
- Back
Comparative Advantage |
Refers to the situation in which an individual, business, or country can produce at a lower opportunity cost than a competitor can |
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Economics
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Is the study of how people allocate their limited resources to satisfy their nearly unlimited wants |
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Economic Thinking |
Involves a purposeful evaluation of the available opportunities to make the best decision possible, systematically evaluating a course of action |
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Incentives |
Factors that motivate you to act or to exert effort |
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Macroeconomics |
Is the study of the overall aspects and workings of an economy, such as inflation, growth, employment, interest rates, and the productivity of the economy as a whole |
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Markets |
Bring buyers and sellers together to exchange goods and services
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Marginal Thinking |
Requires decision-makers to evaluate whether the benefit of one more unit of something is greater than its cost. |
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Microeconomics |
Is the study of the individual units that make up the economy |
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Opportunity Cost |
Is the highest valued alternative that must be sacrificed in order to get something else |
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Scarcity |
The term used to describe the limited nature of society's resources is scarcity |
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Trade |
Is the voluntary exchange of goods and services between two or more parties |
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What are the 5 foundations of Economics? |
Incentives, Trade-offs, Opportunity Cost, Marginal Thinking, and Trade |
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Positive Incentive |
Are those that encourage action. For example, end of the year bonuses motivate employees to work hard through out the year, higher oil prices cause suppliers to extract more oil, and tax rebates encourage citizens to spend more money. |
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Negative Incentive |
Also encourage action. For instance, the fear of receiving a speeding ticket keeps motorists from driving too fast, and the dread of a trip of the dentist motivates people to brush their teeth regularly. |
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Direct Incentive |
For instance, in one gas station lowers its prices, it most likely will get business from customers who would not usually stop there. |
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Indirect Incentive |
Lower gasoline prices also work as an indirect incentive, since lower prices might encourage consumers to use more gas |
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Trade-offs |
Doing one thing often means that you will not have the time, resources, or energy to do something else. |
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Absolute Advantage |
We say that Debra, has an absolute advantage, meaning that she has the ability to produce more with the same quantity of resources than mike can produce. |
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Capital Goods |
Help in the production of other valuable goods and services in the future. Examples are, roads, trucks, factories, and computers |
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Ceteris Paribus |
The process of examining a change in one variable while holding everything else constant |
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Consumer Goods |
Any good that is produced for present consumption, such as, food, entertainment, and clothing |
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Endogenous Factors |
Factors that we know about and can control. For example, the wind tunnel enabled the Wright Brothers to see how well each wing design performed |
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Exogenous Factors |
Factors beyond our control-outside the model. |
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Investment |
Is the process of using resources to create or buy new capital. |
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Law of Increasing Relative Cost |
Which states that the opportunity cost of producing a good rises as a society produces more of it. Changes in relative cost mean that a society faces a significant trade-off of it tries to produce an extremely large amount of a single good. |
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Normative Statement |
Cannot be tested or validated, For instance, the statement, " an unemployed worker should receive financial assistance to help make ends meet" is a matter of opinion. |
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Positive Statement |
Can be tested and validate, "The unemployment rate is 7%" is a positive statement because it can be tested by gathering data. |
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Production Possibilities Frontier |
Is a model that illustrates the combinations of outputs that a society can produce if all of its resources are being used efficiently. |
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What makes a good economic model? |
A good model should be simple to understand, flexible in design, and able to make powerful predictions |
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Competitive Market |
Is one in which there are so many buyers and sellers that each has only a small impact on the market price and output. In fact, the impact is so small it is negligible |
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Complements |
Are two goods that are used together |
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Demand Curve |
Is a graph of the relationship between the prices in the demand schedule and the quantity demanded at those prices |
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Demand Schedule |
A table that shows the relationship between the price of the good and the quantity demand |
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Equilibrium |
Where the demand curve and the supply curve intersect. At this point, the two opposing forces of supply and demand are perfectly balanced. |
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Equilibrium Price |
The equilibrium price is also called the market-clearing price, since this is the only price at which no surplus or shortage of the good exists. |
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Equilibrium Quantity |
Is the quantity amount at the equilibrium point |
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Imperfect Market |
Is one in which either the buyer or the seller has an influence on the market price. Example, paying to see the view from the Empire State Building. |
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Inferior Good |
Is purchased out of necessity rather than choice. Examples include, used cars compared to new ones, hamburger to filet mignon. |
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Inputs |
Are resources used in the production process. Such as, workers, equipment, raw materials etc. |
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Law of Demand |
States that, all other things being equal, the quantity demand falls when the price rises, and the quantity demand rises when the price falls |
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Law of Supply |
States that, all other things being equal, the quantity supplied increases when the price rises, and the quantity supplied falls when the price falls. |
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Law of Supply and Demand |
Market prices adjust to bring the quantity supplied and the quantity demanded into balance |
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Market Demand |
Is the sum of all the individual quantities demanded by each buyer in a market at each price |
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Market Economy |
Resources are allocated among households and firms with little or no government interference |
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Market Supply |
Is the sum of the quantities supplied by each seller in the market at each price |
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Monopoly |
Exists when a single company supplies the entire market for a particular good or service. |
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Normal Good |
A consumer will buy more of a normal good as their income increases. An example is, meal at a restaurant. |
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Quantity Demand |
The amount of a good or service purchased at the current price. |
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Quantity Supplied |
Is the amount of a good or service that producers are willing and able to sell at the current price. |
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Shortage |
Occurs whenever the quantity supplied is less than the quantity demanded |
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Substitutes |
Are two goods that are used in place of each other. An examples is, Xbox and the Wii |
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Supply Curve |
Is a a graph of the relationship between the prices in the supply schedule and the quantity supplied at those prices |
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Supply Schedule |
Is a table that shows the relationship between the price of a good and the quantity supplied. |
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Surplus |
Or excess supply, occurs whenever the quantity supplied is greater than the quantity demanded. |
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What can create shifts in the demand curve? |
Changes in income, price of related goods, change in taste and preferences, expectations regarding the future price, and number of buyers |
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What shifts a supply curve? |
The cost of inputs, changes in technology or the production process, taxes and subsidies, number of firms in the industry, and price expectations. |
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Cross-Price elasticity of Demand |
(Ec) Measures the responsiveness of the quantity demanded of one good to a change in the price of a related good.
Has Formula |
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Elasticity |
The responsiveness of buyers and sellers to changes in price or income |
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Immediate Run |
No time for consumers to adjust their behavior. An example is, when the gas tank is empty, you have to stop at the nearest gas station and pay the posted price |
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Income elasticity of demand |
Measures how a change in income affects spending.
Has Formula |
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Long run |
Is a period of time when consumers have time to fully adjust to market conditions |
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Price elasticity of demand |
Measures the responsiveness of quantity demanded to a change in price. |
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Price elasticity of supply |
Is a measure of the responsiveness of the quantity supplied to a change in price |
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Short run |
Is a period of time when consumers can partially adjust their behavior (and, in this case, can search for a good deal on gas.) |
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Total Revenue |
Is the amount that consumers pay and sellers receive for a good. |
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Determinants of the Price Elasticity of Demand |
The existence of substitutes, the share of the budget spent on the good, necessities versus luxury goods, and time and the adjustment process |