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35 Cards in this Set
- Front
- Back
Economics
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The study of the choices people, businesses, governments, and societies make as they cope with scarcity and incentives.
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Scarcity
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the inability to satisfy all of our wants
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Incentives
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Rewards or punishments that guide our actions
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microeconomics
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small scale economics at the level of individuals; the way choices interact in markets.
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macroeconomics
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performance of the national and global economy
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tradeoffs
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to get one thing, you have to give up another
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opportunity cost
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the highest valued alternative that you give up in making a decision
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production
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process by which inputs become outputs
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inputs
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land, labor, and capital
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human capital
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education, training (increase humans' contributions)
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production possibility frontier
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boundary between different combinations of goods and services that can be produced
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ceteris paribus
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everything else is held constant
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production efficiency
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one cannot produce more of one good without producing less of another
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production efficiency achieved (with regard to PPF)
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all points on PPF
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bowed out shape
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increasing opportunity cost due to specialization of some inputs
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Marginal benefit
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willingness to pay
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allocative efficiency
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Marginal benefit = marginal cost; can't produce more of one good without giving up more of some other good that's valued more highly.
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Economic growth
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PPF shifts out, capability to produce more goods
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perfect competition
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many buyers and sellers, so no single buyer or seller can influence a good's price
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demand
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one wants, can afford, and plans to buy a good
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law of demand
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the higher the price of a good, the smaller is the quantity demanded
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substitution effect
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As price increases, so does a good's price relative to other goods. Thus, substitutes are purchased instead.
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Income effect
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As price increases, so does a good's price relative to one's income. People are not willing to spend a large portion of their income, so demand decreases.
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prices of substitutes in consumption
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P(sub) increases -> Quantity of good demanded increases
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prices of complements in consumption
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P(comp) increases -> quantity of good demanded decreases
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Normal good
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As income increases, demand increases (income elasticity of demand is positive)
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Inferior good
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As income increases, demand decreases (income elasticity of demand is negative)
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Expectation of Future Income
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If income will increase, demand increases today
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Population's effect
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An increase in population increases demand.
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Preferences
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the value someone places on a good or service
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Supply
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Planning and able to produce a product
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Law of Supply
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Ceteris paribus, as price increases, quantity supplied increases.
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Price of Inputs
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Input price increases, supply decreases
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Substitute in production
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produced using same inputs. As P(sub) increases, supply of good decreases
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Complement in production
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produced together. As P(comp) increases, supply of good increases.
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