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33 Cards in this Set
- Front
- Back
Economics
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The study of how people make choices in the face of scarcity
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Scarcity
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The shortage that exists when less of something is available than is demanded at a price of zero
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Wants
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What people would buy if their resources were unlimited
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Economic Good
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Any item that is scarce
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Free Good
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A good which is not scarce (S > D when Price = 0)
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Economic Bad
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Any item which we would pay to have less of
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Incentives
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Rewards for engaging in an activity.
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The factors of production
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Land, labor, capital, human capital and entrepreneurship
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Land
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All natural resources such as timber, minerals, soil and even natural beauty itself
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Labor
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The physical service of people--muscle power
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Capital
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Tools that are used in production of other goods---these are things we invest in which we do not directly consume
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Human Capital
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The mental services of people--education, training, skills
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Entrepreneurship
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Organizational and risk taking abililities
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Rationality Assumption
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The assumption in economics that people will choose options that make them better off
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Positive Economics
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Descriptions of what is
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Normative Economics
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Statements about what ought to be (value judgement)
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Microeconomics
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The study of econ at the level of the individual or the firm
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Macroeconomics
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The study of the economy as a whole
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Ceteris Paribus Assumption
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The assumption that nothing changes expect the factor being studied.
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Economic Model
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A formal presentation of economic theory
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Induction
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Constructing a genreal theory on the basis of observation
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Deduction
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Constructing a general theory on the basis of assumptions and logic
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Opportunity Cost
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The highest value alternative that must be forgone when a choice is made
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Tradeoff
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Giving up one good in order to get another
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PPC
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Production Possibility Curve--a graphic representation showing the maximum quantity of goods and services that can be produced using limited resouces to the fullest extent
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Marginal Opportunity Costs
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The ammount of one good or service that must be given up to obtain one additional unit o fanother good or service
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The Law of Increasing Costs
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That fact that opportunity cost of additional units of a good generally increases as production of more units in attempted. This why the PPC is bowed out.
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Efficiency
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When an imput produces the maximum possible output. Or, the situation in which a given output is produced at minimun cost.
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Marginal Cost
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Cost of one more unit
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Marginal Benefit
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Additional benefit of one more unit.
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Inefficient Point
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Not producing to maxmimum potential. (Any point below the PPC.)
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Absolute Advantage
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Being able to produce more of a good (or at a lower cost) than someone else.
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Comparative Advantage
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The ability to produce a good or service at a lower opportunity cost (relative cost) than someone else.
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