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25 Cards in this Set
- Front
- Back
opportunity cost
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value of the best alternative forgone when an item or activity is chose.
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sunk cost
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cost tht has already been incurred. can't be recovered and is irrelevant for present and future economic decisions
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law of comparitive advantage
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individual, firm, region, or country with the lowest opportunity cost of producing a particular good shld specialize in tht good.
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absolute advantage
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ability to make something using fewer resources than other producers use.
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comparative advantage
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ability to make something at a lower opportunity cost than other producers face. better guide as to who shld do what
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divison of labor
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breaking down the production of a good into separate tasks.
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specialization of labor
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focusing work effort on a particular product or a single task.
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production possibilities frontier (PPF)
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curve shwing alternative combos of goods tht can be produced when available resources are used efficiently.
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efficiency
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no change tht cld increase the production of 1 good without decreasing production of othr good.
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law of increasing opportunity cost
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to produce more of one good, a successively larger amount of the other good must be sacrificed
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economic growth
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can shift PPF. an inc in economy's ability to produce goods and services. reflected by an outward shift of economy's PPF
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PPF shifts outwardly when...
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people work longer hours, an inc. in size or health of labor force, inc. in skills of labor force, inc. in availability of other resources, chng in technology
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rules of the game
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formal and informal institutions tht support the economy. laws, customs, manners, conventions and others tht encourage ppl to pursue productive activity
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why does PPF slope downward?
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b/c more of one good means les of another, demonstrating opportunity cost.
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what does PPF's bowed out shape show?
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reflects law of increasing opportunity cost, happens b/c some resources are adaptable
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what does the outward shift off PPF show?
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economic growth
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3 questions every econ system must answer
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1. What goods and services are to be produced?
2. How are they to be produced? 3. Whom are the to be produced? |
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economic system
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set of mechanisms and institutions tht resolve the what, how and for whom questions
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Criteria to distinguish among economic system
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1. who owns the resources
2. what decision-making process is used to allocate resources and products 3. what types of incentives guide economic decision makers. |
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Pure Capitalism (market system)
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private ownership of resources and use of price to coordinate economic activity in unregulated markets
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private property rights
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an owner's right to rent, sale, or use of property
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Pure Command System (Communism)
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public ownership of resources and centralized planning
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flaws of pure capatilism
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1. no central authority to protect 2. ppl w/ no resources cld starve
3. producers become monopolies 4. side effects cld occur to ppl not involved in market transaction. 5. private firms hv no incentive to produce public goods |
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flaws of pure command system
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1. resources used inefficiently 2. resources wasted. 3. central plans reflect more preferences of central planners than those of society. 4. variety of products are more limited than capatilist econ. 5. everyone has less personal freedom in making econ. choices.
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mixed economy
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econ system characterized by private ownership of some resources and public ownership of other resources. some markets regulated by gov.
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