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23 Cards in this Set
- Front
- Back
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The study of how people allocate and use their limited resources in attempt to satisfy their unlimited wants
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study of how households & firms make decisions, interact & respond to government policies.
How well individual markets act as efficient allocators of scarce resources |
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Macroeconomics:
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study of economy-wide phenomena and how the economy functions as a whole
How the collection of decisions made by individuals, firms and the government affect aggregate economic performance |
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True or false:Scarcity= shortages
Scarcity= poverty |
False
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Factors of production
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Land (“gifts of nature”): any naturally-occurring resource
Labor: skilled and unskilled Capital: physical and human Entrepreneurial talent: inherent or acquired |
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Consumption goods & services
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Goods that contribute to a person’s standard of living
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Capital goods (investment goods)
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Goods that are used to produce other goods & services
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Government goods & services
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Goods & services purchased by any level of government
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Export goods & services
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Goods & services produced domestically and sold abroad
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The highest-valued, next-best (perceived) alternative that must be given up to satisfy a want
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production possibilities curve (PPC)
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Shows the maximum quantities of combinations of goods an economy can produce given available resources and technology
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Attainable combinations
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are located on or within the frontier
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Unattainable combinations
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are located outside of the frontier
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Economy suffers from:
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Insufficient resources
Inadequate technologies |
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production efficient
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Combinations of output within the curve are
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production inefficient
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Opportunity Cost
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Moving along the PPC toward one axis results in
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increasing opportunity cost
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Why are there increasing opportunity costs?
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Not all resources are created equal!
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Three determinants of optimal production
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Production possibilities, given resources & technology
Preferences Comparative advantage |
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The ability to produce the same quantity of a good/service using fewer resources (inputs)
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The ability to produce a good/service at a lower opportunity cost compared to other producers
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Law of comparative advantage
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If two producers specialize in producing the good/service in which they have a comparative advantage, both parties can gain from trade
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