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31 Cards in this Set
- Front
- Back
Economics
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how a society allocates scarce resources among essentially unlimited needs and wants.
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Microeconomics
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Originally called price theory, is the branch of economics concerned with decision-making by firms and individuals (or households) and results of those decisions. Usually, the scope is not larger than one market although one market could be large.
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Macroeconomics
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Originally called income theory, is the branch of economics concerned with the performance of the economy as a whole, including variables such as unemployment, general price levels and gross domestic product.
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The main difference between macroeconomics and microeconomics is the
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scope of analysis
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Scarcity implies
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Tradeoffs
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Opportunity cost
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the value of the next best alternative (choice) given up when making a decision.
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The reason why Economists disagree
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1. Differences in value judgements
2. Differences in scientific judgements 3. we may be unable to percieve reality due to factor in 1 & 2 |
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positive economics
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deals with " what is" No value judgements are made.
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Normative Economics
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deals with " what should be". Value judgements are made.
Deciding what material to cover in a course requires value judgements |
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Why do economists use models
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Reality can be extremely complicated
Models : analyze what happened in the past and possibly predict what will happen in the future |
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Economic goods
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are scarce good for which the desire to own or use them exceeds their availability at a price of zero
Examples: cars, diamonds, food |
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Goods
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are things that satisfy needs or wants
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Three fundamental questions each economy must answer
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1. What to produce
2. For whom to produce 3. How to produce to satisfy some wants |
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Factors of production
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Land- water,soil, air, plants, animals
Labor-human work Capital- physical ( machinery etc.) and human ( knowledge, training etc.) |
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Law of increasing relative cost
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Opportunity Cost of other goods forgone increases as an economu produces more of a good.
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efficeiency
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getting max. production out of the resources we have or producing an amount of output at minimal cost
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absolute advantage
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when one country can produce more of all types of goods than another country
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comparative advantage
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occurs when one country can produce a good at a lower opportunity cost than another country can produce
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Law of Increasing relative cost
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Opportunity cost of other goods forgone increases as an economy produces more of a good.
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Demand
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Shows quantity that one or more people want to buy at various prices holding everything else constant
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Law of demand
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as price per unit rises, quantity demanded falls if all else is constant
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2 reasons why demand curve is doward sloping
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1. Affordability- Consumers can afford less at higher prices
2. Substitutability- consumers seek less expensive alternatives as the price of a good goes up. |
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Law of supply
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as price per unit rises, quantity supplies increases all other things equal
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2 reasons why the supply curve is upward sloping
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1. Higher prices create incentives for greater production which could result in higher profits
2. Producing larger quantities often creats a higher per unit cost of production. As production cost rises firms must charge more to earn profit or break even. |
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equilibrium
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a point where no one in the market has an incentive to change his or her plans
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normal goods
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automobiles, vaction trips, homes- as income increases people tend to spend more on these goods ( vise versa )
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inferior goods
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instant mac & cheese, ramen noodles
As income increase in many cases consumers may tendd to cut back on these goods |
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complementary goods
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If the price of peanut butter rises (falls), people buy less (more) jelly
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Substitutes
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If the price of cod rises (falls) people buy more (less) flounder
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Factors affecting demand
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1. Income
2. Tastes and Preferences 3.Prices of related goods 4.Number or Buyers 5.Expectations of future prices |
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Factors affecting supply
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1. Number of firms
2.Input Costs 3. Technology and Productivity 4. Taxes and Subsidies 5.Price expectations |