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59 Cards in this Set
- Front
- Back
What is economics?
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- Social science (deals with people and the institutions they create)
- Deals with how people make decisions to allocate resources to achieve their goals |
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Scarcity
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-Resources are finite
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Economic Goods
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- Goods that are limited in supply
- Considered scarce |
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Economic Efficiency
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- Economy is producing efficiently when it cannot increase the economic welfare of anyone without making at least one person worse off
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Equity
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- The distribution of wealth within a society
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Microeconomics
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- The branch of economics that deals with the behavior of individual entities, such as consumers, firms, households, or markets
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Major focus of Microeconomics
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- Price determination
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Macroeconomics
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- Concerned with the overall performance of the economy (inflation, unemployment, growth)
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Post Hoc fallacy
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- Occurs when people assume that because one event follows another, the first event caused the second
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Fallacy of Composition
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- Occurs when we assume that what holds true for part of a system also holds true for the whole
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Positive Economics
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- Deals with questions that can be analyzed objectively
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Normative Economics
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- Involves ethical precepts and norms of fairness
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Command Economy
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- Government makes all important decisions about production and distribution
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Market Economy
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- Individuals and prive firms make the major decisions
- Extree case is laissez-faire |
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Mixed Economy
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- Mix between command and market
- All modern economies |
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Production Possibilites Frontier
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- Shows the possible combinations of two or more goods that an economy could produce with its resources
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Opportunity Cost
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- Value of items not produced because resources were used for another purpose
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Market
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- A mechanism by which buyers and sellers interact to determine the price and quantity of a good or service
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Market Economy
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- An elaborate mechanism for coordinating people, activities, and businesses through a system of prices and markets.
- No single individual or organization is responsible for production, consumption, and distribution |
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Market Equilibrium
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- A market is in equilibrium when the commodity is neither in glut nor shortage at the prevailing price
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The Invisible Hand
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- The orderliness of the maket system
- Coined by Adam Smith |
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Specialization
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- Occurs when people or countries can concentrate on the items that can be produced most efficiently
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Division of labor
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- Allows individuals to perform the tasks they do best
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Primary Factors of Production
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- Land and labor
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Three Main Economic Functions of Government
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- Increasing efficency by promoting competition, curbing externalities, and providing public goods
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Public Goods
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- Commodities that can benefit may people without being used up
- Public schools, parks, highways, national defense |
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Progressive Taxation
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- Higher tax rates ofr higher incomes
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Monetary Policy
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- Interest rate and money supply
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Fiscal Policy
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- Taxes and government spending
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Demand Schedule
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- Shows the relationship between a commodity's market price and the quantity of that commodity that consumers are willing to purchase, other things held constant
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Factors affecting Demand
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- Size of market, income level of consumers, price and availability of related goods, tastes and preferences, special influences
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Supply Schedule
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- Shows the relationship between the market price and the amount of that commodity that producers are willing and able to produce and sell, other things held constant
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Supply Shifters
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- Changes in costs of inputs, technological change, government policy, special factors
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Supply Increases
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- Price Down
- Quantity Up |
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Supply Decreases
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- Price Up
- Quantity Down |
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Demand Increases
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- Price Up
- Quantity Up - TR Up |
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Demand Decreases
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- Price Down
- Quantity Down - TR Down |
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Price Elasticity of Demand
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- Measures how much the quantity demanded of a good changes when its own price changes
- Percent change in quantity demanded divided by the percentage change in price |
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Demand is Price Elastic
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- Ed is greater than 1.0
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Demand is Price Inelastic
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- Ed is less than 1.0
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Perfectly Elastic Demand
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- Horizontal demand curve
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Perfectly Inelastic Demand
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- Verticla demand curve
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TR and Elasticity
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- If demand is Elastic, TR will move in the same direction as quantity
- If demand is inelastic, TR will move in the same direction as price |
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Elasticity of Supply
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- Supply is inelastic if it crosses the horizontal axis
- Supply is elastic if it crosses the vertical axis - Supply is unitary elastic if it goes through the origin |
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Taxes and Normal Supply and Demand
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- Supply shifts up by the amount of the tax
- Price ries by less than the tax - The group with the lowest elasticity pays the greater share of the tax |
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Taxes and Pefectly Inelastic Demand
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- Price rises by full amount of tax. Consumers pay all
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Taxes and Perfecty Elastic Demand
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- Price doesn't rice at all. Producers pay all
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Taxes and Perfectly Elastic Supply
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- Price rises by full amount of tax. Consumers pay all
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Taxes and Perfectly Inelastic Supply
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- Price doesn't change at all. Producers pay all.
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Price Floor
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- Legally set minimum price. Price floors above market equilibrium lead to surpluses
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Price Ceilings
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- Legally set maximum price. Price ceilings below market equilibrium lead to shortages
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Utility
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- The satisfaction consumers derive from goods and services
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Indifference Curve
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- Shows the combinations of two ore more products that would provide equal satisfaction to a consumer
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Point of Tangency
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- The consumer's choice is the point where the budget constraint is just tangent to the highest attainable indifference curve
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Consumer Surplus
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- The area above the price line and below the demand curve
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Production Function
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- Relates inputs to output in physical terms
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Total Product
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- Output
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Average Product
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- Divid total product by the input level
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Marginal Product
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- Tells you how much extra output you get form each unit of extra unit of input
- Take the change in total product and divide by the change in input |