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37 Cards in this Set
- Front
- Back
The outputs (goods/services) that a firm can produce is/are limited by the firm's inputs (factors of production).
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Production Possibility Frontier
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Factors of production are the firm's resources: K, N, L, M
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K - Capital
N - Labor L - Land M - Material |
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A function that shows the maximum production capacity of a firm, given the firm is using all its inputs efficiently.
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PPF
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A table that lists all of the firms possible production.
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Production schedule
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The highest cost incurred by the agent in order to engage in a certain activity.
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Opportunity Costs (OC)
- Trade Off |
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The additional benefit/cost to a decision.
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Marginal analysis
- Marginal benefit = Marginal cost |
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The idea that the more resources added to an activity, the smaller the payoff from the activity.
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Increasing Marginal OC
- Also known as the diminishing return |
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The ability of an agent (firm, gover) to produce an output of a lower OC than its competitor.
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Comparative Advantage
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The act of buying or selling
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Trade
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The ability of an agent to simply produce more regardless of OC
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Absolute Advantage
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What are the three assumptions made when dealing with supply and demand?
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1. Products are homogeneous.
2. Free and competitive markets. - Large number of firms - Large number of consumers 3. No monopolies. |
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Says that there is an inverse (negative) relationship between the price of a good and the quantity demanded.
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Law of Demand
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Is a table that shows all the possible combinations of price and quantity demanded for a given production.
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Demand Schedule
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Function that graphically describes the demand schedule.
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Demand Function
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*Understand This Concept*
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Demand- refers to the demand schedule.
Quantity demand- refers to combination of P and Q. |
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What are the four types of goods?
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1. Normal goods
2. Inferior goods 3. Substitute goods 4. Complement goods |
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A good with a positive relationship between consumer income and demand. Most goods in the market are this.
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Normal goods
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A good with a negative relationship between consumer income and demand.
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Inferior goods
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Goods that could be used to replace each other. The consumers buy one good, demand for the other good increases.
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Substitute goods
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As the demand for the good goes up, so does the demand for the complement good.
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Complement goods
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*Understand This Concept*
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The 5 common factors that shift the demand curve.
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There is a positive relationship between the price (p) and the quantity (q) supplied
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Law of supply
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A table that shows all the possible combinations of price and quantity supplied for a product.
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Supply schedule
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All possible combinations of Q and P (the supply schedule or supply function) supplied by firm.
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Supply
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The amount of a product that firms are willing to sell at a given price.
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Quantity supplied
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*Understand This Concept*
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The five common factors that shift a supply curve.
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The name of the idea that the purpose of a market is to bring buyers (demand) and sellers (supply) together.
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Market Equilibrium
- Supply = Demand -> Market equilibrium |
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Consumers desire to buy more goods, at a given price, than what suppliers are willing to supply.
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Excess Demand (Shortage of Goods)
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Suppliers desire to supply more of the good, at a given price, than what consumers are willing to buy.
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Excess Supply (Surplus of Goods)
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Dollar benefit consumers derive from consuming goods/services.
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Consumer Surplus (CS)
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Dollar benefit producers (profit) derive from supplying goods/services.
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Producer supply (PS)
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Total dollar benefits derived by the entire economy from producing and supplying goods/services as economic surplus
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Economic Surplus (ES)
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Taxes are used in order to finance government. What are three types of government taxes?
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1. Federal taxes
2. State taxes 3. Country/city taxes |
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Tax where dollar is taxed per unit sold/bought in the market
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Per unit tax
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Percent of price of the unit in the market.
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Ad valuem tax
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Whenever government taxes, the create DWL in competitive markets. What is DWL?
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DWL = Dead Weight Loss
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Measures who bears the burden of the tax.
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Tax incidence
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