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28 Cards in this Set
- Front
- Back
PPF
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Production Possibilities Frontier: a curve that graphs all the possible combinations of two given goods that an economy can produce
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Law of Increasing Opportunity Costs
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As production of a good increases, the opportunity costs of producing an additional unity rises
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Economic Growth
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An outward shift of the PPF
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Tarrif
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a tax on an import good
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Import Quota
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A limit on the quantity of a good that can be produced abroad and sold domestically
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Terms of Trade
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Quantity of imports that can be sold for a fixed quantity of exports
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Elasticity
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A measure of relative responsiveness of one variable in a change in another
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Price Elasticity of Demand
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The ratio in the percent change in the quantity demanded to the percent change in price
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Elastic
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A product that responds to price change, the more elastic the more responsive the product is (exp. fast food, cereal, ect.)
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Perfect Elastic
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A tiny change in Price causes an infinite change in Quantity Demanded (exp. agricultural markets)
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Unity Elasticity
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Change in Price is equal to the change in Quantity Demanded (if 10% change in Qd, 10% change in P)
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Inelastic
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Price change really doesn't have an effect on Quantity demanded (exp. gas, cigarettes)
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Perfectly Inelastic
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A huge change in price causes no change in Quantity demanded (exp. prescription and black market drugs)
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Constant v Increasing Opportunity Cost
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A constant opportunity cost maintains a steady opportunity cost as production increases, increasing opportunity costs rises as production increases.
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Causes of Economic Growth
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1. Increase in available resources
2. A technological improvement 3. A change in regulation |
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Absolute/comparative Advantage
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If you have the absolute advantage you have the ability to produce more in a given time frame then your competitor.
If you have the comparative advantage you can produce more at a lower marginal opportunity cost. |
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Tarrif v Quota
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Both tarrifs and quotas are meant to control the amount of imports. Tarrifs do so by price manipulation, quotas limit the quantity of a product allowed to be imported.
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Elastic v Inelastic
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Quantity demanded of elastic products responds to price changes, Qd of inelastic products does not change with price.
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Elasticity and Total Revenue
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If a product is elastic, price and total revenue move opposite.
If a product is inelastic, price and total revenue move together If a product has unity elasticity, price has no effect on total revenue. |
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Determinants of Price Elasticity of Demand
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1. Number of substitutes (more substitutes=more elastic)
2. Time to which to make the purchase (more time to buy= more elastic) 3. Proportion of Income (More money spent = more elastic) 4. Luxuries v Necessities (necessities are inelastic, luxuries are elastic) |
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Elasticity on a Curve
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Midpoint is where Elasticity = 1, above midpoint is elastic, below midpoint is inelastic
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Income Elasticity of Demand
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=%^Qd / %^Income
Normal goods have a positive elasticity Inferior goods have a negative elasticity |
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Cross Elasticity of Demand
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=%^QdX /%^QdY
Substitutes have a positive elasticity Complements have a negative elasticity |
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Opportunity Cost Formula
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Opportunity cost of the Nth Unity of X = Quantity of Y at (N-1) - Quantity of Y at N
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Price Elasticity of Demand Formula
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Ed= %^Qd / %^P
--or-- Ed= (^Qd/AverageQd) / (^P/AverageP) |
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%^Qd Formula
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^Qd / original Qd
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%^P Formula
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^P / original P
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Total Revenue
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TR= PxQ
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