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53 Cards in this Set
- Front
- Back
Incentives |
are rewards and penalties that motivate behavior. |
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Opportunity Costs |
If you make lawnmowers and bikes will get you a greater revenue then you will make bikes. |
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Inflation |
Is an increase in the general level of prices. |
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Absolute advantage |
is the ability to produce the same good using fewer inputs than another producer. |
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Production possibilities |
shows all the combinations of goods that a country can produce given its productivity and supply of inputs. |
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Comparative advantage |
in producing goods for which it has the lowest opportunity cost |
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A Demand curve |
is a function that shows the quantity demanded at different prices |
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The Quantity demanded |
in the quantity that buyers are willing and able to buy at a particular price. |
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Consumer surplus |
is the consumers gain from exchange, or the difference between the maximum price a consumer is willing to pay for a certain quantity and the market price. |
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Total consumer surplus |
is measured by the area beneath the demand curve and above the price. |
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A Normal good |
is a good for which demand increases when income increases. |
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An Inferior good |
is a good for which demand decreases when income increases. |
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Complements |
a decrease in the price of one good leads to an increase in the demand for the other good. |
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Substitutes |
a decrease in the price of one good leads to the decrease in demand for the other good. |
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Supply curve |
is a function that shows the quantity supplied at different prices. |
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Quantity supplied |
is the amount of a good that sellers are willing and able to sell at a particular price. |
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Producer surplus |
is the producers gain from exchange, or the difference between the market price and the minimum price at which a producer would be willing to sell a particular quantity. |
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Total producer surplus |
is measured by the are above the supply curve and below the price. |
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Surplus |
is a situation in which the quantity supplied is greater than the quantity demanded. |
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Shortage |
is a situation in which the quantity demanded is greater than the quantity supplied. |
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Equilibrium price |
is the price at which the quantity demanded is equal to the quantity supplied. |
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Equilibrium quantity |
is the quantity at which the quantity demanded is equal to the quantity supplied. |
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Elasticity of demand |
measures how responsive the quantity demanded is to a change in price; more responsive equals more elastic |
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Elasticity of demand |
measures how responsive the quantity demanded is to a change in price. |
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Elasticity of supply |
measures how responsive the quantity supplied is to change in price. |
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The great economic problem |
is to arrange our limited resources to satisfy as many of our wants as possible. |
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Speculation |
is the attempt to profit from future price change. |
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Futures |
are standarized contracts to buy or sell specified quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future. |
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A Prediction market |
is a speculation market designed so that prices can be interpreted as probabilities and used to make predictions. |
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Price ceiling |
is a maximum price allowed by law |
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Deadweight loss |
is the total of lost consumer and producer surplus when not all mutually profitable gains from trade are exploited; price ceilings create a deadweight loss |
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Rent control |
is a price ceiling on rental housing |
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Price floor |
is a minimum price allowed by law |
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Long run |
is the time after all exit or entry has occured |
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Short run |
is the period before exit or entry can occur |
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Total revenue |
TR=PxQ |
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Total cost |
is the cost of producing a given quantity of output |
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Explicit cost |
is a cost that requires a money outlay |
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Implicit cost |
is a cost that does not require an outlay of money |
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Economic profit |
is total revenue minus total costs including implicit costs |
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Accounting profit |
is total revenue minus explicit cost |
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Fixed cost |
Does not vary
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Variable cost |
Does vary |
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Zero profits |
P=AC, just covers everything. |
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Sunk cost |
is a cost that once incurred can never be recovered. |
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Increase cost industry |
is an industry in which industry costs increase with greater output. |
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Constant cost industry |
is an industry in which industry costs do not change with greater output. |
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Decreasing cost industry |
is an industry in which industry costs decrease with an increase in output. |
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Market power |
is the power to raise price above marginal cost without fear that other firms will enter the market. |
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Monopoly |
is a firm with market power. |
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Economics of scale |
are advantages of large scale production that reduce average cost as quantity increases. |
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A Natural monopoly |
is said to exist when a single firm can supply the entire market at a lower cost than two or more firms. |
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Barriers of entry |
are factors that increase the cost to new firms of entering an industry |