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alleyserafine15
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Assume the government imposes a price control on butter, i.e., the price control is below equilibrium price. The most likely outcome of this policy is
The butter market will exhibit excess demand.
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“As the price of personal computers continue to fall, demand increases.” This headline is inaccurate because
Falling prices of personal computers increase quantity supplied
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If the price of computers increase and the demand decrease, then
Computers and monitors are compliments
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Suppose one observes that when the price of peanut butter increases, the demand for jelly increase. One must conclude
Peanut butter and jelly are substitutes
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what is economics?
the study of how people make choices under conditions of scarcity and of the results of those choices for society.
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The Scarcity Principle
-boundless needs and wants, but the resources available are liimited.
-Also called the "No-Free Lunch Principle"
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Cost-Benefit Principles
individual should take actions IF the extra benefits from taking the actions are at least as great as extra cost
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Rational Person
someone with well-defined personal goals who tries to fulfill those goals as best as he or she can
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Economic surplus
the economic surplus from taking theat action minus its cost
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Opportunity cost
the value of what must be lost in order to do the activity
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sunk cost
cost that is beyond recovery at the moment a decision must be made
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Marginal COST
the increase in total cost that results from carrying out one additional unit of an activity
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Marginal BENEFIT
increase in total benefits from carrying out one additional unit of an activity
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Average cost
total cost of taking n units of an activity divided by n.
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Average benefit
total benefit of taking n units of an activity divided by n
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Normative Economic Priniciple
one that says how people should behave.
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Positive Economic Principle
one that predicts how people will behave.
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Microeconomics
study of individual choices under scarcity and its implications for the behavior of prices and the quantities in individual markets.
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Macroeconomics
study of the performace of national economics and the policies that governments use to try to improve the performances.
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dependent variable
variable in equation tha tis determined byt the value taken by another variable in same equation
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Independent variable
variable whose value determines the value taken by another
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constant
a quantity that is fixed in value
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Absolute advantage
one person has an absolute advantage over another is he/she takes fewer hours to perform task
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Comparitive advantage
one person has a comparative advantage over another if his/her opportunity cost of performing a task is lower than other person's opportunity cost
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Principle of comparative advantage
when 2 people have different opportunity costs for tasks, they can always increase total value of available goods & services by trading w/ one another
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Production possibilities curve
a graph that describes the maximum amount of one good that can be produced for every possible level of production of the other good
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attainable point
any combination of goods that can be produced using currently available resources
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outsourcing
a term increasingly used to connote having services performed by low-wage workers overseas
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Demand curve
a schedule or graph showing the quantity of a good that buyers wish to buy at each price
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Substitution effect
the change in quantity demanded that results bcs. buyers switch to/from substitutes when the price of good changes
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Income effect
change in the quantity demanded of a good because a change in the price of a good changes the buyer's purchasing power
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buyer's reservation price
largest dollar amount buyer would be willing to pay for a good
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Supply curve
graph or schedule showing the quantity of a good that sellers wish to sell at each price
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Seller's reservation price
smallest dollar amount for which a seller would be willing to sell an additional unit, generally equal to marginal cost
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equilibrium
when there is no tendency for it to change
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equilibrium price/quantity
values of price/quantity for which quantity supplied & demanded are equal
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market equilibrium
when all buyer's & seller's are satisfied with their respective quantities at market price
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excess supply
amount by which supplied exceeds demanded; when price exceeds equilibrium price
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excess demand
amount by which demanded exceeds supplied whin price is below equilibrium price
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price ceiling
max. allowable price specified by law
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change in quantity demanded
movement along demand curve that occurs in response to change in price
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change in demand/supply
shift of demand/supply curve
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complements
if increased price for one cause less demand for the other
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substitutes
if increase in price for one causes more demand for another
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normal good
demand curve shifts rightward(more) when income of buyer increases
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inferior good
one whose demand curve shifts leftward(less) when income of buyer increases
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buyer's surplus
difference between buyer's reservation price and what actually paid
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seller's surplus
difference of price recieved by seller and reservation price
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total surplus
difference between buyer's reservation price and seller's reservation price
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"cash on the table"
metaphor for unexploited gains from exchange
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efficiency
when all goods & services are produced & consumed at their respective socially optimal levels
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socially optimal quantity
results in max. possible economic surplus from producing & consuming the good
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