Econ

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53 Terms

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Opportunity Costs Principle
The true cost of something is the next best alternative you must give up to get it
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Scarcity
Occurs because of limited resources
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Sunk Costs
a cost that has been incurred and cannot be reversed
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Marginal Benefit
the extra benefit from one unit
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Marginal Costs
the extra cost from one unit
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Rational rule
If something is worth doing, keep doing it until your marginal benefits equals your marginal costs
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market
any place where traders, producers and consumers, come together for exchange
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supply and demand model
economic model/framework used to assist our analysis of particular markets
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competeitive market
one where there are many buyers and sellers of the same good or service
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market equillibrium
the conditions of price and quantity where the market is "balanced"
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comparitive statics
how the market equilibrium adjusts when demand/supply change
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demand schedule
a table that shows how much of a good/service consumers want to buy at different prices
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demand curve
graphical representation of the demand schedule
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quantity demanded
the amount that consumers wish to buy at a specific price
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law of demand
a higher price reduces the quantity demanded; a lower price increases the quantity demanded, ceteris paribus
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individual demand curve
a graph plotting the quantity of an item that someone plans to buy at each price
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Rational Rule for buyers
Buy more of an item if its marginal benefit is greater than or equal to the price, keep buying until: price\=marginal benefit
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market demand curve
a graph plotting the total quantity of an item demanded, by the entire market, at each price
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Demand curve
Always downward sloping
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Normal Good
A good for which higher income causes an increase in demand
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Inferior Good
A good for which higher income causes a decrease in demand
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Individual Supply Curve
a graph plotting the quantity of an item that a business plans to sell at each price
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PPF (Production Possibilities Frontier)
illustrates the trade-offs you experience when deciding how to allocate scarce resources
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Network Effect
the effect that occurs when a good becomes more useful when other people use it
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Congestion Effect
Good becomes less valuable when other people use it
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Supply Curve
Always upward sloping
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Law of supply
the tendency for the quantity supplied to be higher when the price is higher
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Variable Costs
costs that vary with quantity of output (included in marginal cost)
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Fixed Costs
Costs that don't vary when the quantity of output changes
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Diminishing marginal product
The marginal product of an input as you use more of that input
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Market Supply curve
graph plotting the total quantity of an item supplied by the entire market at each price
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Productivity growth
growth that occurs when businesses figure out how to produce more output with fewer inputs
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Price Elasticity of Demand
a measure of how responsive buyers are to price changes
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cross-price elasticity of demand
measures how sensitive quantity demanded is to price changes of other goods
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Income Elasticity of Demand
measures how sensitive quantity demanded is to changes in income
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Price Elasticity of supply
measures how responsive sellers are to price changes
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Statutory Burden
the burden of being assigned by the government the responsibility of sending a tax payment
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Economic Burden
the burden created by the change in after-tax prices faced by buyers and sellers
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tax incidence
the division of the economic burden of a tax between buyers and sellers
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Subsidy
a payment made by the government to those who make a specific choices
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Interdependence Principle
Your best choice depends on the other choices you make, the choices others make, developments in other markets, and expectations about the future
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Framing
how different alternatives are described
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Framing Effects
can lead you astray and can make identical choices seem different
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Economic Surplus
the total benefits minus the total costs flowing from a decision
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Cost-Benefit Principle
a guide to decision-making which states that an individual should undertake an activity only if the additional benefit of doing so is greater than or equal to the additional cost of doing so.
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Marginal Principle
Decisions about quantities are best made incrementally. You should break "how many" questions into a series of smaller decisions, weighing marginal benefits and marginal costs.
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Price Ceiling
A maximum price that sellers can charge
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Price Floor
A minimum price that sellers can charge.
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Binding Price Ceiling
A price ceiling that prevents the market from reaching the market equilibrium price.
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Binding Price Floor
A price floor that prevents the market from reaching the equilibrium price
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Quantity regulation
A minimum or maximum quantity that can be sold
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Mandate
A requirement to buy or sell a minimum amount of a good
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Quota
A limit on the maximum quantity of a good that can be sold.