microeconomics ch 1-4

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economic model

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19 Terms

1

economic model

A simplified version of reality used to analyze real-world economic situations.

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2

macroeconomics

The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.

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3

microeconomics

The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices

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4

marginal analysis

Analysis that involves comparing marginal benefits and marginal costs

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5

opportunity cost

The highest valued alternative that must be given up to engage in an activity

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6

scarcity

A situation in which unlimited wants exceed the limited resources available to fulfill those wants.

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7

trade off

The idea that because of scarcity, producing more of one good or service means producing less of another good or service.

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8

circular flow model

A model that illustrates how participants in markets are linked.

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9

comparative advantage

The ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors.

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10

production possibilities frontier

A curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology

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11

Market

A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.

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12

Product Market

A market for goods—such as computers—or services—such as medical treatment.

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13

Factor Market

A market for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability.

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14

Factors of Production

The inputs used to make goods and services.

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15

supply

The rule that, holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied.

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16

demand

The rule that, holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease

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17

Market Equilibrium

A situation in which quantity demanded equals quantity supplied.

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18

Competitive Market Equilibrium

A market equilibrium with many buyers and many sellers.

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19

Surplus

A situation in which the quantity supplied is greater than the quantity demanded.

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