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21 Terms

1

Economics

The study of how people, businesses, and governments make choices to use limited resources to satisfy unlimited wants.

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2

Scarcity

The fact that there are not enough resources to satisfy everyone’s wants, so people must make choices.

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3

Opportunity Cost

The value of the next best alternative that you give up when making a choice.

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4

Trade-Off

The act of giving up one benefit to gain another benefit.

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5

Incentive

A reward or punishment that motivates a person to behave in a certain way.

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6

Rational Decision-Making

Making a choice when the benefits are greater than the costs.

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7

Production Possibilities Frontier

A graph that shows the best way to use limited resources to produce two different goods.

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8

Law of Demand

When prices increase, quantity demanded decreases and when prices decrease, quantity demanded increases, assuming all other factors remain the same.

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9

Demand Curve

A graph that slopes downward from left to right, showing the relationship between price and quantity demanded.

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10

Law of Supply

When prices increase, quantity supplied increases and when prices decrease, quantity supplied decreases, assuming all other factors remain the same.

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11

Market Equilibrium

The point where quantity demanded equals quantity supplied, meaning there are no shortages or surpluses.

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12

Shortage

When demand is greater than supply, causing prices to rise.

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13

Surplus

When supply is greater than demand, causing prices to fall.

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14

Price Elasticity of Demand

Measures how much quantity demanded changes when price changes.

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15

Elastic Demand

Quantity demanded changes a lot when price changes.

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16

Inelastic Demand

Quantity demanded changes only a little when price changes.

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17

Income Elasticity of Demand

Measures how demand changes when income changes.

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18

Cross-Price Elasticity of Demand

Measures how demand for one good changes when the price of another good changes.

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19

Price Ceiling

A maximum price set by the government, which can lead to shortages.

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20

Price Floor

A minimum price set by the government, which can lead to surpluses.

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21

Deadweight Loss

The lost economic benefits caused by market inefficiencies, such as taxes or price controls.

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