Economics Chapter 1 Vocabulary Test Questions – Flashcards
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need
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something essential for survival
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want
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something that people desire but that is not necessary for survival
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goods
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the physical objects that someone produces
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services
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the actions or activities that one person performs for another
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scarcity
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the principle that limited amounts of goods and services are available to meet unlimited wants
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economics
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the study of how to satisfy their needs and wants by making choices
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shortage
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a situation in which consumers want more of a good or service than producers are willing to make at a particular price
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entrepreneur
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a person who decides how to combine resources to create goods and services
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factors of production
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the resources that are used to make goods and services
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land
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all natural resources used to produce goods and services
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labor
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the effort people devote to tasks for which they are paid
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capital
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any human made resources that is used to produce other goods and services
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physical capital
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the human-made objects used to create other goods and services
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human capital
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the knowledge and skills a worker gains through education and experience
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trade-off
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the act of giving up one benefit in order to gain another, grater benefit
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"guns or butter"
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a phrase expressing the idea that a country that decides to produce more military goods ("guns") has fewer resources to produce consumer goods ("butter") and vice versa
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opportunity cost
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the most desirable alternative given up as a result of a decision
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thinking at the margin
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the process deciding whether to do or use one additional unit of some resource
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cost/benefit analysis
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a decision-making process in which you compare what you will sacrifice and gain by a specific action
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marginal cost
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the extra cost of adding one unit
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marginal benefit
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the extra benefit of adding one unit
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production possibilities curve
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a graph that shows alternative ways to use an economy's productive resources
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production possibilities frontier
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a line on a production possibilities curve that shows the maximum possible output an economy can produce
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efficiency
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the use of resources in such a way as to maximize the output of goods and services
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underutilization
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the use of fewer resources than an economy is capable of using
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laws of increasing costs
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an economic principle which states that as production shifts from making one good or service to another, more and more resources are needed to increase production of the second good or service
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economic system
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the structure of methods and principles that a society uses to produce and distribute goods and services
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factor payment
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the income people receive in return for supplying factors of production
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profit
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the amount of money a business receives in excess of its expenses
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safety net
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a set of government programs that protect people who face unfavorable economic conditions
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standard of living
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level of economic prosperity
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innovation
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the process of bringing new methods, products, or ideas into use
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traditional economy
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an economic system that relies on habit, custom, or ritual to decide the three key economic questions
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market
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any arrangement that allows buyers and sellers to exchange things
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specialization
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the concentration of the productive efforts of individuals and businesses on a limited number of activities
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free market economy
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an economic system in which decisions on three key economic questions are based on voluntary exchange in markets
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household
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a person or group of people living in a single residence
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firm
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an organization that uses resources to produce a product or service, which it then sells
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factor market
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the arena of exchange in which firms purchase the factors of production from households
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product market
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the arena of exchange in which households purchase goods and services from firms
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self-interest
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an individual's own personal gain
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incentive
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the hope or reward or fear of penalty that encourages a person to behave in a certain way
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competition
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the struggle among producers for the dollars of consumers
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invisible hand
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a term coined by Adam Smith to describe the self-regulating nature of the marketplace
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customer sovereignty
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the power of consumers to decide what gets produced
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centrally planned economy
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an economic system in which the government makes all decisions on the three key economic questions
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command economy
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another name for a centrally planned economy
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socialism
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a range of economic and political systems based on the belief that wealth should be distributed evenly throughout a society
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communism
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a political system in which the government owns and controls all resources and means of production and makes all economic decisions
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authoritarian
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describes a form of government that limits individual freedoms and requires strict obedience from its citizens
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laissez faire
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the doctrine that government should not generally intervene in the marketplace
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private property
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property that is owned by individuals or companies, not by the government or the people as a whole
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mixed economy
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a market-based economic system in which the government is involved to some extent
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economic transition
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a period of change in which a nation moves from one economic system to another
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privatization
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the process of selling businesses or services operated by the government to individual investors and then allowing them to compete in the marketplace
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free enterprise system
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an economic system characterized by private or corporate ownership of capital goods
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profit motive
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the incentive that drives individuals and business owners to improve their material well-being
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open opportunity
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the principle that anyone can compete in the marketplace
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legal equality
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the principle that everyone has the same legal rights
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private property rights
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the principle that people have the right to control their possession and use them as they wish
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free contract
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the principle that people may decide what agreements they want to enter into
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voluntary exchange
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the principle that people may decide what, when, and how they want to buy and sell
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interest group
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a private organization that tries to persuade public officials to act in ways that benefit its members
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patriotism
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love of one's country
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eminent domain
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the right of a government to take private property for public use
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public interest
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the concerns of society as a whole
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public disclosure laws
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laws requiring companies to provide information about their products or services
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macroeconomics
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the study of economic behavior and decision-making in a nation's whole economy
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microeconomics
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the study of economic behavior and decision-making in small units such as households and firms
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gross domestic product
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the total value of all final goods and services produced in a country in a given year
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business cycle
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a period of macroeconomics expansion, or growth, followed by one of contraction, or decline
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refrendum
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a proposed law submitted directly to the public
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obsolescence
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situation in which older products and processes become out-of-date
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patent
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a government license that gives the inventor of a new product the exclusive right to produce and sell it
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copyright
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a government license that grants an author exclusive rights to publish and sell creative works
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work ethic
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a commitment to the value of work
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public good
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a shared good or service for which it would be inefficient or impractical to make consumers pay individually and to exclude those who did not pay
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public sector
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the part of the economy that involves the transactions of the government
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private sector
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the part of the economy that involves the transactions of individuals and businesses
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infrastructure
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the basic facilities that are necessary for a society to function and grow
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free rider
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someone who would not be willing to pay for a certain good or service but who would get the benefits of it anyway if it were provided as a public good
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market failure
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a situation in which the free market, operating on its own, does not operate on its own, does not distribute resources efficiently
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externality
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an economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume
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poverty threshold
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an income level below that which is needed to support families or thresholds
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welfare
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government aid to the poor
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cash transfers
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direct payments of money by the government to poor, disabled, or retired people
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in-kind benefits
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goods and services provided for free or at greatly reduced prices
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grant
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a financial award given by a government agency to a private individual or group to carry out a specific task
