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Economics chapter 2

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laws of economics
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the general rules or principles guiding the production, distribution, and consumption of goods
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mercantilism
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an economic system that advocates the building up of the state’s treasury with the goal of accumulating as much bullion as possible as possible; holds nation’s wealth lies in its stockpiles of precious metals
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trade balance
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the difference in value of the goods that a country sells abroad compared to those it purchases from other countries
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tariffs
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taxes that government apply only to imported goods
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imperialism
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the establishment of colonies and extensive territories created to benefit their mother countries
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physiocrats
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a French group of economic critics known as some of the earliest advocates of laissez-faire economics
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classical economics
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the theories developed by economists of the 19th and early 201th centuries stating that the free market system facilitates the best possible balance between supply and demand
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division of labor
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the separation of work into individualized tasks
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specialization
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the division of tasks among workers allowed the production of goods by people doing the jobs they did best
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laissez-faire
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a French phrase meaning “let things alone”
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Adam Smith
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founder of modern economics
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prosperity
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economic success, or the condition of enjoying many goods, including services
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wealth
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is the value of all things that people own- including money, property, capital goods, and consumer goods
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labor
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human activity which results in the creation of goods and services
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physiocrats; economist
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group that made the first attempt to create a science of the production, distribution, and consumption of goods
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Physiocracy
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famous book written by Pierre Samuel du Pont
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Wealth of Nations
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name of Adam Smith’s most famous book
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six ways given in the text that a nations have used in their attempts to increase wealth
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-make things from resources that we already have -look for more resources to make more things -invent more things -make things even better -reduce wants -redistribute the goods that are already being produced among the population
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the true source of prosperity
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diligent work by ingenious intelligence allowed to develop under condition of freedom
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mixed economy
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system that combines a good measure of free enterprise in some areas with heavy state regulation in others
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labor
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refers to work, whether physical or mental, that contributes to the production of goods and services
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airplanes
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the US is the world’s leading producer and exporter of what?
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they’ve taken it to the extreme; that we are more productive and efficient
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what does the modern world done with the concept of specialization?
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a visual that helps explain concepts
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what is an economic model?
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what do you want?
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most empires wars and human endeavors can be explained by economics if you just asked what question?
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terrible
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what kind of lives do the majority of humans who have ever lived have?
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Industrial revolution
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what historical event caused humans populations to sustain improvement in living standards?
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Adam Smith
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Who is considered to be first modern economist?
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increases productivity and efficiency
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what does specialization of labor do?
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trade
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if nations specialize in making certain products, what is the most efficient way for them to obtain other products where they don’t specialize in it?
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it shows the value and costs of how we spend our time
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what does a production frontier model demonstrates?
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millions of goods; the model shows the comparison of efficiency of producing two items
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how many different kinds of goods does a typical does a modern economy produce? and how is this relate to the production possibilities frontier model?
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the benefit is that if you specialize on a producing the product that you’re most efficient at, then you could produce more of that than any other nation.
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what does it mean when you have absolute advantage in production?
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opportunity cost
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looking at the different combinations of production on a production possibilities frontier model allows you to exactly calculate the value of what economic principle?
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Smith’s law
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if you use PPF graph to compare the value what are you looking at? what economic law its opportunity cost?
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the comparative advantage is when you produce something that you’re good at its better to trade of what you’re not good at (specialize)
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what does it mean to have a comparative advantage in production?
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they can produce it at the lowest value they can give to us, which the opportunity cost for the other country is higher
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according to the economic model explained in the video, why is it better for the US to trade with China to get shoes rather than manufacturing its own shoes?
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Both
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according to the economic model explained in the video, when two nations are trading with one another, who benefits?
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child labor, forced labor, slave labor, poor working condition, dangerous conditions, pollution
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economists consider trade as mutually beneficial, but there are still serious problems associated with it such as:
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mutually benefits
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most economists agreed that trade and specialization do what?
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Venezuela, Cuba; Zimbabwe, Iran
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name at least two nations that are less economically developed than they could be due to lack of trade
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wealthy nation
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what is the name of the book did Adam Smith published
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division of labor
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what is the separation of work to be performed given to the individuals to be more productive and efficient?
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mutually beneficial relationship
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why did Adam Smith say brought producers and consumers together when they pursued their personal interests?
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labor
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what human activity results in creation of goods and services
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command
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what economy lets the people to make their own economic choices, what kind of economy in which a centralized economy controls the production of distribution and goods?
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prosperity
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what term refers to the enjoyment of many goods including services?
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factors of production
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the economic resources used in the production of good; the four factors are natural resources, labor, capital and entrepeneurship
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information
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fifth factor of production
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command economy
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also known as the planned or direct economy
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command economy
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a system in which a centralized authority determines the production and distribution of goods as well as things like savings, investments and prices.
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command economy
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the factors of production are controlled by the government; they were labeled as Communist, socialist or other terms that describe a certain brand of government
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free enterprise economy
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a system in which people are free to make their own economic choices
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private capitalism
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economic system in which the majority of a nation’s capital is owned and controlled by the private individuals and businesses
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market economy
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another term for free enterprise economy
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subsistence economy
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an economic system that provides barely enough to keep a society alive
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state capitalism
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a system in which the power of much of the nation’s capital is a powerful, centralized apparatus called the collective state
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capitalist
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anyone who owns producer goods or owns a share of some business that produces goods
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entreprenuer
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a person in effective control of starting or running a business or industrial undertaking
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human wants are unlimited while goods are limited. people cannot satisfy all of their wants
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why is it necessary for people to make economic choices?
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tariffs take place such high taxes on goods that people are often discouraged from bringing in foreign products
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how do tariffs seek to restrict the amount of goods that are imported into a nation?
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they believed that governmental regulation stifle a nation’s economy and that free economic competition lowers prices and prevents excessive profits. they advocated what is best for the individual is best for society.
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explain why the french economists of the 18th century believed that government should not control a nation’s economy?
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They thought that only land provided a clear surplus of wealth and that manufacturing merely changed the form of that wealth.
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why did the physiocrats believe that the only true source of wealth is land?
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He was referring to the shared interests of producers and consumers that result in mutually beneficial choices that are the best for individuals and society.
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what did Adam Smith mean when he used the term “invisible hands”?
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All the wealth of a nation has to be produced by intelligent labor.
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why did Adam Smith conclude that labor is an extremely vital component of a prosperous economy?
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Prosperity is the condition of enjoying many goods and services, while wealth is the value of all the things that are owned.
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what is the difference between prosperity and wealth?
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When resources are used more efficiently, more items of value are able to be produced.
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explain how producing an increased amount of goods from existing resources could increase prosperity.
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Unused resources can be used in other areas to increase wealth.
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how might reducing people’s wants increase the wealth of a nation?
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Goods can only be produced through some amount of labor. America’s strong work ethic has led its citizens to develop the technology and methods needed for efficient production of goods.
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why is work emphasized in this book? how has America’s work ethic contributed to the wealth of the nation?