Economics Midterm Exam 2

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Social Security
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Old-Age, Survivors, and Disability Insurance
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deflation
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a sustained drop in price level
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frictional unemployment
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unemployment that occurs when people take time to find a job
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wage-price spiral
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Theory that suggests that increasing wages, increases disposable income, thus raises the demand for goods and causes prices to rise.
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poverty threshold
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an income level below which income is insufficient to support families or households
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block grant
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federal funds given to states in lump sums
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purchasing power
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the ability to purchase goods and services
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market basket
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a representative collection of goods and services
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aggregate supply
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the total amount of goods and services the economy has available at all possible price levels
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aggregate demand
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the amount of goods and services in the economy that will be purchased at all possible price levels
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contraction
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period of economic decline marked by falling GDP
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depreciation
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the loss of value of capital equipment that results from normal wear and tear or a decrease in the value of currency
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GDP (gross domestic product)
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the total value of all final goods and services produced in a particular economy; the dollar value of all final goods and services produced within a country’s borders in a given year
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GNP (gross national product)
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the annual income earned by U.S.-owned firms and U.S. residents
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leading indicators
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key economic values that economists use to predict a new phase of the business cycle
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national income accounting
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a system that collects macroeconomic statistics on production, income, investment, and savings
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stagflation
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a decine in real GDP combined with a rise in the price level
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technological process
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an increase in efficiency gained by producing more output without using more inputs.
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trough
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the lowest point in an economic contraction, when real gross domestic product stops falling
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recession
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a prolonged economic contraction
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fractional reserve banking
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a banking system that keeps only a fraction of funds on hand and lends out the remainder
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currency
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coins and paper bills used as money
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commodity money
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objects that have value in themselves as well as for use as money
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default
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failure to pay back a loan
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FDIC (Federal Deposit Insurance Corporation)
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the gov’t agency that insures customer deposits if a bank fails
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Federal Reserve System
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the nation’s central banking system
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interest
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the price paid for the use of borrowed money, or, money earned by deposited firms
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mortgage
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a specific type of loan that is used to buy real estate
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principal
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the amount of money borrowed
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representative money
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objects that have value because the holder can exchange them for something else of value
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money market mutual fund
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a fund that pools money from small savers to purchase short-term gov’t and corporate supplies
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fiat money
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money that has value because the gov’t has ordered that it is an acceptable means to pay debts
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blue-collar worker
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someone who works in an industrial job, often in manufacturing, and who receives wages
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white-collar worker
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someone in a professional or clerical job who usually earns a salary
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productivity
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value of output produced
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strike
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an organized work stoppage intended to force an employer to address union demands
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screening effect
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the theory that the completion of college indicated to employers that a job applicant is intelligent and hard-working
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equilibrium wage
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the wage rate that produces neither an excess supply of workers nor an excess demand for workers in a labor market
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skilled labor
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labor that requires specialized training and skills
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featherbedding
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the practice of negotiating labor contracts
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arbitration
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a settlement technique in which a third party reviews the case and imposes a decision that is legally binding for both sides
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contingent employment
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temporary jobs or part-time jobs
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start up costs
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the expenses a firm must pay before it an begin to produce and sell goods
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merger
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combination of two or more companies into a single firm
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cartel
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a formal organization fo producers that agree to coordinate prices and production
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license
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a gov’t issued right to operate a business
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deregulation
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the removal of some gov’t controls over a market
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commodity
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a product that is the same no matter who produces it, such as petroleum, notebook paper, or milk
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price fixing
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an agreement among firms to change one price for the same good
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price discrimination
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divisino of customers into groups based on a how much they will pay for a good
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monopoly
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a market dominated by a single seller
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patent
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a license that gives the investor a new product the exclusive rights to sell it for a certain period
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increasing marginal returns
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a level of production in which the marginal product of labor increases as the number of workers increases
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diminishing marginal returns
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a level of production in which the marginal products of labor decreases as the number of workers increases
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marginal revenue
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the additional income from selling one more unit of a good; sometimes equal to price
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marginal product of labor
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the change in output from hiring one additional unit of labor
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marginal cost
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the cost of producing one more unit of a good
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supply schedule
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a chart that lists how much of a good will offer at different prices
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quantity supplied
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the amount a supplier is willing and able to supply at a certain price
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market supply curve
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a graph of the quantity supplied of a good at a higher price
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total cost
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fixed costs plus variable costs
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law of supply
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tendency of suppliers to offer more of a good at a higher price
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variable
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a factor that can change
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elasticity of supply
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a measure of the way quantity supplied reacts to a change in price
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regulation
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gov’t intervention in a market that affects the production of a good
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total revenue
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the total amount of money a firm receives
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income effect
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the change in consumption resulting from a change in real income
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elastic
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describes demand that is very sensitive to a change in price
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inferior good
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a good that consumers demand less of when their incomes increase
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normal good
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A good that consumers demand more of when their incomes increase
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elasticity of demand
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a measure of how consumers react to a change in price
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demand curve
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a graphic representation of a demand schedule
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substitute
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goods used in place of each other
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ceterius paribus
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a Latin phrase that means “all other things held constant”
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complement
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the goods that are bought and used together
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market failure
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a situation in which the market doesn’t distribute resources efficiently
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cash transfers
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direct payments of money to eligible people
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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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welfare
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gov’t aid to the poor
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public disclosure laws
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laws that require companies to provide full information about their products
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business cycles
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a period of macroeconomic expansion followed by a period of contraction
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interest group
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a private organization that tries to persuade public officials to act or vote according to group member’s interests
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microeconomics
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the study of economic behaviors and decisions making small units, such as individuals, families and businesses
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law of demand
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economic law that states that consumers buy more of a good when its price value increases
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opportunity cost
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the most desirable alternate given up as a result of a decision
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efficient
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using resources in such a way as to maximize the production of goods and services
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production possibilities frontier
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the line on a production possibility’s graph that shows the maximum possible output for an economy
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scarcity
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limited quantities of resources to meet unlimited wants
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thinking at the margin
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deciding whether to do or use one additional unit of some resource
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entrepreneur
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ambitious leader who combines land, labor, and capital to create and market new goods and services
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guns or butter
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a phrase that refers to the trade off that nations face when choosing whether to produce more or less military or consume goods
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specialization
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the concentration of the productive efforts of individuals and firms on a limited number of activities
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traditional economy
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An original economic system in which traditions, customs, and beliefs shape the goods and the products that the society creates. Countries that use this type of economic system are often rural and farm-based.
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continuem
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a range with no clear divisions
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free enterprise
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an economic system characterized by private or corporate ownership of capital goods
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public good
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a shared good or service for which it would be impractical to make consumers pay individually and to exclude non-payers
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market demand schedule
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a table that lists the quantity of a good all consumers in a market will buy at every different price
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variable cost
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a cost that rises or falls depending on how much is produced
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search costs
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the financial and opportunity costs consumers pay when searching for a good or service
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shortage
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a situation in which a good or service is unavailable
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price ceiling
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a maximum price that can be legally charged for a good or service
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oligopoly
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a market structure in which a few large firms dominate a market
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royalties
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shares of earnings given as payment
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corporation
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a legal entity owned by individual stockholders
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franchise
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the right to sell a good or service within an exclusive market
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sole proprietorship
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a business owned and managed by a single individual
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human capital
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the skills and knowledge gained by a worker through education and experience
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physical capital
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all human-made goods that are used to produce other goods and services; tools and buildings
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glass ceiling
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an unofficial, invisible barrier that prevents women and minorities fro advancing in businesses dominated by white men
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labor unions
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an organization of workers that tries to improve working conditions, wages, and benefits for its members
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unit of account
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a means for comparing the values of goods and services
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liquidity
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the ability to be used as, or directly converted to, cash
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bear market
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a steady drop in the stock market over a period of time
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Great Depression
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the severe economic decline that began in 1929 and lasted for more than a decade
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capital deepening
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process of increasing the amount of capital per worker
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workfare
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a program requiring work in exchange for temporary assistance
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inflation
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a general increase in prices
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sales tax
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a tax on the dollar value of a good or service being sold
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FICA (Federal Insurance Contributions Act)
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taxes that fund Social Security and Medicare
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economics
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the study of how people seek to satisfy their needs and wants by making choices
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economies of scale
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factors that cause a producer’s average cost per unit to fall as output rises
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competition
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the struggle among producers for the dollars of consumers; the rivalry among sellers to attract customers while lowering costs
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equity
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claims of ownership in a corporation

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