Economics – Paul Krugman | Robin Wells

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Economy (Intro)
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An economy is a system for coordinating society’s productive activities.
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Economics (Intro)
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Economics is the social science that studies the production, distribution, and consumption of goods and services.
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Market Economy (Intro)
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A market economy is an economy is which decisions about production and consumption are made by individual producers and consumers.
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Invisible Hand (Intro)
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The invisible hand refers to the way in which the individual pursuit of self-interest can lead to good results for society as a whole.
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Microeconomics (Intro)
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Microeconomics is the branch of economics that studies how people make decisions and how these decisions interact.
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Market Failure (Intro)
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When the individual pursuit of self-interest leads to bad results for society as a whole, there is market failure.
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Recession (Intro)
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A recession is a downturn in the economy.
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Macroeconomics (Intro)
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Macroeconomics is the branch of economics that is concerned with overall ups and downs in the economy.
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Economic Growth (Intro)
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Economic growth is the growing ability of the economy to produce goods and services.
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Individual Choice (1)
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Individual choice is the decision by an individual of what to do, which necessarily involves a decision of what not to do.
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Resource (1)
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A resource is anything that can be used to product something else.
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Resources are Scarce (1)
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There is not enough of the resources available to satisfy all the various ways a society wants to use them.
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Opportunity Costs (1)
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The real cost of an item is its opportunity cost: what you must give up in order to get it.
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Trade-Off (1)
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You make a trade-off when you compare the costs with the benefits of doing something.
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Marginal Decisions (1)
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Decisions about whether to do a bit more or a bit less of an activity are marginal decisions. The study of such decisions is known as marginal analysis.
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Marginal Analysis (1)
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The study of marginal decisions.
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Incentives (1)
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An incentive is anything that offers rewards to people who change their behavior.
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Interaction (1)
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Interaction of choices – my choices affect your choices, and vice versa – is a feature of most economic situations. The results of this interaction are often quite different from what the individual intends.
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Trade (1)
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In a market economy, individuals engage in trade: they provide goods and services to others and receive goods and services in return.
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Gains from Trade (1)
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There are gains from trade: people can get more of what they want through trade than they could if they tried to be self-sufficient. This increase in output is due to specialization.
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Specialization (1)
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Each person specializes in the task that he or she is good at performing.
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Equilibrium (1)
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An economic situation is in equilibrium when no individual would be better off doing something different.
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Efficient (1)
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An economy is efficient if it takes all opportunities to make some people better off without making other people worse off.
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Equity (1)
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Equity means that everyone gets his or her fail share. Since people can disagree about what’s “fair,” equity isn’t as well defined a concept as efficiency.
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Model (2)
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A model is a simplified representation of a real situation that is used to better understand real-life situations.
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Other Things Equal Assumption (2)
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The other things equal assumption means that all other relevant factors remain unchanged.
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Production Possibility Frontier (2)
Production Possibility Frontier (2)
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The production possibility frontier illustrates the trade-offs facing an economy that produces only two goods. It shows the maximum quantity of one good that can be produced for any given quantity produced of the other.
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Factors of Production (2)
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Factors of production are resources used to produce goods and services.
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Technology (2)
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Technology is the technical means for producing goods and services.
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Comparative Advantage (2)
Comparative Advantage (2)
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An individual has a comparative advantage in producing a good or service if the opportunity cost of producing the good or service is lower for that individual than for other people.
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Absolute Advantage (2)
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An individual has an absolute advantage in an activity if he or she can do it better than other people. Having an absolute advantage is not the same thing as having a comparative advantage.
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Barter (2)
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Trade takes the form of barter when people directly exchange goods or services that they have for goods or services that they want.
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Circular-Flow Diagram (2)
Circular-Flow Diagram (2)
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The circular-flow diagram represents the transactions in an economy by flows around a circle.
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Household (2)
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A household is a person or a group of people that share their income.
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Firm (2)
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A firm is an organization that produces goods and services for sale.
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Market for Goods and Services (2)
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Firms sell goods and services that they produce to households in markets for goods and services.
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Factor Markets (2)
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Firms buy the resources they need to produce goods and services in factor markets.
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Income Distribution (2)
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An economy’s income distribution is the way in which total income is divided among the owners of the various factors of production.
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Positive Economics (2)
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Positive economics is the branch of economic analysis that describes the way the economy actually works.
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Normative Economics (2)
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Normative economics makes prescriptions about the way the economy should work.
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Forecast (2)
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A forecast is a simple prediction of the future.
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Horizontal Axis or X-axis (2)
Horizontal Axis or X-axis (2)
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The line along which values of the x-variable are measured is called the horizontal axis or x-axis.
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Vertical Axis or Y-axis (2)
Vertical Axis or Y-axis (2)
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The line along which values of the y-variable are measured is called the vertical axis or y-axis.
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Origin (2)
Origin (2)
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The point where the axes of a two-variable graph meet is the origin.
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Causal Relationship (2)
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A causal relationship exists between two variables when the value taken by one variable directly influences or determines the value taken by the other variable. In a causal relationship, the determining variable is called the independent variable; the variable it determines is called the dependent variable.
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Independent Variable (2)
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A variable (often denoted by x) whose variation does not depend on that of another.
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Dependent Variable (2)
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A variable (often denoted by y) whose value depends on that of another.
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Curve (2)
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A curve is a line on a graph that depicts a relationship between two variables. It may be either a straight line or a curved line.
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Linear Relationship (2)
Linear Relationship (2)
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If the curve is a straight line, the variables have a linear relationship.
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Nonlinear Relationship (2)
Nonlinear Relationship (2)
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If the curve is not a straight line, the variables have a nonlinear relationship.
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Positive Relationship (2)
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Two variables have a positive relationship when an increase in the value of one variable is associated with an increase in the value of the other variable. It is illustrated by a curve that slopes upward from left to right.
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Negative Relationship (2)
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Two variables have a negative relationship when an increase in the value of one variable is associated with a decrease in the value of the other variable. It is illustrated by a curve that slopes downward from left to right.
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Horizontal Intercept (2)
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The horizontal intercept of a curve is the point at which it hits the horizontal axis; it indicates the value of the x-variable when the value of the y-variable is zero.
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Vertical Intercept (2)
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The vertical intercept of a curve is the point at which it hits the vertical axis; it shows the value of the y-variable when the value of the x-variable is zero.
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Slope (2)
Slope (2)
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The slope of a line or curve is a measure of how steep it is. The slope of a line is measured by “rise over run” – the change in the y-variable between two points on the line divided by the change in the x-variable between those same two points.
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Nonlinear Curve (2)
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A nonlinear curve is one in which the slope is not the same between every pair of points.
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Absolute Value (2)
Absolute Value (2)
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The absolute value of a negative number is the value of the negative number without the minus sign.
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Tangent Line (2)
Tangent Line (2)
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A tangent line is a straight line that just touches, or is tangent to, a nonlinear curve at a particular point. The slope of the tangent line is equal to the slope of the nonlinear curve at the point.
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Maximum (2)
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A nonlinear curve may have a maximum point, the highest point along the curve. At the maximum, the slope of the curve changes from positive to negative.
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Minimum (2)
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A nonlinear curve may have a minimum point, the lowest point along the curve. At the minimum, the slope of the curve changes from negative to positive.
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Time-Series Graph (2)
Time-Series Graph (2)
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A time-series graph has dates on the horizontal axis and values of a variable that occurred on those dates on the vertical axis.
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Scatter Diagram (2)
Scatter Diagram (2)
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A scatter diagram shows points that correspond to actual observations of the x- and y-variables. A curve is usually fitted to the scatter of points.
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Pie Chart (2)
Pie Chart (2)
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A pie chart shows how some total is divided among its components, usually expressed in percentages.
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Bar Graph (2)
Bar Graph (2)
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A bar graph uses bars of varying height or length to show the comparative sizes of different observations of a variable.
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Truncated (2)
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An axis in truncated when some of the values on the axis are omitted, usually to save space.
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Omitted Variable (2)
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An omitted variable is an unobserved variable that, through its influence on other variables, creates the erroneous appearance on a direct causal relationship among those variables.
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Reverse Causality (2)
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The error of reverse causality is committed when the true direction of causality between two variables is reversed.
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Competitive Market (3)
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A competitive market is a market in which there are many buyers and sellers of the same good or service, none of whom can influence the price at which the good or service is sold.
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Supply and Demand (3)
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The supply and demand model is a model of how a competitive market works.
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Demand Schedule (3)
Demand Schedule (3)
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A demand schedule shows how much of a good or service consumers will want to buy at different prices.
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Quantity Demanded (3)
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The quantity demanded is the actual amount of a good or service consumers are willing to buy at some specific price.
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Demand Curve (3)
Demand Curve (3)
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A demand curve is a graphical representation of the demand schedule. It shows the relationship between quantity demanded and price.
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Law of Demand (3)
Law of Demand (3)
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The law of demand says that a higher price for a good or service, other things being equal, leads people to demand a smaller quantity of that good or service.
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Shift of the Demand Curve (3)
Shift of the Demand Curve (3)
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A shift of the demand curve is a change in the quantity demanded at any given price, represented by the change of the original demand curve to a new position, denoted by a new demand curve.
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Movement Along the Demand Curve (3)
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A movement along the demand curve is a change in the quantity demanded of a good that is the result of a change in that good’s price.
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Substitutes (3)
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Two goods are substitutes if a rise in the price of one of the goods leads to an increase in the demand for the other good.
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Complements (3)
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Two goods are complements if a rise in the price of one good leads to a decrease in the demand for the other good.
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Normal Good (3)
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When a rise in income increases the demand for a good – the normal case – it is a normal good.
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Inferior Good (3)
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When a rise in income decreases the demand for a good, it is an inferior good.
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Individual Demand Curve (3)
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An individual demand curve illustrates the relationship between quantity demanded and price for an individual consumer.
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Quantity Supplied (3)
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The quantity supplied is the actual amount of a good or service producers are willing to sell at some specific price.
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Supply Schedule (3)
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A supply schedule shows how much of a good or service producers will supply at different prices.
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Supply Curve (3)
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A supply curve shows the relationship between quantity supplied and price.
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Shift of the Supply Curve (3)
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A shift of the supply curve is a change in the quantity supplied of a good or service at any given price. It is represented by the change of the original supply curve to a new position, denoted by a new supply curve.
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Movement along the supply curve (3)
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A movement along the supply curve is a change in the quantity supplied of a good that is the result of a change in that good’s price.
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Input (3)
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An input is a good or service that is used to produce another good or service.
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Individual Supply Curve (3)
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An individual supply curve illustrates the relationship between quantity supplied and price for an individual producer.
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Supply, Demand, and Equilibrium (3)
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A competitive market is in equilibrium when price has moved to a level at which the quantity of a good or service demanded equals the quantity of that good or service supplied. The price at which this takes place is the equilibrium price, also referred to as the market-clearing price. The quantity of a good or service bought and sold at the price is the equilibrium quantity.
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Surplus (3)
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There is a surplus of a good or service when the quantity supplied exceeds the quantity demanded. Surpluses occur when the price is above its equilibrium level.
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Shortage (3)
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There is a shortage of a good or service when the quantity demanded exceeds the quantity supplied. Shortages occur when the price is below its equilibrium level.
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Willingness to Pay (4)
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A consumer’s willingness to pay for a good is the maximum price at which he or she would buy that good.
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Individual Consumer Surplus (4)
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Individual consumer surplus is the net gain to an individual buyer from the purchase of a good. It is equal to the difference between the buyer’s willingness to pay and the price paid.
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Total Consumer Surplus (4)
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Total consumer surplus is the sum of the individual consumer surpluses of all the buyers of a good in a market.
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Consumer Surplus (4)
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The term consumer surplus is often used to refer to both individual and to total consumer surplus.

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