Economics Vocab Flashcards

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Wants
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Things we desire to have
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Scarcity
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The condition in which our wants are greater than the resources available to satisfy them.
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resources
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Anything that is used to produce goods or services
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Opportunity Cost
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The most highly valued opportunity or alternative forfeited whena choice is made
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trade-off
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A situation in which more than one thing means less of something else
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Production Possibilites Frontier/Curve
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A graphical representation of all possible combinations of 2 goods that an economy can produce
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Rationing Device
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A means to decide who gets what portion of the avaible resources and goods
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Price
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Most widely used rationing device in our society
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What exists because of scarcity?
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Competition and rationing devices
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Economics
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The science that studies the choices people make as they try to satisfy their wants in a world of scarcity.
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A production possibilites frontier/curve shows
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scarcity, opportunity cost, and choice
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Economic System
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The way in which a society decides how to use its resources to produce and distribute goods and services.
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Three basic economic questions
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What goods will be produced? How will these goods be produced? For whom will these goods be produced?
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Traditional Economic System
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Answers all economic questions trhough traditions, customs, and beliefs; been doing the same thing for hundreds of years;stable;no adaptations to change – no rapid economic growth
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Command Economic System
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A central agency – usually the government – owns and controls the factors of production and decides which goods the country will produce and how they will be distributed. All questions are answered through the government;stable,secure;no freedom, no personal choice
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Market Economic System
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Individual people and businesses decide what, how, and how much they wiill produce and how the products will be distributed; individuals own factors of production. Answers all questions through the choices of the individuals and businesses. Businesses choose what to produce based on what the individuals tell them they want; choice, freedom; no security, no stability
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Barter
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The simple trade of one good for another
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Monetary System
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The exchange for currency
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Private Property
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Any good that is owned by an individual or a business
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Public Property
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Any good owned by the government
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Freedom to Choose
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Workers have the right to choose what work they will do and for who. Businesses have the right to choose the products they will produce and offer for sale. Buyers have the right to choose the products they will buy
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Voluntary Exchange
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Individuals have the right to make exchanges or trades they believe will make them better off
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5 Characteristics of a Free Enterprise
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Private Property, Freedom of Choice, Voluntary Exchange, Competition, and Economic Incentives
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Competition
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Individuals are free to compete with others (for customers – which leads to profits)
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Incentive
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Something that encourages or motivates a person towards action
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Economic Incentive
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Money acts as an incentive. By producing goods and services that people want and are able to buy, money is received in return.
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FE: What to produce?
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Businesses will produce what the consumers want.
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FE:How to produce?
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Individuals who own and manage the businesses will decided how to produce goods the most effiecent way.
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FE: Whom to produce for?
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Goods are produced for the individuals that are willing and able to buy
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Profit
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The amount of money left over after all the costs of production have been paid (Total cost [revenue] = price of a good x number of units sold)
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Loss
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The amount of money in which total cost exceeds total revenue (Loss= total cost > total revenue) [revenue – cost]
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Ethical Economic System
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Allows individuals to choose their own lives, variety of goods and services, rewards depend on performance, numerous freedoms
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Open Disclosure
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Most people argue that the right to voluntary exchange comes with the responsibility of giving the other perspn accurate information about what is being exchanged.
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Entrepeneur
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A person who has a special talent for something out and taking advantage of new business opportunities
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Contracts
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An agreement between two or more people to do something
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Public Good
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A good of whihc one person’s consumption does not take away from another person’s consumption (Ex: apple, computer)
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Private Good
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A good of whihc one person’s consumption takes away from another person’s consumption. (Ex: movie theater, lecture hall in college)
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Positive Externality
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A beneficial side effect of an action that is felt by others (Ex: getting a shot, more education)
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Negative Externality
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An adverse side effect of an action that is felt by others (Ex: 3 a.m and you are wakened by a dog barking, paying taxes, smoke from a factory, pollution)
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Demand
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The amount of goods and services that people are willing and able to buy
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3 conditions that create demand
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want or need, willingness to pay, ability to pay
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Law of Demand
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As the price of a product decreases, people are willing to buy more; as the price of a product increases, people are willing to buy less
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Elastic Demand
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A relatively small price change results in a relatively big change in the amount, or quantity, that people are willing to buy
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Inelastic Demand
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A change in price results in a relatiely small change on the amount that people are willing to buy. (Ex: bread)
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Supply
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How much producers are willing and able to sell at different prices
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Law of Supply
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As the prices of goods rise, producers are willing to make more goods; as the prices of goods decrease, producers are willing to make less goods
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Selling Price – Costs = Profit
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Elastic Supply
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Occurs when a relatively small change in price results in a relatively large change in the amount that producers are willing to supply
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Inelastic Supply
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Occurs when a price change results in a relatively small change in small amount that producers are willing to supply
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Production Cost
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The sum total of money that it takes to make a product
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Fixed Costs
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The costs that a producer must pay to stay in business (Ex: rent for buildings and factories, purchase of machinery and equipment, insurance)
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Variable Costs
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The costs that change as production increases or decreases (Ex: raw material costs, wages)
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Companies try to keep production costs low because they make make higher profits
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Factors that can change the level of supply
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Changes in production costs, changes in technology, changes in the number of competitors in the market
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Equilibrium Price
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The price at which the amount demanded equals the amount supplied (occurs when supply and demand meet)
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Shortage
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Occurs when people want to buy more fo a good than is available at a given price (causes higher prices and increased production)
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Surplus
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Occurs when there is too much of a good available at a given price (puts pressure of prices and production to fall)
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What does a market price below equilibrium create a shortage?
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Our demand is greater than the supply
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What effect do shortages have on prices?
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Tend to cause prices to increase the equilibrium
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What effect do surpluses have on prices?
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Tend to pressure prices to decrease to the equilibrium point
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Determinents of Demands
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Income, Tastes and preferences, Price of Related Goods, Number of Buyers, and Future Price
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What is not a determinate of demand?
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Price
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Price movement occurs…
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on the line
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The demand curve
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stays the same
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Income
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Income increases, demand increases
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Tastes and Preferences
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As the item increases in popularity, Demand increases; vice-versa
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Price of Related Goods
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subsitutes or compliments – Hot Dog price increases, demand decreases; hot dog buns decrease
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Number of Buyers
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Price increases, demand increases; price decreases, demand decreases
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Future Price
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If the price increases in the future, your demand increases right now; vice-versa
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Determinents of Supply
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Resource Price, Technology, Taxes, Number of Sellers
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Resource Price
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As RP increases, supply decreases; vice-versa
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Technology
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Technology increases, supply increases; vice-versa
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Taxes
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If government imposes taxes a tax, supply decreases; Subsidy: *agriculture – If government gives you money, supply increases
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Price Ceiling
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The maximum price that can be charged for a good that will result in those goods becoming a shortage.
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Price Floor
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The minimum price that can be cgarged for a good, and it results in those goods becoming a surplus
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Quantity Demanded
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The number of units of a good purchases at a specific price
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In what direction do price and quantity demanded move?
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In opposite directions

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