Economics Vocabulary Terms – Flashcards
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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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scarce
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a finite amount.
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shortage
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occurs when producers will not or cannot offer goods and services.
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trade-off
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all the alternatives we give up whenever we choose one course of action over another.
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guns or butter
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economic decision countries face; a country that decides to produce more military goods has fewer resources to devote to consumer goods 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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when you decide how much more or less to do.
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production possibilities curve
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shows alternative ways to use an economy's productive resources.
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production possibilities frontier
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the line on a production possibilities curve that shows the maximum possible output.
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efficiency
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using resources in such a way as to maximize the production of goods and services.
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underutilization
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using fewer resources than an economy is capable of using.
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cost
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the alternative that is given up because of a decision.
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law of increasing costs
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law that states that as we shift factors of production from making one good or service to another, the cost of producing the second item increases.
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economic system
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the method used by a society to produce and distribute goods and services.
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factor payments
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the income people receive for supplying factors of production, such as land, labor and capital.
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patriotism
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the love of one's country
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safety net
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government programs that protect people experiencing unfavorable economic conditions.
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standard of living
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level of economic prosperity.
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traditional economy
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economic system that relies on habit, custom or ritual to decide questions of production and consumption of goods and services.
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market economy
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economic system in which decisions on production and consumption of goods and services are based on voluntary exchange.
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centrally-planned economy
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economic system in which the central government makes all decisions on the production and consumption of goods and services.
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command economy
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economic system in which a central authority is in command of the economy
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mixed economy
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market-based economic system with limited government involvement.
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economic efficiency
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making the most of resources
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economic freedom
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freedom from government intervention in the production and distribution of goods and services.
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economic security and predictability
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assurance that goods and services will be available, payments will be made on time and a safety net will protect individuals in times of economic disaster.
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economic equity
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fair distribution of wealth.
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economic growth and innovation
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innovation leads to economic growth, and economic growth leads to a higher standard of living.
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other goals
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societies pursue additional goals, such as environmental protection.
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market
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the world of commercial activity where goods and services are bought and sold
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specialization
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condition in which resources are primarily devoted to specific tasks
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household
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a person or group of people living in the same residence
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firm
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any business, such as a sole proprietorship, partnership or corporation
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factor market
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a market used to exchange the services of a factor of production.
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profit
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a thing produced by labor or effort or the result of an act or process.
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product market
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a market used to exchange a final good or service.
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self-interest
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one's own personal gain
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incentive
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a cost or benefit that motivates a decision or action by consumers, businesses or other participants in the economy
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competition
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the rivalry among sellers to attract customers while lowering costs
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invisible hand
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term used by Adam Smith to describe the natural force that guides free market capitalism through competition for scarce resources.
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consumer sovereignty
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the notion that consumers are "king" of the economy because they're the ones who will ultimately determine what goods are produced and how are limited resources are used.
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socialism
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a social and political philosophy based on the belief that democratic means should be used to evenly distribute wealth throughout a society.
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communism
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a political system characterized by a centrally-planned government with all economic and political power resting in the hands of the central government.
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authoritarian
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requiring strict obedience to an authority, such as a dictator
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collective
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large farm leased from the state to groups of peasant farmers
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heavy industry
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industry that requires a large capital investment and that produces items used in other industries
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profit motive
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the force that encourages people and organizations to improve their material well-being.
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open opportunity
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the concept that everyone can compete in the marketplace
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legal equality
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the concept of giving everyone the same legal rights
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private property rights
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the concept that people have the right and privilege to control their possessions as they wish
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free contract
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the concept that people may decide what agreements they want to enter into
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voluntary exchange
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the concept that people may decide what and when 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 or vote according to group members' interests
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public disclosure laws
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laws requiring companies to provide full information about their products
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public interest
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the concerns of the public as a whole
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Food and Drug Administration (FDA)
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sets and enforces standards for food, drugs and cosmetic products
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Federal Trade Commission (FTC)
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enacts and enforces antitrust laws to protect consumers
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Federal Communications Commission (FCC)
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regulates interstate and international communications by radio, television, wire, satellite and cable
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Federal Aviation Administration (FAA)
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regulates civil aviation, air-traffic and piloting standards and air commerce
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Equal Employment Opportunity Commission (EEOC)
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promotes equal job opportunity through enforcement of civil rights laws, education and other programs
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Environmental Protection Agency (EPA)
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enacts policies to protect human health and the natural environment
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Occupational Safety and Health Administration (OSHA)
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enacts policies to save lives, prevent injuries and protect the health of workers
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Consumer Product Safety Commission (CPSC)
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enacts policies for reducing risks of harm from consumer products
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Nuclear Regulatory Commission (NRC)
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regulates civilian use of nuclear products
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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 include nonpayers
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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 transactions of individuals and businesses
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free rider
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someone who would not choose to pay for a certain good or service, but 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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occurs when the market does not distribute its resources efficiently
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macroeconomics
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the study of the behavior and decision-making of entire economies
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microeconomics
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the study of the economic behavior and decision-making of small units, such as individuals, families and businesses
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gross domestic product
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the total value of all final goods and services produced in a particular economy
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business cycle
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a period of macroeconomic expansion followed by a period of contraction
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work ethic
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a commitment to the value of work and purposeful activity
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technology
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the process used to produce a good or service
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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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Laissez-faire
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the doctrine that states that the government generally should not intervene in the marketplace
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demand
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the desire to own something and the ability to pay for it
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law of demand
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consumers buy more of a good when its price decreases and less when its price increases
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substitution effect
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when consumers react to an increase in a good's price by consuming less of that good and more of other goods
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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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demand schedule
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table that lists the quantity of a good a person will buy at each different price
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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 each different price
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demand curve
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a graphic representation of a demand schedule
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ceteris paribus
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a Latin phrase that means "all other things held constant"
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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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inferior good
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a good that consumers demand less of when their incomes increase
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complements
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two goods that are bought and used together
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substitutes
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good used in place of another
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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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inelastic
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describes demand that is not very sensitive to a change in price
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elastic
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describes demand that is very sensitive to a change in price
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unitary elastic
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describes demand whose elasticity is exactly equal to 1
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total revenue
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the total amount of money a firm receives by selling goods or services
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supply
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the amount of goods available
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law of supply
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tendency of supplies to offer more of a good at a higher price
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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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supply schedule
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a chart that lists how much of a good a supplier will offer at different prices
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variable
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a factor that can change
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market supply schedule
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a chart that lists how much of a good all suppliers will offer at different prices
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supply curve
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a graph of the quantity supplied of a good at different prices
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market supply curve
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a graph of the quantity supplied of a good by all suppliers at different prices
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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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elastic supply
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exists when a small change in price causes a major change in the quantity supplied.
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inelastic supply
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exists when a change in a good's price has little impact on the quantity supplied.
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quickly, inexpensively made and using a few, readily available resources
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standards of something with elastic supply
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time, money and resources that are not readily available
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standards of something with inelastic supply
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marginal product of labor
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