Module 1: The Study of Economics (Krugman’s Economics for AP)

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economics
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the study of scarcity and choice
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individual choice
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decisions by individuals about what to do, which necessarily involve decisions about what not to do
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economy
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a system for coordinating a society’s productive and consumptive activies
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market economy
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the decisions of individual producers and consumers largely determine what, how and for whom to produce, with little government involvement in the decisions
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command economy
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industry is publicly owned and a central authority makes production and consumption decisions
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incentives
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rewards or punishments that motivate particular choices
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property rights
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establish ownership and grant individuals the right to trade goods and services with eachother
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marginal analysis
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the study of the costs and benefits of doing a little bit more of an activity versus a little bit less
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resource
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anything that can be used to produce something else
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land
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all resources that come from nature, such as minerals, timber and petroleum.
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labor
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the effort of workers
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capital
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manufactured goods used to make other goods and services
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entrepreneurship
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the efforts of entrepreneurs in organizing resources for production, taking risks to create new enterprises, and innovating to develop new products and production processes
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scarce resource
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a resource not available in sufficient quantities to satisfy all the various ways a society wants to use it
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opportunity cost
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the real cost of an item; what you must give up in order to get it
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microeconomics
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the study of how people make decisions and how those decisions interact
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macroeconomics
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the overall ups and downs in the economy
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economic aggregates
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economic measures that summarize data across many different markets
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positive economics
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the branch of economic analysis that describes the way the economy actually works
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normative economics
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makes prescriptions about the way the economy should work

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