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Economics

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-The discipline that studies the allocation of scarce resources among competing ends, to agents with unlimited wants and desires

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Equilibrium

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-State at which opposing forces are balanced

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Elasticicity

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-% change in one variable given a % change in another

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Isoquant

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-Line that shows all input bundles that yield same output

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Production Function

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-Relationship between input quantities and output quantities

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Production Possibilities Frontier

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-Relationship that illustrates the tradeoff between outputs

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Efficiency

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-Allocation is efficient if and only if it is feasible and no other allocation exists that can increase output without reducing output of another

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Opportunity Cost

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-What you give up in order to get something

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Total Cost

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-Fixed costs plus variable costs

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Fixed Costs

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-Cost incurred independent of output

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Variable Costs

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-Costs related to output only

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Short run

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-Period of time which at least one production is fixed

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Long run

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-Period of time which all production is variable

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Present value

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-Current vale of future payments

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Future value

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-The amount of PV that will become

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Interest Rate

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-Market rate of payment on borrowed funds that captures the risk and opportunity costs of capital

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Discount Rate

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-Individuals minimum rate of return; Includes opportunity cost and risks

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Compounding

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-Method of calculating future value of an investment with present value payments for investments

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Discounting

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-Method for calculating present value of an investment given future value payments

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Simple Rate of Return

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-Average Annual Net Revenue divided by initial costs

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Internal rate of Return

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-Discount rate resulting in NPV of 0

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Net Present Value (NPV)

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-Sum of present value net cash flows - the initial costs

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Benefit-cost ratio

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-Present value benefits divided by present value costs

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Payback Period

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-# of periods required to recover the nominal value of the investment

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Inflation

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-A rise in nominal price level

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Consumer Surplus

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-Area below demand and above price

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Producer Surplus

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-Area below price and above supply

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Gains from Trade

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-Total increase in welfare from a market transaction

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World Prices

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-Price set by intersection of excess supply and excess demand

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Economic Agent

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-Decision marker in economic model that attempts to optimize objective function subject to constraints

-Domestic Consumers & Producers

-Foreign Consumers and Producers

-Domestic Consumers & Producers

-Foreign Consumers and Producers

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Binding Constraints

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-Constraints that contain the optimal solution

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Non-binding Constraints

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-Constraints that do not contain the optimal solution

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Slack Variables

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-Variables that must be less than or equal to a defined constraint

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Surplus Variables

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Variables that must be greater than or equal to a defined constraint

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Revenue

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Money you make before expenses