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Households
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Sell factors of production and consumer goods and services
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Firms
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Sell goods and services and consume factors of production
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Law of Supply
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As price increases quantity supplied increases
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Law of Demand
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As price increases quantity demanded decreases
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Supply
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The # of goods or services a producer is willing to supply at each price
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Demand
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The # of goods and services a consumer will demand at each price
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Quantity Supplied
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The # of goods and services a producer is willing to sell at a given price
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Quantity Demanded
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The # of goods and services a consumer will purchase at a given price
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Equilibrium (Market Clearing Price)
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The price at which quantity supplied and quantity demanded meet
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Determinants of Supply
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Production Cost, Technology, Education, Number of Sellers, Expectations for future prices, Government Regulations
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Determinants of Demand
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Income of Buyers, Prices of Substitutes, Price of Compliments, Taste or Preference, Future Expectations
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Price Floor
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minimum price instituted so that price does not fall to equilibrium
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Price Ceiling
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maximum price instituted so that price does not reach equilibrium.
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Subsidy
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Government payment to a person or entity to assist in the production or attainment of a good or service
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Supply Shifts Left
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The cost of coffee beans goes up, raising the cost to produce a cup of coffee at Starbucks.
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Supply Shifts Right
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A new pizza oven at Johnny's cooks pizza's twice as quickly as a previous model.
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Demand Shifts Left
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A recent newspaper article links Sprite and brain cancer, affecting consumers desire for Sprite
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Demand Shifts Right
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The price of golf clubs drops significantly, affecting consumers desire to buy golf clubs.
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Factor Market
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Where labor is sold to firms in exchange for wages
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Product Market
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Where goods and services are sold to house holds in exchange for revenue.
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Market Structures
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4 major frameworks for how firms operate and compete given certain conditions. Oligopoly, Monopolistic Competition, Perfect Competition and Monopoly
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Monopoly
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known as a "price maker" this market has one seller who controls all, or the vast majority, of an industry
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Monopolistic Competition
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this type of market is characterized by having many large firms that follow price leadership and differentiate similar products by marketing them in creative ways
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Perfect Competition
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This market has sellers who are known as "price takers" and is characterized by many small sellers who sell identical products.
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Oligopoly
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This market has a few large firms who control the majority of the market and sell similar products. These firms often pose the risk of collusion, and pose a danger to consumers if they stop competing
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Collusion
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An agreement among sellers to stop competing and set similar prices, thus setting a "market price".Considered bad for consumers.
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Barriers to Entry
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Obstacles which prohibit a new firm from entering a market.
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Surplus
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When quantity supplied (Qs) exceeds quantity demanded (Qd)
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Shortage
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When quantity demanded (Qd) exceeds quantity supplied (Qs)
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Elastic Goods
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goods and services that have demand change based upon the price charged.
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Inelastic Goods
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Goods which will be consistently demanded no matter the price
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Sole Proprietorship
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Business Organization that is easy to start up and enjoys ease of decision making, however also suffers from difficulty or raising money and unlimited liability
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Business Organization
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Different strategies for how the ownership and liability of companies can be set up
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Partnership
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Business organization that enjoys ease of start up and easy decision along with shared liability. But also has a limited lifetime and limitations in raising capital.
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Corporation
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Business organization which enjoys limited liability, ease of raising money and an unlimited lifetime. But also suffers from double taxation.
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Liability
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Responsibility
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Interdependence
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Two or more entities that are reliant upon one another, or have a direct relationship.
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Functions of Money
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Store of Value, Medium of Exchange, Unit of Accounting