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opportunity cost
answer
the best alternative that we forgo, or give up, when we make a choice or decision
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trade off
answer
the many other choices we are giving up to forgo the one we gave up; an opportunity cost is one of these
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scarce
answer
limited
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marginalism
answer
the process of analyzing the additional or incremental costs or benefits arising from a choice or decision
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efficient market
answer
a market in which profit opportunities are eliminated almost instantaneously profit opportunities are rare
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microeconomics
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the branch of economics that examines the functioning of individual industries & the behavior of individual decision-making units (firms & households)
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macroeconomics
answer
the branch of economics that examines the economic behavior of aggregates (income, employment, output, etc)
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positive economics (policy)
answer
an approach to economics that seeks to understand behavior & the operation of systems without making questions. it describes what exists & how it works
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normative economics
answer
an approach to economics that analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe courses of action
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model
answer
a formal statement of a theory, usually a mathematical statement of a presumed relationship between 2 or more variables
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variable
answer
a measure that can change from time to time or from observation to observation
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abstraction
answer
models simplify reality by stripping part of it away (seen as strength or weakness)
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Ockham's razor
answer
the principle that irrelevant detail should be cut away
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ceteris paribus
answer
(all else equal) a device used to analyze the relationship between 2 variables while the values of other variables are held unchanged
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post hoc fallacy
answer
a common error made in thinking about causation. If event A happens before event B, it is not necessarily true that A caused B
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fallacy of composition
answer
the erroneous belief that what is true for a part is necessarily true for the whole
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empirical economics
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the collection & use of data to test economic theories
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efficiency
answer
an economy that produces what people want at the least possible cost
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equity
answer
fairness
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economic growth
answer
an increase in the total output of an economy
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stability
answer
a condition in which national output is growing steadily, with low inflation & full employment of resources
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capital
answer
things that are produced and then used in the production of other goods and services
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factors of production
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the input into the process of production
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production
answer
the process that transforms scare resources into useful goods and services
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inputs
answer
anything provided by nature or previous generation that can be used directly or indirectly to satisfy human wants
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outputs
answer
goods and services of value to households
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Ricardo's theory of comparative advantage
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specialization and free trade will benefit all trading parties, even those that can be "absolutely" more efficient producers
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absolute advantage
answer
a producer has ________ advantage over another in the production of a good or service if he or she can produce that product using fewer resources
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comparative advantage
answer
a producer has ____________ advantage over another in the production of a good or service if he or she can produce that product at a lower opportunity cost
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consumer goods
answer
goods produced for present consumption
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investment
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the process of using resources to produce new capital
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production possibility frontier (ppf)
answer
a graph that shows all the combinations of goods and services that can be produced if all of society's resources are used efficiently
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marginal rate of transformation (mrt)
answer
the slope of the ppf
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command economy
answer
an economy in which a central government either directly or indirectly sets output targets, incomes and prices
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laissez-faire economy
answer
an economy in which people and firms pursue their own self-interest without only central direction or regulation
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market
answer
the institution through which buyers and sellers interact and engage in exchange
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consumer sovereignty
answer
the idea that consumers ultimately dictate what will be produced by choosing what to purchase
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profit
answer
selling goods and services for more than it costs to produce them
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free enterprise
answer
the freedom of individuals to start and operate private businesses in search of profit
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income
answer
the amount a household earns per year
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wealth
answer
the amount that houses have accumulated out of post income through saving or inheritance
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price
answer
the amount that a product sells for per unit and reflects what society is willing to pay
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wage rates
answer
determine the rewards for working in different jobs
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