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Mode of Production:
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A historically specific way of producing and distributing the means of satisfying humans' needs and wants (relative to E.K. Hunt)
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Capitalism:
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A social totality or organic unity of the forces of production and the social relations of production
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Material Production of Life:
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In order for humans to survive, it is necessary for them to continually alter materials of nature into forms suitable to satisfy human needs and wants
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Natural Law:
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practiced and relative to all periods of time
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Forces of Production:
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tools, buildings, knowledge, skills, techniques, implements, and machines used in the production process.
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What mediates the Material Production of Life?
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The Forces of Production
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Social Division of Labor:
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When a society divides its total labor and allocates individuals different quantities and proportions of productive activities
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Social Relations of Production
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When people are forced into permanent relations and to cooperate with each other through social division of labor
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What is the first essential feature of capitalism?
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Market-oriented commodity production
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Use value:
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the physical characteristics that allows a commodity to satisfy existing human needs and wants
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Exchange Value:
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commodities that can be exchanged for money or its quantitative worth, most important to capitalist producers
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What are the two implications for capitalist producers?
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1) If you don't have the money to purchase a commodity, you won't receive it
2) If a commodity isn't produced and sold for a price that covers cost and yields a normal profit, that commodity won't be produced for long
2) If a commodity isn't produced and sold for a price that covers cost and yields a normal profit, that commodity won't be produced for long
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What is the goal of production in capitalism?
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To obtain money in the market
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How do people satisfy their needs if their production activity has no direct connection to their consumption?
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Individuals are required to make temporary relationships to exchange commodities
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What does the Simple Circulation of Commodities? What does it accomplish and how?
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C-M-C (commodity to money to commodity) and it satisfies individual needs through indirect and temporary social relations
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What is the second essential feature of capitalism?
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Private ownership of the means of production (controlled by the capitalist class)
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What are the two implications of private ownership from the means of production?
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1) Capitalists have the right to appropriate any social surplus produced
2) Capitalists have the right to conceive, organize, and control the labor process
2) Capitalists have the right to conceive, organize, and control the labor process
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Social Surplus:
Profit:
Profit:
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the part of society's material production that is left over after the necessary material costs of production have been deducted
the money form of part of the social surplus
the money form of part of the social surplus
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Necessary Consumption of Direct Producers:
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Direct producers (labors) of the product must consume some of the total social product
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What is the third essential feature of capitalism?
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The large working class does not privately own or control the means of production
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Labor Power:
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the ability to work, which is a commodity sold for money in order to live
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Capital Social Relation:
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one relatively small section of society that privately owns and controls the means of production (capitalists) and one larger class in society that only owns their labor power (working class)
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What is the Litman test and what does a "yes" response mean?
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Ask the question "Do I have to sell labor power in order to live?" and a "yes" response means that you are a member of the working class
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What is the fourth essential feature of capitalism?
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"individualistic, acquisitive, and maximizing behavior" exhibited by most people in the economic system
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Hunt's interpretation of the fourth essential feature of capitalism?
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The value of commodities that a worker produces must be larger than the values that they consume
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Consumerism and the Alice in Wonderland effect:
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Any subjunctive need for happiness could be avoided if one could afford the right commodities
The more that one has, the more that they will want
The more that one has, the more that they will want
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What does
EKHunt believes that the strength of the Capitalist
EKHunt believes that the strength of the Capitalist
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The amount of Capital one has
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Elaborate the pressures of competition on the workers and capitalists under the fourth essential feature of capitalism
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-Workers fight with other workers over jobs.
-Workers fight with capitalists about wages and working conditions.
-Capitalists fight with capitalists over larger shares of surplus in the competitive market, so they had to gain capital faster than their rivalries.
-Workers fight with capitalists about wages and working conditions.
-Capitalists fight with capitalists over larger shares of surplus in the competitive market, so they had to gain capital faster than their rivalries.
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Who or what controls capitalism?
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Nothing; certain patterns and tendencies are reproduced in capitalism with law-like regularity but there is no order
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How do capitalists decide what to produce and how much to produce in an unregulated economy?
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Capitalists use information regarding movements, prices, and profit rates
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What is Adam Smith's Labor Embodied Theory of Value?
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"If it takes 2 hours to kill a beaver and 1 hour to kill a deer, then it must be that 1 beaver=2 deer."
He felt that in the early and rude stages in society, the different quantities of labor necessary to obtaining the commodity is the only basis of explaining their exchange value
He felt that in the early and rude stages in society, the different quantities of labor necessary to obtaining the commodity is the only basis of explaining their exchange value
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What is David Ricardo's Labor Theory of Value?
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He argued that it applies to a society where land is given and capital is accumulated and a commodity's value is determined by the relative amounts of required labor used to produce it.
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What is Karl Marx's Labor Theory of Value?
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A commodity's value is determined by the amount socially abstract labor time used in production
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Concrete Labor:
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useful labor and conductive activity of a definite kind exercised with a definite aim, responsible to a commodity's use value (hammering labor, nail into wood)
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Abstract Labor:
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undifferentiated from any particular form of labor in production and equivalent with all other labors without regard for concrete labor (homogeneous human labor)
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Socially Necessary Labor Time:
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the necessary time each day where workers have to work to produce the equivalent of their own "livelihood" (their worth), responsible for a commodity's exchange value
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What is the difference between what Smith, Ricardo, and Marx support compared to Neoclassical economists?
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Smith, Ricardo, and Marx all support an objective theory of value (existing independently from individual thought perceptible by observers and capable of being verified) whereas Neoclassical economists have a subjective theory of value determined by the supply and demand curve price theory.
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Why are neoclassical economists' views important?
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It is important because it determines a commodity's price and value, the other questions asked about capitalism, the concepts used to analyze capitalism, and the conclusions reached about capitalism
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What are the three contemporary economic schools of thought and how do they determine the price value of a commodity?
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Neoclassical economics-supply and demand
Neoridcardian/Sraffian- its conditions and costs of production
Marxian economists- the socially necessary abstract amount of labor that goes into its production
Neoridcardian/Sraffian- its conditions and costs of production
Marxian economists- the socially necessary abstract amount of labor that goes into its production
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Hypothesis:
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an untested assertion of an alleged fact
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Theory:
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an explanation of the mechanism you don't see behind the observed phenomenon
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Economic Model:
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a representation of an economic theory or part of an economic theory
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Straight line:
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the relationship between independent variable x with the dependent variable y, holding all other determinates of the value of y constant
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What causes a parallel shift in a line up or down on a graph?
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A change in the y-intercept
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Output (Q):
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The quantity of goods produced in a given time period in a firm, company, or industry.
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Input:
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the resources that go into producing outputs (machinery, natural resources, labor, etc.);
also known as factors of production (land, labor, capital).
also known as factors of production (land, labor, capital).
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Productivity:
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Output (Q)/unit input
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Average product of labor formula:
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Output (Q)/unit of labor (L)
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In what terms are nominal variables and real variables measured?
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Current money
Goods and services
Goods and services
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What does I/P and W/P stand for and tell you?
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I/P: real income tells you the purchasing power of nominal income
W/P: real wage tells you the purchasing power of nominal wage
W/P: real wage tells you the purchasing power of nominal wage
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Purchasing power:
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the volume of goods and services that a given sum of money can buy
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Integrate real wage/nominal wage and real income/nominal income
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Real wage tells you the purchasing power of your nominal wage
Real income tells you the purchasing power of your nominal income
Real income tells you the purchasing power of your nominal income
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What is the fundamental neoclassical issue?
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the assumption of resource scarcity and assume unlimited wants or unlimited demand
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Neoclassical economics is the study of ___?
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Choice
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Opportunity Cost:
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the value of the next best alternative that the decision forces the decision-maker to forgo.
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What is the hidden assumption of opportunity costs?
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full employment of scarce resources
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Scarcity:
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Insufficient in quantity or number compared to demand
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Limited:
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a point, line, or boundary beyond where something or someone is not able to go
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Production Possibilities Frontier:
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The different combination of various goods that a firm can produce given the existing technology and capability of the firm.
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What is the first property of PPF?
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There is a negative relationship (slope) between the two goods because when more of one good is produced, less of the other is produced due to scarce resources
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What is the second property of the PPF?
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The PPF is bowed out because of the assumption that the input, land, has different productivity for producing different outputs
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Diminishing Marginal Returns:
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As an increase in the amount of any one input (holding the amount of all others constant), ultimately leads to smaller additional output to the expanding input.
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Principle of Increasing Costs:
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As the production of one good increases, the opportunity costs of producing another good increases
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Integrate diminishing marginal returns and principle of increasing costs:
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Both Diminishing Marginal Returns and Principle of Increasing Costs depends on the assumption that the input has different productivity for producing different outputs
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Principle of Constant Costs:
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the assumption that an input has constant productivity for producing different outputs
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Relative Price:
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the number of units of good y that the market makes you pay to purchase good x (Px/Py)
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Quantity Demanded:
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demanded is the number of units of a good that consumers are willing and able to buy at a specific price
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5 determinates of Demand:
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1. Price
2. Population size
3. Consumer income (I)
4. Consumer tastes and preference
5. Price and availability of related goods (substitutes and compliments)
2. Population size
3. Consumer income (I)
4. Consumer tastes and preference
5. Price and availability of related goods (substitutes and compliments)
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Market Demand Curve:
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relationship of price and quantity demanded of a commodity, holding all other determinants of quantity demanded constant
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Only property of the POCC/CMR PPF:
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there is a negative slope on the PPF because people will demand less of an item as the independent variable price increases.
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The income and substitution effects in relation to the Market Demand Curve:
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When price increases and nominal income
remains the same, real income decreases
and the number of goods and services that
your nominal income can buy decreases
and people buy less of all goods (the income effect).
Holding all other determinates constant, as
the price of one good increases, people will
leave the market for the relatively less
expensive substitute (the substitution effect).
remains the same, real income decreases
and the number of goods and services that
your nominal income can buy decreases
and people buy less of all goods (the income effect).
Holding all other determinates constant, as
the price of one good increases, people will
leave the market for the relatively less
expensive substitute (the substitution effect).
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Market Supply Curve:
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relationship of price and quantity supplied of a commodity, holding all other determinants of quantity supplied constant
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4 determinates of the Market Supply Curve:
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1. Price
2. Size of industry/number of firms
3. Input prices/costs
4. Technological progress
2. Size of industry/number of firms
3. Input prices/costs
4. Technological progress
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First property of the Market Supply Curve:
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there is a positive slope because producers will supply more of an item as the independent variable price increases.
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When does the producer know to switch production from one product to a different one (based on a PPF with constant horizontal increments)?
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When the increase in the cost of the new product would cover the OPPORTUNITY cost of the other product.
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What is the defining characteristic of neoclassical economics?
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Supply and Demand curve price theory
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Supply and Demand curve price theory:
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equilibrium prices and quantities are determined by supply and demand curves
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Integrate the Market Equilibrium Graph and the Supply and Demand Curve Price Theory:
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The Market Equilibrium Graph is a model of the Supply and Demand Curve Price theory
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What is determined at Market Equilibrium?
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The equilibrium price and equilibrium quantity
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Shortage:
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There is more quantity demanded then there is quantity supplied at a specific price
(price below equilibrium)
(price below equilibrium)
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Surplus:
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There is more quantity supplied then there is quantity demanded at a specific price
(price above equilibrium)
(price above equilibrium)
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Price Ceiling:
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a legal maximum on the price of a good, purpose is to keep price from rising
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Price Floor:
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a legal minimum on the price of a good, purpose is to keep price from falling
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Assuming resource scarcity and that an input has different productivity for producing different outputs, what does the PPF and Market supply curve look like and what 2 principles can be derived from this?
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PPF will be negatively sloped and bowed outward, and the market supply curve will be a positively-sloped straight line.
The principle of increasing costs and diminishing marginal returns.
The principle of increasing costs and diminishing marginal returns.
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Assuming resource scarcity and that an input has constant productivity for producing different outputs, what does the PPF and Market supply curve look like and what 2 principles can be derived from this?
answer
PPF will be negatively sloped and a straight line, and the market supply curve will be a horizontal line.
The principle of constant costs and constant marginal returns.
The principle of constant costs and constant marginal returns.
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utility
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physical or psychic satisfaction
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5 characteristics of perfect competition
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1. Infinity of infinitesimal buyers/sellers
2. Price taking behavior
3. Homogeneous product
4. Perfect mobility of capital, into/out of any industry
5. Perfect knowledge of the past, present, future
2. Price taking behavior
3. Homogeneous product
4. Perfect mobility of capital, into/out of any industry
5. Perfect knowledge of the past, present, future
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total utility
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sum of the marginal utility or total satisfaction between two things
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marginal utility
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measures the additional satisfaction derived from an additional unit of commodity, holding the levels of consumption of all other commodities constant