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Economics
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study of how mankind allocates its relatively scarce resources (CELL) to satisfy our unlimited/insatiable wants and demands - study of choice
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Microeconomics
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Price Theory
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How many items are sold at a Supercenter Walmart?
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175K
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IBM
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International Business Machines
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What to produce?
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Allocation
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How to produce?
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Production
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For whom to produce for?
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Distribution
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Efficiency
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Maximum output for minimum input
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Opportunity Cost
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Highest value alternative that must be given up to engage in an activity
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real income =
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nominal income/price
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Inferior Good
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When income goes up, you won't buy this product
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Substitutes
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Two goods that perform the same goods or services
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Complementary Goods
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To have one good, you need to buy another
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Economic Resources
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Capital, Entrepreneur, Land, Labor
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3 Assumptions of Economics
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People are rational, people respond to economic incentives, people make decisions at the margin
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Shifters of Demand
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Prices of related goods, Income, Number of buyers, Tastes and Preferences, Expectation of future prices
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As price increases, quantity demanded
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Decreases
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As price decreases, quantity demanded
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Increases
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As income increases, demand
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Increases
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As tastes and preferences increase, demand
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Increases
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As the price for a substitute increases, demand
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Increases
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As the price for a complement increases, demand
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Decreases
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As the number of buyers increases, demand
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Increases
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As the expectations of future prices increases, demand
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Increases
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Equilibrium
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When price and quantity intersect, P=Q
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Shifters of Supply
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Wages, Rent, Cost of production, Interest, Taxes, Number of sellers, Profit, Unfavorable weather
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As wages increase, supply
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Decreases
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As rent increases, supply
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Decreases
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As costs of production increase, supply
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Decreases
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As interest increases, supply
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Decreases
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As taxes increase, supply
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Decreases
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As the number of sellers decreases, supply
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Decreases
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As profit increases, supply
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Decreases
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Trading Triangle
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Spot to the left of the equilibrium where consumers and producers are both happy
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S>D there is a
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Surplus
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D>S there is a
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Shortage
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Who likes a surplus?
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Consumer
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Who likes a shortage?
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Producer
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What is the only point consumers and producers can be in the Trading Triangle?
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Equilibrium
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Consumer Surplus
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Difference between what you are willing to pay and what you do pay
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Price discrimination
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Same product selling for less in one store compared to another
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Producer Surplus
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Amount of money producer receives above what they had to sell something at
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CS + PS =
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Market Surplus (MS)
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Where is the largest movable item located?
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Oil rig in the North Sea
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Where is Sam's Club?
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To the right of the origin
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Where is Steve McQueen?
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Above the origin
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Law of Demand
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As price increases, quantity demanded increases and vice versa
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3 Economic Evils
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Inflation, unemployment, stagnation
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Cost of Capital
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Interest
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Cost of Entrepreneur
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Profit
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Cost of Land
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Rent
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Cost of Labor
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Wages
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Phillips Curve
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Trade off between prices (inflation) and UE
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Demand-pull Inflation
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When a lot of people want the same good, the price will increase
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Cost-push Inflation
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As price of inputs increases, supply decreases
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When is there transfer?
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Any time prices change