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basic definitions

Scarcity

Always exists and will continue to exist even as technology continues to advance

Scarcity stems from?

incompatibility between limited resources and unlimited wants

3 Key Economic ideas

people are rational, people respond to incentives, people optimize at the margin

Marginal

changes in quantity used for a good or service "extra" or "additional

At the margin?

"all or nothing"

3 fundamental economic questions

What will be produced, how will it be produced and who will receive the goods

Market economy

Houshoulds and firms interacting in markets allocate economic resources

Mixed economy

Households, firms, and government decide

Planned economy

Government decides

Limited resources and income?

In a market system, prevents people from getting as many goods and services as they wish

Productive efficiency

When a good or service is produced at its lowest cost

Allocative efficiency

firms produce the good and service consumers prefer most

Voluntary Exchange occurs when?

All transactions are an improvement for both parties, every one is well off

A third variable can influence a graph by?

It can shift the slope to show positive or negative relationships

Opportunity cost

The highest valued alternative that must be given up to engage in an activity

A point on the production possibilities frontier (ppf)

Is a point of production

The bowed curve on the ppf

shows the attainable production points

What does the slope of ppf mean?

Increasing marginal opportunity cost, the basic trade off of items to create one thing

PPF bowed shape indicate?

Increasing marginal opportunity, because increasing the production of one thing requires to decrease the production of another

Comparative advantage

The ability of an individual, a firm, or country to produce a good or service at a lower opportunity cost than competitors

Competitive market equilibrium

Economically efficient level of output is produced, economic surplus is maximized- there is no deadweight loss, the marginal benefit equals the marginal cost of the last unit sold

Additional benefit and additional cost

consumer surplus and producer surplus is said to measure the net benefit from participating markets

Decrease price in a complement

Increases the demand for another

Leftward shift in demand

Is an decrease in demand, hypothetically consumers income is lower

Shortage

means that it will eventually regain, the shortage is not permanent

Rise over Run

Explains the measurement of the slope between elasticity of demand

5 determinants of price elasticity of demand

Availability of close substitutes, passage of time, luxuriess versus necessities, definition of the market, share of the good in consumers budget

Perfectly elastic demand

Is perfectly horizontal to the qty, and is equal to infinity

perfectly inelastic demand

Is perfectly vertical to price and is equal to zero

Elastic

Is if the number is greater than one

Inelastic

If the number is less than one but not zero

Utility

The enjoyment or satisfaction people receive from consuming goods and services

Economic Model predicts consumers will do two things

Follow the rule of equal marginal utility per dollar, total spending on all goods must equal to the amount available to be spent

Law of Demand implies

Holding everything lease constant that price of a product falls, the quantity demanded will increase and vice versa

Price decrease on normal good

Income effect (IE) price falls, income feels higher, QTYD increases Substitution effects (SE), price falls, good relatively cheaper, QTYD increases

Price decrease on inferior good

Income effect (IE), price falls, income feels higher, QTYD decreases Substitution effect (SE) prices falls, good relatively cheaper, QTYD increases

Indifference curve

A curve that show the combinations of consumption bundles that give the consumer the same utility

Marginal Rate of Substitution

The rate at which a consumer would be willing to trade off one good for another

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