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flashcards made for help studying with macroeconomics CLEP

scarcity

desires are unlimited, resources are limited.

economics

the science of efficiency; concerned with allocating these scarce resources so as to achieve maximum fulfillment of our material wants

full employment

all resources available being used (land, capital goods, and laborers)

full production

all available resources are making the most valuable contributions to output

allocative efficiency

all resources are devoted to society's most desired goods and services

productive efficiency

the least costly method of production is being used to produce the desired goods and services

economic efficiency

achieved when society is producing at full employment and full production

opportunity cost

the amount of products that must be forgone in order to obtain an additional unit of any given product

downward slope

a graphical representation of opportunity costs

production possibilities curve

a graphical representation of the boundary between what is attainable and what is not

four assumptions of PPC

(1) the economy is fully efficient meaning that it is operating at full production and full employment; (2) resources are fixed; (3) technology is fixed; and (4) there are only two products.

attainable and efficient

points on the PPC

outside PPC

a point of production that is unattainable

inside PPC

a point of production that is inefficient

concave shape of PPC

indicates increasing opportunity costs

shift to right of PPC

indicates economic growth (society found more resources or developed better technology)

consumer goods

goods that satisfy needs or wants immediately and get used up

capital goods

items that satisfy wants indirectly by facilitating the production of consumer goods; economic growth is dictated by a society's production of capital goods

capitalism

a system of private ownership of resources using free markets and prices to determine economic activity; little government involvement

laissez-faire

meaning, 'let it be,' this is a term that indicates little government involvement in the economy

command economy

a communist economy; the government determines what is produced and in what quantities and at what price

mixed economy

most economies are not completely laissez-faire and not completely command, but some mixture

traditional economy

custom and culture define how resources are produced and exchanged and how income is distributed, and technology is viewed as invasive

demand

amount of a good or service that consumers plan to buy in a given period of time and in given conditions

factors influencing demand

(1) the price of the good; (2) the prices of related goods; (3) expected future prices; (4) income; (5) population; and (6) preferences

Law of Demand

the higher the price, the lower the quantity demanded. the lower the price, the higher the quantity demanded.

demand curve

slopes downward

substitute effect

if a similar good is priced more cheaply, people will buy the cheaper substitute instead of the good itself (Coke, Pepsi; bananas, strawberries)

income effect

at a lower price, people will buy more of a particular good because they do not have to sacrifice other goods at its expense

change in demand

when something other than price changes a demand, the demand curve shifts left or right

increase in demand

curve shifts to right

decrease in demand

curve shifts to left

supply

the amount of good or service that a producer plans to sell in a certain time frame

factors determining supply

1) the technique of production; (2) prices of resources needed to produce the good or service; (3) taxes and subsidies; (4) prices of other goods; (5) price expectations; and (6) the number of other sellers in the market.

Law of Supply

as price rises, the corresponding quantity supplied also rises and likewise when the price falls, the quantity supplied decreases

change in supply

when something other than price changes in supply, the supply curve shifts left or right

increase in supply

curve shifts to right

decrease in supply

curve shifts to left

equilibrium price

the point at which quantity demanded and quantity supplied meet

surplus

results when the price is set above equilibrium price

shortage

results when the price is set below the equilibrium price

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