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concerned with the production, distribution, and consumption of goods and services. __________ is the study of how to allocate limited resources (scarcity) among competing uses in order to satisfy virtually unlimited wants.


In a "command economy", who controls what to produce, how to produce it, and for whom?

the market itself

In a "free market", who controls what to produce, how to produce it, and for whom?

economic model

a quantified (mathematical or graphical) tool of analysis developed in order to understand a complex reality

Capital Asset Model



__________ are effective for understanding investor, consumer, and producer perspective

production possibilities model

depiction of the varying quantities of two products that a firm (or country) can produce

land, labor, capital, entrepreneurship

Four factors of production


money and human-made instruments of production


payment for the use of capital, price paid for the borrowing of funds, OR rate of return for money invested


original amount of loan or investment (bond)

circular flow model

The movement of goods and services, factors of production, and money in an economy

goods and services

when $expenditures go to firms, __________ __________ __________ go to the household

$ payments

When the 4 factors go to firms, __________ go to the household

perfect competition

hundreds of sellers


monopolies are price __________


10-100 sellers


2-10 sellers


ex: unimproved real estate


ex: people


ex: tractors, grape seeds


ex: farmer

Law of Demand

Willingness of consumers to purchase amounts of a product at given prices

taste, income, price of related goods

Change in __________ __________ __________ are factors that cause a change in demand

price elasticity of demand

responsiveness of buyers to change in price

elastic product

large part of budget, many substitutes, luxury

inelastic product

small part of budget, no substitutes, necessity

Law of Supply

Quantities of a product that firms are willing and able to provide at various prices

cost of production, demand for other goods

Factors that cause a change in supply are a change in __________ __________

elasticity of supply

the responsiveness of producers to changes in price

price ceiling

government artificially keeping prices below equilibrium

price floor

government price support of a good whose price would normally be below equilibrium (market) price


Payment for __________ is rent


Payment for __________ is wages


Payment for __________ is interest


Payment for __________ is profit

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