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Terms in this set (35)
Economics is the study of
how society manages its scarce resources
Scarce Resources include
land, people, machines
The adage, "There is no such thing as a free lunch," is used to illustrate the principle that
people face trade-offs
A tradeoff exists between a clean environment and a higher level of income in that
Laws that reduce pollution raise costs of production and reduce income
What you give up to get something else
Melody decides to spend three hours working overtime rather than going to the park with her friends. She earns $20 per hour for overtime work. Her opportunity cost of working is
the enjoyment she would have received had she gone to the park
Efficiency means that
Society is getting its maximum benefits from its scarce resources
In considering how to allocate its scarce resources among its various members, a household considers
a members desires, abilities and efforts
The overriding reason why households and societies face many decisions is that
Resources are scarce
Equality refers to..
how evenly the benefits from using the scarce resources are distributed among members of society
How are Equality and Efficiency different?
equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources.
An economy can produce at any point on or inside the production possibilities frontier, but
Not on the outside
An economic outcome is said to be efficient if the economy is
Getting all that it can get from the scarce resources it has available
Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that
the nation is not using all available resources or is using inferior technology or both
What concepts cannot be illustrated by the production possibilities frontier?
Economists believe that production possibilities frontiers have what type of shape?
often have a bowed shape
the term "productivity" refers to
the quantity of good and services produced from each unit of input
Almost all variation in living standards is attributable to differences in countries'
the dispassionate development and testing theories about how the world works
One thing economists do to help them understand how the real world works is
Economists make assumptions to
focus their thinking on the essence of the problem at hand
In building economic models, economists often omit
Provide insights about the world
built with assumptions
A circular-flow diagram is a model that
-Helps show how participants in the economy interacts with one another
-Helps to explain how the economy is organized
Factors of production are used to
produce goods and services
In the flow diagram what is not a factor of production?
What are the factors of production in the circular-flow diagram?
land, labor and capital
In economics, capital refers to
buildings and machines used in the production process
Which key players is omitted from the simple circular-flow model?
In the circular-flow diagram, another name for goods and services produced by firms is
At the equilibrium price, the quantity of the good that buyers are willing and able to buy
exactly equals the quantity that sellers are willing and able to sell.
Another term for equilibrium price is
In a given market, how are the equilibrium price and the market-clearing price related?
They are both the same price
In markets, prices move toward equilibrium because of
the action of buyers and sellers
What event must cause the equilibrium price to rise?
demand increases and supply decreases
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