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Vocabulary, key concepts, quizes

Private Property

the right of private persons and firms to obtain, own, and control, employ, despose of, and bequeath land, capital, and other property

Property Rights

encourages investment, innovation, exchange, maintenance of property, economic growth

Freedom of Enterprise

entrepreneurs and private businesses can obtain and use resources to produce their goods and sell them where they choose

Freedom of Choice

owner can employ or dispose of perty and money as they choose. Workers can enter wehre they think they are qualified, consumers can buy and choose goods and services

Self Interest

motivating force of all various economic units as they express their free choices


freedom of choice exercised in pursuit of a monetary return

Round About Production

the construction adn sue of capital to aid in production of consuemr goods


use of resources of an individual to concentrate on one or a small number of goods and services

Division of Labor

human specialization
-specialization makes use of differences in ability (do
what best at)
-specialization fosters learning by doing (get better by
doing same thing)
-specialization saves time

Medium of Exchange

sellers except, buyers pay

ex) money


swapping, trade


convenient socail invention to exchange goods and services

Four Fundamental Questions

What goods and services will be produced?
How will goods and services be produced?
Who will get the goods and services?
How will the system accomodate change?

Economic Costs

payments that must be made to secure and retain the needed amounts of those resources

Normal Profit

payment (cost of ) entrepreneur's contribution

(what you want/desire to make)

Economic Profit =

total revenue (product price x quantity) - total cost (price of each resource x amount employed)

Economic Profit (pure profit)

total revenue of a firm less its economic costs (explicit and implicit)

more than normal (more than what you desire to make)

Expanding Industry

firms earn economic profits and for which an increase in outputs occurs as new firms enter industry

Declining Industry

economic profits are negative, decrease outputs as firms elave it

Consumer Sovereignty

consumers direction of production through dollar votes

Dollar Votes

what is purchased

Derived Demand

demand for resource depends on demand for products it helps provide

Guiding Function of Prices (directing)

ability of price changes to bring about changes in quantities of products and resources demanded and supplied

Invisible Hand

tendency of firms and resource suppliers that seek to further self-interest in competitive markets to competitive interests of society

Creative Destruction

new products destroy old

ex) pc's destroyed typewriters

Virtues of a Market System


Comparative Advantage

lower domestic oportunity cost than potential trading partner

Terms of Trade

beneficial to both

Foregin Exchange Market

a market in which various national currencies are exchanged for one another

-competitive market
-linkages to all domestic and foreign prices

Exchange rates

equilibrium prices


decrease in dollar compared to other currency


value of dollar increases

Protective Tarriffs

excise taxes or duties on imported goods
-shield domestic prodcers from foregin competition

Import Quotas

limits on quantities or total value of specific item

Non Tarrif Barriers (nonquota barriers)

unreasonable standards

ex) inspection of agriculture

Export Subsides

government payments to domestic producers of exported goods

World Trade Organization

oversees trade agreements by member nations and rules on trade disputes

North American Free Trade Agreement

free trade zone
reduced internal trade barriers

Best definies economic costs

total payments made to secure and retain needed resources

A change in the dollar price of yen from $1 = 100 yen to $1 = 50 yen will

increase U.S. exports and depress Japanese exports

Nontariff barriers are

licensing requirements, unreasonable quality standards, and the like designed to impede imports

The World Trade Organization (WTO)

hears and rules on trade disputes between nations

The Norht AMerican Free Trade Agreement (NAFTA)

established a free trade zone encompassing Canada, MExico, and the US

The market system's answer to the fundamental question "Who will ge the goods and services?" is essentially

Those willing and able to pay for them

The advent of DVDs essentially demolished the market for videocassettes. This was an aexample of

creative destruction

When economists say that the demand for a resource is a derived demand, they meant that

the demand for resources depends on the demand for the product taht those resources produce.

The invisible hand refers to the

notion that, under competition, decisions motivated by self-interest promote the social interest

Export subsides are

government payments to domestic producers to reduce the world prices of exported goods

Import quotas are

maximum limits on the quantity or total value of specific products imported to a nation

Specialization---the division of labor--enhances productivity and efficiency by

-avoiding the time loss involved in shifting from one production task to another
-allowing workers to develop skills by working on one, or a limited number, of tasks
0-allowing workers to take advantage of existing differences in their abilities and skills

According to teh concept of comparative advantage, agood should be produced in that nation where

its domestic opportunit cost is least

The market where currencies are traded

is called the foreign exchange marekt

Broadly defined, competition involves

independently acting buyers and sellers and freedom to enter or leave markets

Protective tariffs are

excise taxes or duties placed on imported products

Examples of economic cost

-normal profits

The payment made by a firm to obtain and retain entrepreneurial ability is known as

normal profit

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