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Econ Exam 1

Terms in this set (67)

Scarcity
A situation in which unlimited wants exceed the limited
resources available to fulfill those wants.
Economics
is the study of the choices people make to attain their
goals, given their scarce resources
Market
A group of buyers and sellers of a good or service and the
institution or arrangement by which they come together to trade
In analyzing markets, we generally assume
1.People are rational
2.People respond to economic incentives
3.Optimal decisions are made at the margin
marginal
cost
the additional cost associated with a small amount extra of some action.
Marginal Benefit
the additional benefit associated with a small amount extra of some action.
marginal analysis
Comparing MC and MB is known as
Trade-off
The idea that, because of scarcity, producing more of
one good or service means producing less of another good or
service.
opportunity cost
The highest-valued alternative given up in order to engage in
some activity
centrally planned economy
An economy in which the
government decides how economic resources will be allocated
Market economy
An economy in which the decisions of
households and firms interacting in markets allocate economic
resources
Mixed economy
An economy in which most economic decisions
result from the interaction of buyers and sellers in markets but in
which the government plays a significant role in the allocation of
resources.
Productive efficiency
a situation in which a good or service is
produced at the lowest possible cost
Allocative efficiency
a state of the economy in which
production is in accordance with consumer preferences; in
particular, every good or service is produced up to the point
where the last unit provides a marginal benefit to society equal
to the marginal cost of producing it
Voluntary exchange
A situation that occurs in markets when
both the buyer and the seller of a product are made better off by
the transaction
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