20 Cards in this Set
Front | Back |
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opportunity cost
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what you give up to obtain that item
e.g. giving up for years time for college
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Darrell can either brew 2 batches of beer or make 3 batches of chili. What is the opportunity cost of a batch of beer?
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3/2 a batch of chili
always put what you are trying to find the opp cost of on the bottom
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production possibilities frontier
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a graph showing combinations of output that the economy can possible produce given the available factors of the production and the available production technology
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comparative advantage
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having the lower opportunity cost
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absolute advantage
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having the higher productivity
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quantity demanded
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the amount that buyers are willing and able to buy
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demand
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the relationship between price and quantity demanded, all else equal
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demand curve
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graphical representation of demand
increases to the right, decreases to the left
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equilibrium price
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the price that equates quantity supplied to quantity demanded
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compliment
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price of other good goes up, demand goes down
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substitute
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price of substitute goes up, demand goes up
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quantity supplied
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amount that sellers are willing and able to sell
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supply
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the relationship between price and supply, all else equal
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normal good
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increase in income, increase in demand
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inferior good
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increase in income, decrease in demand
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willingness to pay (WTP)
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the maximum amount that a buyer is willing to pay
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consumer surplus (CS)
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the difference between WTP and what the buyer actually pays
graphically, SC is the area between demand (WTP) and price
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producer surplus (PS)
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the difference between price and cost (marginal)
graphically, PS is the area between price and supply (cost)
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price ceiling
|
maximum legal price
shortage if below equilibrium, non-binding if above
shortage=Qd-Qs
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price floor
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minimum legal price
excess if above equilibrium, non-binding if below
excess=Qs-Qd
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