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

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