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scarce resources
the limited nature of society's resources
trade offs
efficency
the property of society getting the most it can from its scarce resources
opportunity cost
whatever must be given up to obtain some item
market economy
an economy that allocates resources through the decntralized decisions of many firms and households as they interact in markets for goods and services
positive statements
claims that attempt to describe the word as it is
normative statements
claims that attempt to prescribe how the world should be
absolute advantage
the ability to produce a good using fewer inputs than another producer
comparative advantage
the ability to produce a good at a lower opportunity cost than another producer
specialization
imports
goods produced abroad and sold domestically
exports
good produced domestically and sold abroad
market economics
market
a group of buyers and sellers of a particular good or service
quantity demanded
the amount of a good that buyers are willing and able to purchase
law of demand
the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises
demand schedual
a table that shows the relationship between the price of a good and the quantity demanded
determinants of demand
normal goods
a good for which, other things qual, an increase in income leads to an increase in demand
inferior goods
a good for which, other things equal, an increase in income leads to a decrease in demand
complements
two goods for which an increase in the price of one leads to a decrease in the demand for the other
substitutes
two goods for which an increase in the price of one leads to an increase in the demand for the other
quantity supplied
the amount of a good that sellers are willing and able to sell
supply curve
a graph of the relationship between the price of a good and the quantity supplied
law of supply
the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises
equilibrium
a situation in which the market price has reached the level at which quantity supplied equals quantity demanded
shortage
a situation in which quantity demanded is greater than quantity supplied
surplus
a situation in which quantity supplied is greater than quantity demanded
productivity
the quanityt of goods and services produced from each unit of labor input
assumptions
circular flow
a visual model of the economy that shows how dollars flow through markets among households and firms
factors of production
the inputs used to produce goods and services
production possibilities frontier
a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production techonology
microeconomics
the study of how households and firms amke decisions and how they interact in markets
macroeconomics
the study of economy-wide phenomena, including inflation, unemployment, and economic growth
externality
the uncompensated impact of one person's actions on the well-being of a bystander
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