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Macro ch. 2 & 3

QuestionAnswer
What are the four ways to allocate resources? Someone determines who gets what; lottery; first-come, first-serve; market
What is "fairness and incentives"? Most options for allocating resources aren't fair, so we go with the one with the most benefits.
What are markets? The interaction of buyers and sellers.
What is a double coincidence of wants? When two parties have what each other wants.
What is demand? The amount of a product people are willing and able to purchase at every possible price.
What is the law of demand? People purchase more when the price falls.
What is "quantity demanded"? The amount of a product people are willing and able to purchase at a specific price.
What are the "determinants of demand"? Income, tastes, prices of related goods and services, expectations, and the number of buyers.
What are "normal goods"? The higher the income, the more a person can buy.
What are "inferior goods"? When income rises, people buy a more expensive item.
What are "Substitute goods"? Goods that can be used in place of each other.
What are "complimentary goods"? Goods that are used together.
What is "supply"? The amount of a good or service that producers are willing and able to offer for sale at each possible price during a period of time.
What is "quantity supplied"? The amount of a good or service that producers are willing and able to offer for sale at a specific price during a period of time.
What is the law of supply? As the price of a good or service rises, the quantity supplied rises.
What are the determinants of supply? *Technology and the number of producers*, prices of resources used to produce the product, technology and productivity, expectations of producers, the number of producers in the market, and the prices of related goods and services.
What is productivity? The quantity of output produced per unit of resource.
What is equilibrium? When quantity supplied is equal to quantity demanded.
What is a surplus? When the price is greater than the equilibrium.
What is a shortage? When quantity demanded is greater than quantity supplied and the price is below the equilibrium.
What is an exchange rate? The rate at which different currencies are exchanged.
What are the top three currencies currently? Euro, Yen, Dollar
What is a price floor? A situation in which the price is not allowed to decrease below a certain level.
What is a price ceiling? A situation in which the price is not allowed to rise above a certain level.
What do price controls do? Keep prices artificially above or below a certain level.
What is opportunity cost? The highest value alternative that must be forgone when a choice is made. (what you give up for something else)
What is a tradeoff? A sacrifice. Giving up one thing for another.
What is the PPC? Production Possibilities Curve - shows all possible quantities of goods and services that can be produced.
What causes the PPC to shift? If a country obtains more resources or its resources become more efficient.
What are gains from trade? Specializing in the activities in which opportunity costs are lowest and then trading.
What is "comparative advantage"? The ability of someone to do something with a lower opportunity cost.
What are private property rights? Ownership to your body, assets, and thing you've bought.
An increase in demand is represented by what? A shift to the right in the demand curve.
An increase in supply is represented by what? A shift to the right in the supply curve.
An increase in demand without any changes in supply will cause what to happen? Price will rise.
Created by: bp1189
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