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exon 200 Exam 2

TermDefinition
David Ricardo economist known for creating the theory of comparative advantage
comparative advantage the ability of a country or individual to produce a good at a lower opportunity cost than another
Tiger Woods & Lebron James example a way to illustrate comparative advantage, showing why even highly skilled individuals benefit from specializing
heterogeneous assortments differences in resources, skills, and abilities that influence trade
4 elements of trade specialization, exchange, benefits from trade, & opportunity cost
Cate & Roberto example a practical illustration of trade benefits
opportunity cost the value of the next best alternative when a choice is made
absolute advantage the ability to produce more of a good with the same resources compared to others
Specialization Focusing on a specific task to increase efficiency.
Division of Labor The breakdown of production into smaller tasks assigned to different workers.
Mercantilism Economic theory emphasizing exports over imports to accumulate wealth.
Demand The quantity of a good or service consumers are willing to buy at different prices.
Rational Actors Assumption that people make decisions to maximize their utility.
Normal Goods Goods for which demand increases when income rises.
Inferior Goods Goods for which demand decreases as income rises.
Taste Consumer preferences affecting demand.
Own Price The price of the good itself, affecting its demand.
Income Consumer earnings, influencing demand.
Expectations Future price or income expectations impacting demand.
Complements Goods consumed together (e.g., peanut butter and jelly).
Substitutes Goods that can replace each other (e.g., Coke and Pepsi).
Demand Curve A graphical representation of demand.
Supply Curve A graphical representation of supply.
Profit Revenue minus costs.
Revenue Total income from sales.
Cost of Production Expenses incurred in making goods or services.
Market Equilibrium When quantity demanded equals quantity supplied.
Excess Supply & Surplus When supply exceeds demand, leading to downward price pressure
Excess Demand & Shortages When demand exceeds supply, pushing prices up.
Consumer Surplus The difference between what consumers are willing to pay and what they actually pay.
Producer Surplus The difference between what sellers receive and their minimum acceptable price.
Deadweight Loss Loss of economic efficiency due to market distortions.
Price Signals Prices convey information about scarcity and demand
I, Pencil An essay illustrating spontaneous order in markets.
The Socialist Calculation Debate Debate on whether socialism can efficiently allocate resources.
Ludwig von Mises & F.A. Hayek Economists who argued markets are best for allocating resources.
Price Flexibility The ability of prices to adjust to changes in supply and demand.
Price Ceiling A maximum legal price (e.g., rent control).
Price Floor A minimum legal price (e.g., minimum wage).
Monopsony A market with one buyer.
Price Gouging Raising prices sharply in emergencies.
Principal-Agent Problem When incentives between decision-makers and stakeholders misalign.
Negative Externality A cost imposed on others (e.g., pollution).
Positive Externality A benefit received by others (e.g., education).
Pecuniary Externalities Price changes affecting others but not leading to market failure.
Private Goods Goods that are rival and excludable.
Club Goods Non-rival but excludable goods.
Common Goods Rival but non-excludable resources.
Public Goods Non-rival, non-excludable goods.
Tragedy of the Commons Overuse of shared resources.
The Montreal Protocol International agreement to phase out ozone-depleting substances.
Cap and Trade Market-based environmental policy.
Property Rights Legal control over resources.
Tariffs Taxes on imports.
Trade Wars Retaliatory trade restrictions.
Smoot-Hawley Tariff U.S. tariff that worsened the Great Depression.
18th Amendment Prohibition of alcohol.
Black Markets Illegal markets that emerge due to restrictions.
Iron Law of Prohibition Stronger enforcement leads to more dangerous illicit markets.
Created by: gabby_mongan
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