Economics study guide

Economics study guide - Economics- The study of the...

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Economics- The study of the allocation of scarce resources among alternative uses. Microeconomics- the study of the economic choices individuals and firms make and of how these choices create markets. Models- Simple theoretical descriptions that capture the essential of how the economy works. Production Possibility Frontier: a graph showing all possible combinations of goods that can be produced with a fixed amount of resources. It illustrates five principles that are common to practically every situation studied in microeconomics: Resources are scarce; scarcity involves opportunity costs; opportunity costs are increasing; Incentives matter; Inefficiency involves real costs; Whether markets work well is important. Pg. 6 Opportunity cost- the cost of a good measured by the alternative uses that are foregone by producing it. Supply-demand model- a model describing how a good’s price is determined by the behavior of the individuals who buy the good and of the firms that sell it. Diminishing returns (David Ricardo)- Hypothesis that the cost associated with producing one more unit of a good rises as more of that good is produced. Equilibrium price- The price at which the quantity demanded by buyers of a good is equal to the quantity supplied by sellers of a good. Testing assumptions- Verifying economic models by examining validity of the
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Economics study guide - Economics- The study of the...

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