Econ review - Exam 1 The invisible hand directs economic...

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Exam 1 - The invisible hand directs economic activity through price - When there is a surplus in a market, there is a downward pressure on price - Two goods are substitutes if a decrease in the price of one good, reduces the demand   the other good o Substitutes: Decrease in price   Decrease in demand of other good o Complements: Decrease in price   Increase in demand for other good - Supposed a nation is producing at a price point on the production possibilities frontie   We know that the nation is not using all available resources or has inefficiencies o Operation inside the curve means that productivity is inefficient o Operation outside means the productivity is impossible o Operation on the curve means correct distribution of resources - The supply curve slopes upward because an increase in price gives produces incentiv   supply a larger quantity o Reasons Demand Shifts: Consumer income
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Prices of related goods Tastes Expectations Number of buyers o Reasons Supply Shifts: Input prices Technology Expectations Number of sellers - “No such thing as a free lunch” represents the fact that to get one thing, you much g   something else. - According to the law of demand, price and quantity demanded are inversely related -
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