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ECON 004 Study Guide

ECON 004 Study Guide - ECON 004 Study Guide Chapter 2...

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ECON 004 Study Guide Chapter 2 Scarcity: A situation in which the ingredients for producing the things that people desire are insufficient to satisfy all wants. Four Factors Of Production: Land, Labor, Capital and Entrepreneurship Wants: Are unlimited; they include all material desires and all nonmaterial desires, such as love, affection, power and prestige. Needs: Material goods imperative for survival. Opportunity Cost: The highest- valued, next-best alternative that must be sacrificed to something or to satisfy a want. Another way to look at opportunity cost is the trade-off that occurs when one activity is undertaken rather than the next-best alternative activity. PPC: A curve representing all possible combinations of total output that could be produced assuming (1) a fixed amount of productive resources of a given quality and (2) the efficient use of those resources. Points on the curve graphically show the trade-off that occurs when more of one output is obtained at the sacrifice of another. Points above the curve are unattainable at the point in time. Points below the curve therefore entail unemployed or underemployed resources (inefficient). PPC Assumptions: 1) Resources are fully employed. 2) We are looking at production over a specific- i.e. one year. 3) The resource inputs, in both quantity and quality, are fixed. 4) Technology does not change over this time period. Shifts in PPC: Economic growth due to capital goods and specialization. Comparative Advantage: The ability to produce a good or service at a lower opportunity cost compared to other producers. Absolute Advantage: The ability to produce more units of a good or service using a given quantity of labor or resource inputs. Equivalently, the ability to produce the same quantity of a good or service using fewer units of labor or resource inputs.
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Chapter 3 Market: All of the arrangements that individuals have for exchanging with one another. Thus, for example, we can speak of the labor market, the automobile market, and the credit market. Demand: A schedule of how much of a good or service people will purchase at any price during a specified time period, other things being constant. Law of Demand: The observation that there is a negative, or inverse, relationship between the prices of any good or service and the quantity demanded, holding other factors constant. When the price of a good goes up, people buy less of, other things being equal. When the price of a good goes down, people buy more of it, other things being equal Determinants Of Demand: (1) Consumer’s income (2) tastes and preferences (3) expectations of future prices (4) prices of substitutes and complements (5) number of buyers in the market. Determinant of Quantity Demanded: Price Supply: A schedule showing the relationship between price and quantity supplied for a specified period of time, other things being equal.
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