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final review fall 04

final review fall 04 - Economics The study of how people...

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Economics – The study of how people choose to use their scarce resources to satisfy their unlimited wants. Opportunity cost – The cost of the very next best alternative. Scarcity – when something only has a limited amount. Ceteris paribus – everything else is held constant Fallacy of composition – An error in thinking that what applies to one also applies to many. Association as causation – An error in thinking that when two events occur together, one causes the other. Real gross domestic product (real GDP) - the output of goods and services produced by labor and property located in the United States Factors of production – Land, Labor, Capital, and Entrepreneurial ability. Production possibilities curve – illustrates: maximum output given limited resources, opportunity costs, and economic growth. Relative costs – Nominal price – the money price of a good. Relative price – price of one good in terms of another good. The ratio of the nominal prices of the two goods. Relative prices – When we study the comparative advantage examples of two countries and two commodities, we will look at relative prices. Nominal prices – When we plot supply and demand curves for one good, we plot the nominal price of that good.
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