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ECO 201 Miami University Final. Questions & answer
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ECO 201 Miami University Finalmarket - ANS-a group of buyers and sellers of a good or service and the institution or
arrangement by which they come together to trade
economic assumptions (3 of them) - ANS-people are rational
people respond to economic incentives
optimal decisions are made at the margin
economics - ANS-the study of the choices consumers, business managers, and
government officials make to attain their goals, given scarce resources
economic models - ANS-simplified versions of reality used to analyze real-life economic
situations
marginal - ANS-"more" or "extra"
marginal benefit - ANS-additional benefit received from extra activity/quantity
marginal cost - ANS-additional cost incurred from extra activity/quantity
economic optimal decisions - ANS-continue any activity up to the point where the
marginal benefit equals the marginal cost
marginal analysis - ANS-analysis that involves comparing marginal benefits and
marginal costs
trade-offs - ANS-the idea that because of scarcity, producing more of one good or
service means producing less of another good or service
opportunity cost - ANS-the highest-valued alternative that must be given up to engage
in an activity ; forgone benefit by choosing one alternative over another
centrally planned economy - ANS-an economy in which the government decides how
economic resources will be allocated
market economy - ANS-an economy in which the decisions of households and firms
interacting in markets allocate economic resources
,mixed economy - ANS-an economy in which elements of both a centrally planned
economy and a market economy exist ; most economic decisions result from the
interaction of buyers and sellers in markets, but the government plays a significant role
in the allocation of economic resources
productive efficiency - ANS-a situation in which a good or service is produced at the
lowest possible cost ; firms produce at the minimum point of ATC
allocative efficiency - ANS-a state of the economy in which production is in accordance
with consumer preferences; every good or service is produced UP to the point where
the last unit provides a marginal benefit equal to the marginal cost of production ; firms
charge a price equal to MC
voluntary exchange - ANS-a situation that occurs in markets when both the buyer and
seller of a product are made better off by the transaction
equity - ANS-the fair distribution of economic benefits
causal relationship - ANS-economic assumptions/hypotheses are usually about these ;
cause-and-effect relationship
economic variable - ANS-something measurable that can have different values, such as
the wages of software programmers
positive analysis - ANS-economic analysis resulting from economic models that is
concerned with "what is" ; reality
normative analysis - ANS-analysis resulting from models that is concerned with "what
ought to be"
microeconomics - ANS-the study of how households and firms make choices, how they
interact in markets, and how the government attempts to influence their choices
macroeconomics - ANS-the study of the economy as a whole: inflation, unemployment,
economic growth, etc. explains why economies experience periods of recession
percent change formula - ANS-percentage change = 100((x2 - x1)/(x1))
, production possibilities frontier - ANS-a curve showing the maximum attainable
combinations of two products that may be produced with available resources and
current technology ; as the economy moves down it, it experiences increasing marginal
opportunity costs.
increasing marginal costs - ANS-the more resources already devoted to an activity, the
smaller the payoff to devoting additional resources to that activity
economic growth - ANS-the ability of the economy to increase the production of goods
and services
trade - ANS-the act of buying and selling ; results from comparative advantage, not
absolute advantage
absolute advantage - ANS-the ability of an individual, a firm, or a country to produce
more of a good or service than competitors, using the same amount of resources
comparative advantage - ANS-the ability of an individual, a firm, or a country to produce
a good or service at a lower opportunity cost than competitors
product market - ANS-a market for goods ; households are demanders and firms are
suppliers
factor markets ; factors of production - ANS-factor markets: markets for the factors of
production
factors of production: inputs used to make goods and services (labor, capital, natural
resources, entrepreneur)
property rights - ANS-the rights individuals or firms have to the exclusive use of their
property, including the right to buy or sell it
perfectly competitive market - ANS-a market that has many buyers and sellers, identical
products, no barriers of entry to new firms
demand - ANS-what a consumer is both willing and able to buy
quantity demanded - ANS-the amount of a good or service that a consumer is willing
and able to buy at a given price
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