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Chapters 1 -3
Intro Econ
45
Economics
Undergraduate 1
01/30/2008

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Term
economics
Definition
the study of the production, distribution and consumption of goods and services
Term
economy
Definition
the social arangements that determine what is produced how it is produced and for whom it is produced.
Term
market
Definition
an institution that brings together buyers and sellers of goodds or services
Term
market-oriented economy
Definition
an economy in which most economic decisions are made by buyers and sellers, who may be individualsor firms
Term
command economy
Definition
an economy in which government either makes or strongly influences how most economic decisions are made
Term
black market
Definition
markets where the buyers and sellers make transactions without the governments approval
Term
division of labor
Definition
the way in which the work required to produce a good or service is divided into task performed by different workers
Term
specialization
Definition
when workers or firms focus on particular tasks in the overal production process for which they are well-suited
Term
economies of scale
Definition
when the average cost of producing each individual unit declines as total output increases
Term
globalization
Definition
the trend in which buying and selling in markets have increasingly crossed national borders
Term
exports
Definition
goods and services that are produced domestically and sold inn another country
Term
imports
Definition
goods and services produced abroad and then sold domestically
Term
microeconomics
Definition
the branch of economics that focuses on actions of particular actors within the economy, like households, workers and business firms
Term
macroeconomics
Definition
the branch of economies that focuses on the economy as a whole including issues like growth, unemployment inflationa nd the balance of trade
Term
goods and services amrket
Definition
a market in which firms are sellers of what they produce and households are buyers
Term
labor market
Definition
the market in which households sell thei labor as workers to buisiness firms
Term
financial capital market
Definition
the market in which those who save money provide financial capital and receive a rate of rretrun from those who whish to raise money and pay a rate of return
Term
rate of return
Definition
the payment from those who have received financial capital to those who provided it.
Term
principal
Definition
the amount of an original financial investement, before any rate of return is paid
Term
interest rate
Definition
a payment calculated as a percentage of the original amount saved or borrowed and paid by the borrower to the saver
Term
model
Definition
a simplified representation of an object or situation that includes enough of the key features to be useful
Term
monetary policy
Definition
economic policies that affect bank lending and interest rates
Term
fiscal policy
Definition
economic policies tha t involve government spending and taxes.
Term
budget constraint
Definition
a diagram which shows what choices are possible gien the prices
Term
opportunity set
Definition
another name for the budget constraint
Term
utility
Definition
the level of satisfaction or pleasure that people receive from their choices
Term
risk premium
Definition
a payment to make up for the risk of not being repaid in full
Term
inflation
Definition
rise in the overall level of prices
Term
time value of money
Definition
the cost of having to wait for repayment
Term
compound interest
Definition
when interest payments accumulate so that in later itme periods the interest rate is paid on the interest that has been earned and reinvested in previous years
Term
opportunity cost
Definition
whatever must be given up to abtain something that is desired
Term
marginal analysis
Definition
comparing the benefits and cost of choosing a little more or a little less of a godd
Term
law of diminishing marginal utility
Definition
as a person receives more of a good the marginal utility from each additional unit of the good is smaller than from the previous unit
Term
sunk cost
Definition
costs that were incurred in the past and cannot be recovered and thus should not affect current decisions
Term
total revenue
Definition
the quantity of goods and services sold by the firm multiplied by the selling priceof these goods and services
Term
total cost
Definition
all the cost that a firm must incur in the process of productions
Term
profit
Definition
total revenues minus total cost for a firm
Term
loss
Definition
when total cost exceeds total revenue for a frim loss: when total cost exceeds total revenue for a firm
Term
production possibilities frontier
Definition
a diagram that shows the combinations of output that are possible for an economy to produce
Term
absolute advantage
Definition
when one nation can produce a product at a lower cost relative to another nation
Term
comparative advantage
Definition
the goods in which a nation has its greatest procudtivity advantage or its smalles produtivity disadvantage; also, the goods that a nation can produce at a lower cost when measured in terms of opportunity cost
Term
intra-industry trad
Definition
international trade of goods within the same industry
Term
splitting up the value chain
Definition
when many of the different stages of producing a good happen in different geographic locations
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