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Exam Study Guide Macroeconomics 201 Midterm 1

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Macroeconomics 201 Midterm 1

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Marginal Analysis

Whether an incremental change from your current modus operandi will make you better off

Opportunity Cost

The loss of potential gain from other alternatives when you pick a different alternative. Or, it is what you forego in order to engage in one activity vs. another (the net benefit you would have gained from the best available alternative)

Production Possibility Frontiers

A graph that shows the combinations of output that can possibly be produced given the available factors of production and the available production technology. This graph will only shift when there's a change in the four factors of production

Four Factors of Production

Labor, capital (the money available), inputs (materials), land


The state of no trade

Diseconomies of Scope

A case where production possibility frontiers are identical, but technology might be such that specialization still increases productivity


A collection of buyers and sellers of a particular good or service does not have to be geographically distinct

Law of Demand

This holds that, other things equal, the quantity demanded of a good falls when the price of the good rises

Demand Schedule

A table that shows the relationship between the price of a good and the quantity demanded 

Demand Curve

A graph of the relationship between the price of a good and the quantity demanded

Diminishing Marginal Utility

A law of economics stating that as a person increases consumption of a product while keeping consumption of other products constant, there is a decline in the marginal utility that person derives from consuming each additional unit of that product

Market demand

The sum of all individual demands for a particular good or service graphically, individual demand curves are summed horizontally to obtain this curve


This is the change in quantity demanded of a good caused by a change in price along a demand curve


This is the impact on a demand curve caused by something that changes the quantity demanded for any given price level (could be caused by change in consumer income, taste, prices of substitutes/complements, number of buyers, or expectations of change)

Normal Goods

Any goods for which demand increases when income increases, and falls when income decreases but price remains constant

Inferior Goods

Any goods for which demand decreases when consumer income increases, and increases when consumer income decreases but price remains constant

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