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Western Governors University Accounting C251

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Western Governors University Accounting C251 The value of the best alternative that is sacrificed to obtain something you want is a/an Opportunity cost What is a graph that shows the various combinations of choices an individual can make with the resources available? Choice curve The assumption that all resources are alike will produce a straight line curve A curved production possibilities curve (PPC) changes the assumption that resources are alike What explains how the production of larger amounts of one good leads to an increase in the sacrifice of the alternative good? the law of increasing opportunity costs An outward shift of the production possibilities curve (PPC) increases the economy's capacity to respond to human wants What is the most important assumption in economic models? ceteris paribus assumption "all else being equal." Economists assume people are rational This behavior consists of people trying to get the most of something they want (to maximize some goal) out of available resources self-interested behavior The four factors of production are land, labor, capital and entrepreneurship Plants, equipment, and machinery are examples of capital resources Capital increases only when physical or human capital increases What is entrepreneurship? the activity of combining the other productive resources to produce goods and services, taking risks, and introducing new methods and new products (innovation.) What is profit? the reward for innovation, risk taking, and organization What are the three basic economic questions? What to produce? How to produce? For whom to produce? What are the three broad types of economies? 1. Traditional economy 2. Command (or planned) economy 3. Market economy Traditional economy answers the basic economic questions by tradition, or custom (Haiti banana farmers) Command (or planned) economy answers the basic economic questions through central command and control (Soviet Union, China, North Korea and Cuba) Market economy relies on incentives and the self-interested behavior of individuals to direct production and consumption through market exchanges (America) Mixed economy a blend of tradition, command, and market economies (Most modern industrial countries have this) A good that is nonrival in consumption and not subject to exclusion is called a(n)

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