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Chapter 1
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business cycle
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fluctuations in economic activity, such as employment and production
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economics
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the study of how society manages its scarce resources
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efficiency
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the property of society getting the most it can from its scarce resources
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equality
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the property of distributing economic prosperity uniformly among the members of society
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externality
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the impact of one person’s actions on the well-being of a bystander
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incentive
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something that induces (a person to act
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inflation
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an increase in the overall level of prices in the economy
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marginal changes
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small incremental adjustments to a plan of action
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market economy
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an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services
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market failure
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a situation in which a market left on its own fails to allocate resources efficiently
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market power
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the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices
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opportunity cost
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whatever must be given up to obtain some item
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productivity
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the quantity of goods and services produced from each unit of labor input
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property rights
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the ability of an individual to own and exercise control over scarce resources
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rational people
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people who systematically and purposefully do the best they can to achieve their objectives
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scarcity
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the limited nature of society’s resources
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