Chapter 16

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Rational decision making-making decisions based on factual information and logical reasoning Marginal benefits/costs-additional benefits received when one more unit of a product is produced Specialization-the development of skills in a specific kind of work Voluntary exchange-the act of buyers and sellers freely and willingly engaging in market transactions Non-fraudulent exchange-the act of doing something on your own without someone forcing you to do it. exchanging goods, services, resources, etc Circular flow diagram-a visual model of the economy that shows how dollars flow through markets among households and firm Resource market(factor)- market in which firms purchase the factors of production from households Product market-the market in which households purchase the goods and services that firms produce Law of demand-consumers buy more of a good when its price decreases and less when its price increases Law of supply-tendency of suppliers to offer more of a good at a higher price Demand- the ability and desire to purchase goods and services Supply- offering goods and services for sale

Market clearing price-the price at which the amount supplied is equal to the amount demanded Equilibrium price-the price that balances quantity supplied and quantity demand Price ceiling-a maximum price that can be legally charged for a good or service Price floor-a legal minimum on the price at which a good can be sold Price elasticity-a measure of the sensitivity of demand to changes in price Sole proprietorship-a business owned and managed by a single individual Partnership-a contract between two or more persons who agree to pool talent and money and share profits or losses Corporation-a business owned by stockholders who share in its profits but are not personally responsible for its debts Monopoly-complete control of a product or business by one person or group Oligopoly-a market structure in which a few large firms dominate a marke Monopolistic competition- market...