question
model
answer
a simplified representation of a real situation that is used to better understand real-life situations
question
production possibility frontier
answer
in an economy that produces only two goods, the maximum quantity of one good that can be produced for any given quantity produced of the other
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factors of production
answer
the resources used to produce goods and services
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technology
answer
the technical means of producing goods and services
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comparative advantage
answer
a situation in which one individual's/country's opportunity cost of producing a good or service is lower than other individuals'/countries'
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absolute advantage
answer
a situation in which a country can produce more output per worker than other countries or an individual is better at producing than other people
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barter
answer
a form of trade in which people directly exchange goods or services they have for goods or services they want
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circular-flow diagram
answer
an illustration of the transactions in an economy by two kinds of arrows, one showing money and one showing products
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household
answer
a person or group of people that share their income
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firm
answer
an organization that produces goods and services for sale
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markets for goods and services
answer
the space where firms sell goods and services they produce to households
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factor markets
answer
the space where firms buy the resources they need to produce goods and services
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income distribution
answer
the way in which total income is divided among owners of the various factors of production
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positive economics
answer
the branch of analysis that describes the way the economy actually works
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normative economics
answer
the branch that makes prescriptions about the way the economy should work
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forecast
answer
a simple prediction of the future
question
variable
answer
a quantity that can take on more than one value
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causal relationship
answer
a situation where the value taken by one variable directly influences or determines the value taken by the other variable
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curve
answer
a line on a graph that depicts a relationship between two variables
question
positive relationship
answer
a situation in which an increase in the value of one variable is associated with an increase in the value of the other variable; upward slope
question
negative relationship
answer
a situation in which an increase in the value of one variable is associated with a decrease in the value of the other variable; downward slope
question
time-series graph
answer
an illustration that shows dates on the horizontal axis and values of a variable that occurred on those dates on the vertical axis
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omitted variable
answer
an unobserved variable that, through its influence on other variables, creates the erroneous appearance of a direct causal relationship among those variables
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reverse causality
answer
an error in which the true direction of causality between two variables is reversed
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