Mankiw, Principles of Microeconomics, 6th ed, ch 2

a visual model of the economy that shows how dollars flow through markets among households and firms; missing the government and the world (imports)

a. Shows the combinations of goods + services an economy can produce
b. Usually bowed out
i. This implies opportunity costs are not constant
c. If there is a technological advancement in the production of the good/service, the curve pushed outward on the same axis

the study of how households and firms make decisions and how they interact in markets

the study of economywide phenomena, including inflation, unemployment, and economic growth

claims that attempt to describe the world as it is

claims that attempt to prescribe how the world should be

Households -(Spending)-> Market for goods and services -(Revenue)-> Firms -(Wages, rent, profit)-> Markets for factors of production -(income)-> Households

Households -(labor, land, capital)-> Markets for factors of production -(production inputs)-> Firms -(goods and services sold)-> Market for goods and services -(goods and services bought)-> Households