question
What are the economic models?
answer
circular-flow diagram and production possibilities curve
question
how does the circular flow diagram work?
answer
outer arrows show flow of dollars, inner arrows shoe flow of inputs and outputs
question
who are the "actors" in the circular flow diagram and what do the do?
answer
firms: produce and sell goods and services, hire and use factors of production
households: buy and consume goods and services, own and sell factors of production
households: buy and consume goods and services, own and sell factors of production
question
What are the 2 markets in the circular flow diagram?
answer
market for factors of production, market for goods and services
question
what are the factors of production?
answer
land, labor, capitol
question
what are the payments to the factors of production?
answer
land: wager
labor: profit
capitol: rent
labor: profit
capitol: rent
question
what does PPF stand for?
answer
production possibilities curve
question
What does the PPF tells us?
answer
shows the combinations of outputs that the economy can produce given the available FOP and the available production technology
question
what is an increasing opportunity cost? constant opportunity cost?
answer
the amount or resources that you have to give up increases with each additional unit of output; the about of resources that you have to give up remains the same for each additional unit of output
question
how does the type of opportunity cost affect the shape of the PPF?
answer
if opportunity cost remains constant, PPF is a straight line
if the opportunity cost of a good rises as economy produces more of the good, PPF is bow-shaped
if the opportunity cost of a good rises as economy produces more of the good, PPF is bow-shaped
question
what causes the PPF to shift or pivot outward?
answer
economic growth shifts the PPF outward
when you destroy the factors of production, the PPF shifts inward
when you destroy the factors of production, the PPF shifts inward
question
what is the result of a shift of the PPF?
answer
there are new point of efficiency that the economy should be aiming for
question
what is a normative statement?
answer
claim that attempts to prescribe how the world should be
question
what is a positive statement?
answer
claim that attempts to describe how the world is
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