(Ch 02) Flashcards
What is necessary to communicate about economic issues?
Knowledge of the economic vocabulary
This vocabulary helps in precision when discussing economic concepts.
How do economists employ the scientific method?
They observe events, develop theories, and collect data to test those theories.
What is the challenge economists face when collecting data?
They cannot manipulate the economy to create data for experiments.
What is the purpose of making assumptions in economics?
To simplify and make the world easier to understand.
What does the circular-flow diagram illustrate?
The flow of goods and services, factors of production, and monetary payments between households and firms.
What do households sell in the market for factors of production?
Land, labor, and capital.
What is the production possibilities frontier?
A graph showing the combinations of output an economy can produce given available resources and technology.
What does it mean if the economy is operating on the production possibilities frontier?
It is operating efficiently.
What is opportunity cost in the context of the production possibilities frontier?
The amount of one good given up when producing more of another good.
Why is the production possibilities frontier bowed outward?
Because the opportunity cost of producing more of a good increases as production approaches maximum capacity.
What happens to the production possibilities frontier with a technological advance?
It shifts outward, demonstrating economic growth.
Define microeconomics.
The study of how households and firms make decisions and interact in specific markets.
Define macroeconomics.
The study of economy-wide phenomena such as the federal deficit and unemployment.
What are positive statements?
Statements that describe the world as it is and can be confirmed or refuted with evidence.
What are normative statements?
Statements that prescribe how the world ought to be, involving values and facts.
Why do economists disagree?
Due to different scientific judgments and different values.
What is a common mistake students make when interpreting production possibilities frontiers?
Suggesting that a point near the middle ‘looks best’ without considering the value of goods.
What is more important in economics, disagreement or consensus?
Economic consensus is more important.
Fill in the blank: Economists act as ______ when they attempt to improve the world.
[policy advisers]
