Ch 2: Model Building and Gains from Trade

Question 1

positive statement

Answer 1

a statement that can be verified, like a fact (p27) “unemployment is 7.0%”

Question 2

normative statement

Answer 2

a statement that cannot be verified, like an opinion (p27) “an unemployed worker should receive financial assistance to help make ends meet”

Question 3

ceteris paribus

Answer 3

the process of examining a change in one variable while holding everything else constant (p28)

Question 4

endogenous factors

Answer 4

the variables that can be controlled for in a model P29

Question 5

exogenous factors

Answer 5

the variables that cannot be controlled for in a model. P29

Question 6

production possibilities frontier

Answer 6

a model that illustrates the combinations of outputs that a society can produce if all of its resources are being used efficiently

Question 7

law of increasing opportunity cost

Answer 7

increase production of one good, the opportunity cost to produce the additional good will increase. p35

Question 8

specialization

Answer 8

when a nation or individual concentrates its production efforts on producing a limited variety of goods

Question 9

absolute advantage

Answer 9

when a producer can produce a good or service in greater quantity for the same cost p39

Question 10

consumer goods

Answer 10

Goods consumed for present consumption

Question 11

capital goods

Answer 11

Capital goods are tangible assets that an organization uses to produce goods or services such as office buildings, equipment, and machinery

Question 12

investment

Answer 12

the purchase of goods that are not consumed today but are used in the future to create wealth

Question 13

variable

Answer 13

any measurement that helps to determine how an economy functions in a model

Question 14

scatterplot

Answer 14

a graph that shows individual (x,y) points.

Question 15

negative correlation

Answer 15

a relationship between two variables in which one variable increases as the other decreases, and vice versa.

Question 16

positive correlation

Answer 16

a relationship between two variables in which both variables move in the same direction

Question 17

slope

Answer 17

it measures the relationship between two variables. Positive slope rises, Negative slope falls. Rise(Y) over run(X)

Question 18

causality

Answer 18

condition existing when one variable influences another p65

Question 19

reverse causation

Answer 19

means that X and Y are associated, but not in the way you would expect. Instead of X causing a change in Y, it is really the other way around: Y is causing changes in X p66