CH.2 MODEL BUILDING AND GAINS FROM TRADE Flashcards
An assertion that can be tested and validated; it describes “what is”.
Positive statement
An opinion that cannot be tested or validated; it describes “what ought to be”
Normative statement
The process in examining a change in one variable while holding everything else constant involves a concept known as?
Ceteris Paribus
The variables that can be controlled for in a model
Endogenous factors
The variables that cannot be controlled for in a model
Exogenous factors
A model that illustrates the combinations of outputs that a society can produce if all of its resources are being used efficiently.
Production possibilities frontier (PPF)
Law stating that the opportunity cost of producing a good rises as a society produces more of it.
Law of increasing opportunity cost
Process that enables a society to produce more output in the future.
Economic growth
Limiting one’s work to a particular area
Specialization
The ability of one producer to make more than another producer with the same quantity of resources
Absolute advantage
The period of time when consumers can make decisions that reflect their short-term wants, needs, or limitations and can partially adjust their behavior
Short run
The period of time when consumers make decisions that reflect their long-term wants, needs, or limitations and have time to fully adjust to market conditions
Long run
Good produced for present consumption
Consumer good
Goods that help produce other valuable goods or services in the future
Capital goods
The process of using resources to create or buy new capital
Investment
