Chapter 1.3 Flashcards
Model
A simplified representation of something in the real world
Two conditions for an economy to be somewhere on the PPC
All resources must be fully employed
All resources must be used efficiently
What does the production possibilities curve represent?
All combinations of the maximum amount of two goods that can be produced by an economy, given its resources and technology, when there is full employment of resources and efficiency in production
Where is an economy always at on the PPC curve and why?
Inside the PPC curve, because in the real world there will always be some employment and inefficiency in production
How is scarcity illustrated through the PPC curve?
An economy can never produce outside of its PPC because there aren’t enough resources
How is choice illustrated through the PPC curve?
An economy has to choose which point on the PPC it should be at due to scarce resources
How is opportunity cost illustrated through the PPC curve?
If the economy was on any point on the curve, increasing production of one good would decrease production of the other
Economic growth
Increases in the quantity of output produced in an economy over a period of time
Actual growth on the PPC curve
A shift from one point inside the PPC to another point closer to the PPC
Causes of actual growth
Reduction in unemployment and increases in efficiency
Growth in production possibilities on the PPC curve
An outward shift of the PPC
Causes of growth in production possibilities
Increases in the quantity or quality of resources and technological improvements
Circular flow of income model
A model that illustrates some economic concepts and relationships to help understand the overall economy
Households/Consumers
Owners of the four factors of production
What does the circular flow of income show for any given time period?
The value of output produced by an economy is equal to the total income generated in producing that output, which is equal to the expenditures made to purchase that output
