chapter 2

Question 1

economic model

Answer 1

representation of a real situation used to understand better real life situations and consequences of policies.
other things equal assumption –> all the relevant factors remain unchanged

Question 2

production possibility frontier (PPF) and its key element

Answer 2

considers trade off in an economy that produces only two goods
key element: efficiency in production (nothing more of good1 could be produced without sacrificing good2) and allocation (nothing more could be sold, meet parameters of consumers)

Question 3

PPF and opportunity cost slope

Answer 3

if the opp. cost is a constant change the slope of the graph will be straight, if it is increasing it will be a BOWED-OUT curve

Question 4

PPF and economy growth

Answer 4

depending on factors of production and technology, the more of both the more growth

Question 5

comparative vs. absolute advantage

Answer 5

model that shows the gains from trade
comparative adv. –> opportunity cost of the production is lower for a country than the others
absolute adv. –> the country that can produce the most output per worker

Question 6

circular-flow diagram

Answer 6

model that shows the flow of money, goods and services in an economy
households and firms (+ the intrusion of the government)
factor markets and markets for goods