Chapter 2

Question 0

Factors of production

Answer 0

Land, labor, capital

Question 1

The circular flow diagram

Answer 1

Schematic representation of the organization of the economy

1. Households sell use of their land, labor, and capital on the market for factors of production
2. Firms use factors of production to create goods and services
3. Goods and services are sold to households in the markets for goods and services

Question 2

Production Possibilities Frontier

Answer 2

Graph that shows
Various combinations of output that an economy can possibly produce given the available factors of production and the available production technology (that firms use to turn these factors into output)

Question 3

PPF shifts outward when the economy grows due to

Answer 3

More resources
More factors of production
Advance in technology

more goods produced for less resources

Question 4

Microeconomics

Answer 4

Study of how households and firms make decisions and interact in specific markets

Question 5

Macroeconomics

Answer 5

Study of economy-wide phenomena

Question 6

Positive statements

Answer 6

Descriptive
Make a statement about how the world is
(Can be confirmed or refuted by evidence)

Question 7

Normative statements

Answer 7

Prescriptive

Make statements about how the world ought to be (opinion)

Question 8

Why an economist’s advice isn’t always followed

Answer 8

After a president hears economic advice on policy, he turns to other experts/advisors for related input. Makes decision based on all advice.

Question 9

Why economists disagree

Answer 9

1. Disagree about the validity of alternative positive theories about how the world works
2. Have different values and different normative views about what government policy should aim to accomplish

Question 10

Ways economists disagree

Answer 10

Differences in scientific judgements
Differences in values
Perception versus reality