Chapter 2 Flashcards
provides significantly more data
Line graph
enables the economist to see the maximum feasible amounts of two commodities that a business can produce when those items are competing for that busi ness’s limited resources.
Production possibilities curve
provides a visual explanation of how a complete national eco nomic system functions.
Circular flow model
the total expenditures made by all households
Consumption expenditures
the resources used in producing the nation’s GDP
Factors of production
refers to all the natural resources that go into the production of goods.
Land
is all human effort that goes into the creation of goods or services
Labor
Goods used to produce other goods
Capital
activity of creatively combining natural resources, human labor, and capital in unique ways to develop new and useful goods and services.
Entrepreneurship
the payments business firms make in ex change for the four factors of production
Factor costs
all payments for the use of an owner’s property
Rent
all payments for labor used to produce goods or services
Wages
payment business firms make on borrowed money
Interest
difference between the revenues received from the sale of a product and the cost of the land, labor, and capital that went into its production.
Profit
payments of money or goods to persons for which the government expects no specific economic repaymen
Transfer payments
popular method of explaining simple relationships between pairs of variables
Tabular model
situation in which a government, business firm, or individual receives less income than is paid out in expenses
Budget deficit
When the government receives more in taxes than it is paying out,
Budget surplus
A collection of a nation’s financial institutions that receive deposits of excess funds from households and lend those funds to business firms.
Financial market
any time house holds withdraw money from an account or borrow it.
Dissavings
When governmental borrowing; leads to a problem
Crowding out
What are the two purposes for economic models?
Instruction me prediction of future events
What advantage does a line graph offer over a tubular model
A line graph provides significantly more data than the tubular model
For an economists , what is the primarily value of a production possibility curve
Enables the economists to see maximum feasible amounts that a business can produce with its limited resources
What does the circular flow model attempt to explain?
A circular flow model is a visual explanation of how a complete national economic system functions
What are the four factors of production?
Land, labor, capital, entreprenurship
What four payments do business firms make in exchange for thefactors of production
Rent, wages, interest, profit
What are the four major entities in the circular flow model, andwhat is the primary role of each in the circular flow?
- ) Households - which are the princple purchasers of goods and services.
- ) Business firms - which create goods and services
- ) Government - which purchases goods and services and provides transfer payments
- ) Financial market - which circulate money from households to business firms.
What is a model? Give an example of an economic model.
A model is a simplified representation of a more complex concept or item. Examples are (PPC) & circular flow model
What advantage does the line graph have over the tabularmodel?
A line graph provides significantly more data than the tabular model because it is not limited to a certain amount of observations.
a production possibilities curve, what do points on, inside,and outside the curve represent?
point on the curve presents productive efficiency in the use of resources.
A point inside the curve presents inefficient production.
A point outside the curve presents the combination of products that is unable to produce. unless the condition is to be changed.
Draw the basic circular flow (in which the only participants arehouseholds and business firms), labeling each of the arrows orflows.
Found on page 32
Difference between financial and real capital
Financial capital is money that is lent to business firms from households
Real capital is the tools that business firms use to produce goods and services
What is the most important factor of production ? Why?
Entrepreneurship because it directs, organizes, and plans production process by coordinating the land, labor, and capital.
What economic functions does the government perform as illustrated by the circular flow model?
The government purchases goods and services from businesses and give transfer payments to households while it collects personal taxes from households and business taxes from firms.
