Chapter 2 (think like an economist) Flashcards
Circular flow diagram
a visual model of the economy that shows how dollars flow through markets among households and firms
3 inputs firms use to produce goods
1) labor
2) land
3) capital
production possibilities frontier
graph that show the opportunity cost of one good as measured in terms of another. (a graph that shows the combinations of output that the economy can possible produce given the available factors of production and the available production technology)
how do you tell the opp cost from a PPF
opp cost = slope (can change through graph)
on a PPF a steeper line means a _____opp cost
higher
on a PPF a flatter line means a _____opp cost
lower
microeconomics
the study of how households & firms make decisions & how they interact in markets
macroeconomics
the study of economy wide phenomena including: inflation, unemployment, and economic growth
positive statements
claims that attempt to describe the world as it is
normative statements
claims that attempt to prescribe how the world should be
What do firms attribute to the economy?
- produce and sell goods and services
- hire and use factors of production
what do household attribute to the economy?
- buy and consume goods and services
- own and sell factors of production
why do economists disagree?
- different opinions of what is important
- difference in values
