Chapter 2 - Thinking Like an Economist

Question 1

Circular-Flow Diagram

Answer 1

A oversimplified visual model that shows the economy and how dollars flow through markets. It represents firms and markets and how they interact.

Question 2

Production Posibilites Frontier (PPF)

Answer 2

A graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology.

Question 3

Microeconomics

Answer 3

The study of how households and firms make decisions and how they interact in markets.

Question 4

Macroeconomics

Answer 4

The study of economy-wide phenomena, including inflation, unemployment, and economic growth.

Question 5

Positive Statements

Answer 5

Claims that attempt to describe the world as it is.

Question 6

Normative Statements

Answer 6

Claims that attempt to prescribe how the world should be.

Question 7

When is a production possibility efficient on a PPF?

Answer 7

Anywhere on the line on the PPF. This means that there is no way that a company can produce more of one product without producing less of another.

Question 8

When is a production possibility infeasible on a PPF?

Answer 8

Anywhere above the line on the PPF. This means that the company cannot produce that quantity of goods.

Question 9

When is a production possibility inefficient on a PPF?

Answer 9

Anywhere below the line on the PPF. This means that the company is producing less than it could be.