Chapter 2 - Thinking Like an Economist

Question 1

Models

Answer 1

• a highly simplified representation of a more complicated reality

Question 2

Slope

Answer 2

• rise/run

Question 3

Production Possibilities Frontier (PPF)

Answer 3

• a graph showing the combinations of two goods the economy can possibly produce given the available resources and available technology

Question 4

PPF - Feasible

Answer 4

• any point that is on or below the PPF

- points below are ineffecient

Question 5

PPF - Not Feasible

Answer 5

• any points above the PPF

Question 6

PPF & Opportunity Cost

Answer 6

• slope tells you the OC of one good in terms of the other (X in terms of Y)
• steeper slope means higher OC

Question 7

PPF Shift

Answer 7

• Economic Growth shifts PPF

Question 8

PPF Shape

Answer 8

• Could be linear or a bow-shape
• If OC is constant, PPF is Straight (and so on)
• Bow-Shaped when different workers have different skills

Question 9

Positive Statements

Answer 9

• attempt to describe world as it is

- cause differences in scientific judgements

Question 10

Negative Statements

Answer 10

• attempt to say what the world ought to be

- cause differences in values