Chapter 2 - Thinking Like and Economist Flashcards
Tangible items such as food, cars, & clothing
Goods
Intangible items such as education, health care, & leisure
Services
Things that limit
Constraints
Attempts to assess the economy & economic policies without resorting to value judgments = based on scientific/facts
Positive Economics
Attempts to assess the economy & economic policies and involves the use of value judgments - Cannot be tested scientifically
Normative Economics
An explanation of why certain phenomena occur
Economic Theory
“All else held constant” or “other-things-equal”
Ceteris Paribus
A highly simplified representation of a more complicated reality
Models
Name the 5 resources the economy uses to produce goods & services
1) Land OR Natural Resources
2) Labor OR Human Resources
3) Capital OR Investment Goods
4) Entrepreneurship
5) Technology
All natural resources on the land, under the land, in the water, or in the air
1) Land OR Natural Resources
The work effort of human beings both physical & mental
2) Labor OR Human Resources
Productive implements made by people to make more things
3) Capital OR Investment Goods
A special kind of labor/human resource = creative labor
4) Entrepreneurship
The practical applications of scientific knowledge
5) Technology
The term used to describe All available resources are used (both human and otherwise)
Full Employment
The term used to describe Employed resources are providing maximum satisfaction of our economic wants
= producing the right goods (allocative efficiency) in the right way (productive efficiency).
Full Production OR Economic Efficiency
Resources are used to produce the combination of goods and services wanted by society
Allocative Efficiency
-see “Full Production OR Economic Efficiency”
Least costly production techniques are used to produce wanted goods and services
Productive Efficiency
-see “Full Production OR Economic Efficiency”
1) The economy is operating efficiently = full employment and full production
2) Fixed Resources
3) Fixed Technology
4) 2 Goods = Economy only produces two types of products
4 Assumptions of Production Possibilities Frontier (PPF)
As the production of a particular good increases, the opportunity costs of producing an additional unit rises because resources are specialized
Law of Increasing Opportunity Costs
(on the line or inside the line) any combination of goods that can be produced using currently available resources
Attainable (on PPF)
(outside the line) any combination of goods that cannot be produced using currently available resources
Unattainable (on PPF)
(inside the line) any combination of goods for which you can produce more of one good without having to give up some of the other
Inefficient (on PPF)
