Chapter 2: Trade-Offs and Trade - The Circular-Flow Diagram Flashcards
1
Q
What is a transaction in trade?
A
- when people directly exchange goods or services they have for goods and services they want
2
Q
What does the circular-flow diagram represent?
A
- transactions in an economy by flows around a circle
3
Q
Circular flow diagram
A
4
Q
What is a household?
A
- person or group of people that share their income
5
Q
What is a firm?
A
- an organization that produces goods and services for sale
6
Q
Who do firms sell to?
A
- sell G&S that they produce to households in markets for G&S
7
Q
What do firms buy? (3)
A
- resources they need to produce G&S
- factors of production
- buy it in factor markets
8
Q
What are two main reasons that economists disagree?
A
- Which simplifications to make in a model
- Values
9
Q
Why do economists disagree in terms of politics?
A
- powerful interest groups find and promote economists who profess supportive opinions
10
Q
Why do economists disagree in terms of values? (2)
A
- diverse people have diverse values
- reasonable people can come to different conclusions because of their values
11
Q
why do economists disagree in terms of simplifications in a model? (2)
A
- economic modelling require simplifying assumptions
- to economists can legitimately disagree about which simplifications are appropriate
