Chapter 3 Flashcards
Consumable outputs
goods and services
What are the categories of resources/Inputs and what are their costs?
- Natural resources/land (rent)
- Labor (wages)
- Capital (Interest)
- Entrepreneurship (profit)
What is the production process?
turns inputs into consumable outputs
Technology
the way that inputs are combined to produce outputs
Make work fallacy
the idea that jobs are valuable, whether or not the labor’s production adds value
The PPF model assumes 3 things:
- Only two goods are produced over a time period.
- Some fixed amount of resources is used.
- A given technology is used.
Law of Increasing Opportunity Cost
as more of a good is produced, the opportunity cost of producing a unit of that good rises, in terms of other goods which must be sacrificed
The PPF would be a straight line if:
all resources were equally productive
What principle is at the heart of the LIOC?
optimal arrangement principle
Which point on PPF is best?
PPF only shows possibilities: we would have to know the preferences for the different outputs produced to determine the best point
How is the eventual point on the PPF chosen?
through spontaneous order (market economy) by authoritarian decision makers (authoritarian economy)
What does economic growth look like on a PPF and what causes it?
shift right; expansion of an economy’s productive capabilities, caused by more resources, better resources, or technology
What increases one’s human capital?
education and training
What is Adam Smith’s “invisible hand”?
“by pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it”
For individuals and entire economies, income and wealth depend on what three things?
- Quantity of resources
- Quality of resources
- Freedom to use those resources