Chapter 3 Concepts and Terms Flashcards
Value is created in one of two ways:
through production and through trade
According to Adam Smith money is only…
a means of exchanging and storing value, along with keeping track of prices, income, and weath
The Production Process turns inputs into…
consumable outputs - goods and services
What are the inputs of the production process?
Natural resources/land, labor, capital, entrepreneurship
What is technology in terms of economics?
the ways that the inputs are combined to produce an output
Make Work Fallacy
the idea that jobs are valuable, whether or not the laborer’s production adds value
Production Possibilities Frontier
(PPF Model) a simplified way of understanding the production trade-offs that are made in an economy
The PPF model assumes:
only two goods are produced over some time period; some fixed amount of resources is used; a given technology is used
Applying the POA (Principle of Optimal Arrangement) to the production of two goods where resources are not all the same, results in what?
The Law of Increasing Opportunity Cost
The Law of Increasing Opportunity Cost
as more of one good is produced, the opportunity cost of producing a unit of that good rises, in terms of the other good that must be sacrificed
What happens to the PPF curve as the opportunity cost of producing more of one good falls as more of the other is produced?
The curve slopes downward
What answers the question of how much of a good to produce?
The market economy
According to Adam Smith, what is wealth and what is it not?
Wealth is about having valuable stuff, not about money.
Decisions made by an authoritarian government…
we have no guarantee that the decisions made by an authoritarian government will reflect the values of those taking part in the economy; whereas in a market economy all decisions are made based on the values of those participating in the economy
Study the image of a PPF.
