Economics Vocab Quiz 2 Flashcards
Circular Flow Diagram
Visual model of the economy that shows how dollars flow through markets among households and firms
Firms
produce and sell goods and services
Households
buy and consume goods and services
Where are factors of production?
Firms: hire and use factors of production
Households: own and sell factors of production
Factors of production
inputs used to produce goods and services
land, capital, labor
Production possibilities frontier
Shows the combinations of output that the economy can produce given the available factors of production and technology
Looks like the guns vs. butter chart
Microeconomics
Focuses on the individual parts of the economy
Ex: how households and firms make decisions and how they interact in specific markets
Macroeconomics
Looks at the economy as a whole
Ex: nationwide economy, unemployment, economic growth
Policy Advisor
When economists are trying to explain the world, they are scientists
When economists are trying to change the world, they are policy advisor
Positive statements
Attempt to describe the world as it is
Descriptive analysis
Normative statements
About how the world SHOULD be
Perscriptive analysis
More opinion than fact
