Exam 1 Review Flashcards
An economic model is
households are sellers, and firms are buyers.
A point inside the production possibilities frontier is
feasible, but not efficient.
A point on the production possibilities frontier is
feasible and effecient.
A point outside the production possibilities frontier is
not feasible.
An economy produces hot dogs and hamburgers. If a discovery of the remarkable health benefits of hot dogs were to change consumers’ preferences, it would:
move the economy along the production possibilities frontier.
Microeconomics
The study of how households and firms make decisions and how they interact in markets. (effects of rent control, foreign competition, etc.)
Macroeconomics
The study of economy-wide phenomena, including inflation, unemployment, and economic growth. (borrowing by the fed gov, changes in rate of employment, policies to promote growth in standard of living.)
Positive Statements:
Are descriptive. They make a claim about how the world IS.
Normative Statements:
Are prescriptive. They make a claim about how the world OUGHT to be.
Absolute advantage
the ability to produce a good using fewer inputs than another producer. (Ex: who can produce more goods in an hour?)
Comparative advantage:
the ability to produce a good at a lower opportunity cost than another producer (Ex: who gives up less goods to produce another good?)
Determinants of Demand:
- Number of buyers
- Change in income
- Prices of related goods
* Increase in these three will shift demand curve to the right.
* Decrease will shift D curve left. - Tastes
- shift in tastes TOWARD a good shifts demand curve to the right. - Expectations
- Ex: people expecting income to increase will spend more.
Normal Good:
An increase in income leads to an increase in demand for these goods.
Inferior Good:
increase in income leads to a decrease in demand for these goods.
An increase in ________ will cause a movement along a given demand curve, which is called a change in ________.
Supply
quantity demanded
