Macro Economics Chapter 02 Power Point Flashcards
What will I learn in this chapter?
•Having learned that scarcity forces choices, here you will study the choices people make in more detail
What are the three fundamental economic questions?
1.What to produce?2.How to produce?3.For whom to produce?
What are two key concepts in this chapter?
•Opportunity costs•Marginal analysis
What is opportunity cost?
•The best alternative sacrificed for a chosen alternative
What opportunity cost am I experiencing now?
•The most money that you could be making if you were somewhere else instead of studying these slides
Can opportunity cost be something other than money?
•Yes, that most desired activity that you are presently giving up is considered an opportunity cost
What is marginal analysis?
•An examination of the effects of additions to or subtractions from a current situation
What is an example of marginal analysis?
•When your benefit of studying these slides exceeds the opportunity cost, you will spend time studying these slides
What is a production possibilities curve?
•A curve that shows the maximum combinations of two outputs that an economy can produce, given its available resources and technology.
What is technology?
•The body of knowledge and skills applied to how goods are produced
What assumptions underlie the production possibilities model?
1.Fixed resources2.Fully employed resources3.Technology unchanged
What is the conclusion of the production possibilities curve?
•Scarcity limits an economy to points on or below its production possibilities curve
What are efficient points?
•Because all the points along the curve are maximum output levels with given resources and technology, they are called efficient points
What happens when we move between two efficient points?
•A movement between any two efficient points on the curve means that more of one product is produced only by producing less of the other
What is the law of increasing opportunity costs?
•The principle that the opportunity cost increases as production of one output expands
What is economic growth?
•The ability of an economy to produce greater levels of output, an outward shift of its production possibilities curve
What makes possible economic growth?
•Research and development of new technologies•Increase production in excess of worn out capital
What happens when a country does not invest in new technology?
•Everything else being equal, the country will not grow
What is investment?
•The accumulation of capital, such as factories, machines, and inventories, that is used to produce goods and services
What is the opportunity cost of investment?
•The consumer goods that could have been purchased with the money spent for plants and other capital
What does an increase in investments make possible in the future?
•Economic growth and more goods and services
What conclusion can we make about investments?
•A nation can accelerate growth by increasing production of capital goods in excess of the capital being worn out
