Principles of economics chapter 2 Flashcards
What is a model
A model is a simplified representation of a real situation that is used to better understand real-life situations.
What is the `other things equal assumption´
The other things equal assumption means that all other relevant factors remain unchanged.
What does the production possibility frontier illustrate
The production possibility frontier illustrates the trade-offs facing an economy that produces only two goods. It shows the maximum quantity of one good that can be
produced for any given quantity produced of the other.
What are factors of production
Factors of production are resources used to produce goods and services.
What is technology
Technology is the technical means for producing goods and services.
When does a country have comparative advantage
A country has a comparative advantage in producing a good or service if itsopportunity cost of producing the good or service is lower than other countries’ cost.
Likewise, an individual has a comparative advantage in producing a good or service ifhis or her opportunity cost of producing the good or service is lower than it is for other
people.
When does a country have absolute advantage
A country has an absolute advantage in producing a good or service if the country can produce more output per worker than other countries. Likewise, an individual has an
absolute advantage in producing a good or service if he or she is better at producing it than other people. Having an absolute advantage is not the same thing as having a
comparative advantage.
When does trade takes the form of barter
Trade takes the form of barter when people directly exchange goods or services that they have for goods or services that they want.
What is the circular-flow diagram
The circular-flow diagram represents the transactions in an economy by flows around a circle.
What is a household
A household is a person or a group of people that share their income.
What is a firm
A firm is an organization that produces goods and services for sale. Firms sell goods and services that they produce to households in markets for goods and services. Firms buy the resources they need to produce goods and services in factor markets.
What is a economy´s income distribution
An economy’s income distribution is the way in which total income is divided among
the owners of the various factors of production.
What are positive economics
Positive economics is the branch of economic analysis that describes the way the economy actually works.
What are normative economics
Normative economics makes prescriptions about the way the economy should work.
What is a forecast
A forecast is a simple prediction of the future.
What is a variable
A quantity that can take on more than one value is called a variable.
What are causal relationships, independent variables and dependent variables
A causal relationship exists between two variables when the value taken by onevariable directly influences or determines the value taken by the other variable. In acausal relationship, the determining variable is called the independent variable; thevariable it determines is called the dependent variable.
What are curves, linear relationships and nonlinear relationships
A curve is a line on a graph that depicts a relationship between two variables. It may beeither a straight line or a curved line. If the curve is a straight line, the variables have a
linear relationship. If the curve is not a straight line, the variables have a nonlinear relationship.
When do two variables have a positive relationship
Two variables have a positive relationship when an increase in the value of one variable is associated with an increase in the value of the other variable. It is illustrated by a curve that slopes upward from left to right.
When do two variables have a negative relationship
Two variables have a negative relationship when an increase in the value of one variable is associated with a decrease in the value of the other variable. It is illustrated by a curve that slopes downward from left to right.
What is a horizontal intercept
The horizontal intercept of a curve is the point at which it hits the horizontal axis; it indicates the value of the x-variable when the value of the y-variable is zero.
What is a vertical intercept
The vertical intercept of a curve is the point at which it hits the vertical axis; it shows the value of the y-variable when the value of the x-variable is zero.
What is a slope
The slope of a line or curve is a measure of how steep it is. The slope of a line is measured by “rise over run”—the change in the y-variable between two points on the
line divided by the change in the x-variable between those same two points.
What is a nonlinear curve
A nonlinear curve is one in which the slope is not the same between every pair of points.
