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Managerial Economics > Topic 2: Circular Flow and PPF > Flashcards

Topic 2: Circular Flow and PPF Flashcards

1
Q

Terminology: Mathematics

A

integrals
axioms
vector spaces

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2
Q

Terminology: Psychology

A

ego
id
cognitive
dissonance

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3
Q

Terminology: Law

A

promissory
estoppel
torts
venues

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4
Q

Terminology: Economics

A

supply
opportunity cost
elasticity
consumer
surplus
demand
comparative advantage

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5
Q

Economics trains you to…

A

-Think in terms of alternatives.
-Evaluate the cost of individual and social choices.
-Examine and understand how certain events and issues are related.

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6
Q

The economic way of thinking…

A

-Involves thinking analytically and objectively.
-Makes use of the scientific method.

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7
Q

Uses _________ to help explain how a complex, real world operates.

A

Abstract models

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8
Q

Develops ________ to evaluate the theories.

A

Theories, collects, and analyzes data

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9
Q

Economists make _______ in order to make the world easier to understand.

A

Assumptions

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10
Q

The ___________ is deciding which assumptions to make.

A

Art in scientific thinking

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11
Q

They use different assumptions to answer different questions.

A

Economists

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12
Q

Two of the most basic economic models include:

A

-The Circular Flow Diagram
-The Production Possibilities Frontier

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13
Q

A visual model of the economy that shows how pesos flow through markets among households and firms.

A

Circular-flow diagram

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14
Q

Produce and sell goods and services. Hire and use factors of production

A

Firms

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15
Q

Buy and consume goods and services. Own and sell factors of production

A

Households

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16
Q

Firms sell, Households buy

A

Markets for Goods and Services

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17
Q

Households sell, Firms buy

A

Markets for Factors of Production

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18
Q

Factors of Production

A

-Inputs used to produce goods and services
-Land, labor, and capital

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19
Q

It is a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology.

A

Production possibilities frontier

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20
Q

It was named after Vilfredo Pareto, an Italian economist who used the concept in his studies of economic efficiency and income distribution.

A

Pareto Efficiency

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21
Q

In economics, _________ is optimizing human wants within the boundaries of limited resources.

A

Efficiency

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22
Q

It occurs when no possible reorganization of production or distribution can make anyone better off without making someone else worse off.

A

Pareto Efficiency

23
Q

What makes Pareto efficiency important?

A

It is commonly accepted that outcomes that are not Pareto efficient are to be avoided, and therefore Pareto efficiency is an important criterion for evaluating economic systems and public policies.

24
Q

Does a change in policy to liberalize a monopoly an acceptable Pareto Efficiency?

A

A change aimed at improving economic efficiency may require compensation of one or more parties.

The loss of the monopolist will be more than offset by the gain in economic efficiency.

25
Q

A graph showing the of production of goods and/or services that an economy can produce during a specified period of time with the consideration of the existing technology.

A

Production-possibility curve or product transformation curve

26
Q

Shows all possible combinations of two goods that can be produced simultaneously during a given period of time

A

Production possibilities frontier

27
Q

Assumptions in Production Possibilities Frontier (PPF)

A
  1. There are only two goods produced.
  2. Fixed amount of production resources at a given time.
  3. Resources is readily available to be transferred from one sector to another
  4. Technology exhibits diminishing marginal returns in the use of productive outputs.
  5. All productive resources are fully utilized.
28
Q

Assumption: There are only two goods produced.

A

Comparison of one good and the other as one good or other goods

29
Q

Assumption: Fixed amount of production resources at a given time.

A

A trade-off between two goods and/or services.

30
Q

Assumption: Technology exhibits diminishing marginal returns in the use of productive outputs.

A

Cannot produce an indefinite constant per unit

31
Q

States that in all productive processes, adding more of one factor of production, while holding all others constant, will at some point yield lower per-unit returns.

A

Diminishing marginal returns

32
Q

An economy is ________ if it is inside the PPF

A

Inefficient

33
Q

Outside the PPF, it is ____________

A

Not feasible

34
Q

An __________ economy is within the PPF

A

Efficient

35
Q

Concepts Illustrated by the Production Possibilities Frontier

A

-Efficiency
-Tradeoffs
-Economic Growth

36
Q

Focuses on the individual parts of the economy. How households and firms make decisions and how they interact in specific markets

A

Microeconomics

37
Q

Looks at the economy as a whole. Economy-wide phenomena, including inflation, unemployment, and economic growth.

A

Macroeconomics

38
Q

When economists are trying to explain the world, they are __________.

A

Scientists

39
Q

When economists are trying to change the world, they are ________.

A

Policy advisor

40
Q

Statements that attempt to describe the world as it is. Called descriptive analysis

A

Positive statements

41
Q

Statements about how the world should be. Called prescriptive analysis

A

Normative statements

42
Q

Positive or Normative Statements?
- An increase in the minimum wage will cause a decrease in employment among the least-skilled.

A

POSITIVE

43
Q

Positive or Normative Statements?
- Higher federal budget deficits will cause interest rates to increase.

A

POSITIVE

44
Q

Positive or Normative Statements?
- The income gains from a higher minimum wage should pay higher taxes to the government since this will help the economy to grow in terms of government expenditures.

A

NORMATIVE

45
Q

Positive or Normative Statement
-State governments should be allowed to collect from tobacco companies the costs of treating smoking-related illnesses among the poor.

A

NORMATIVE

46
Q

Serve as advisers in the policymaking process of the three branches of government: (Legislative, Executive, Judicial)

A

Economists in the Philippines

47
Q

Why Economist Disagree with the policy

A

-They may disagree about the validity of alternative positive theories about how the world works.

-They may have different values and, therefore, different normative views about what policy should try to accomplish.

48
Q

Economics is divided into two subfields:

A

-Microeconomists study decision making by households and firms in the marketplace.

-Macroeconomists study the forces and trends that affect the economy as a whole.

49
Q

When economists make __________, they are acting more as policy advisors than scientists.

A

Normative statements

50
Q

Economists who advise policymakers offer conflicting advice either because of

A

Differences in scientific judgments or because of differences in values.

51
Q

At other times, economists are united in the advice they offer, but

A

Policymakers may choose to ignore it.

52
Q

An assertion about how the world is.

A

Positive Statement

53
Q

An assertion about how the world ought to be.

A

Normative Statement

Managerial Economics (4 decks)

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