Trade-off And Trade

Question 1

What is Model

Answer 1

Simplified representation of the real life situation to better understand them

Question 2

Models are

Answer 2

• Theoritical (theory)

• Empirical (real/seen)

Question 3

Other things equal assumption

Answer 3

All other relevant factors remain unchanged

Question 4

Counterfactual

Answer 4

Describes alternative reality that can be illustrated by models

Very close to Causality cause —-> effect ( what would be if…)

Question 5

Production Possibility Frontier
PPF

Answer 5

Illustrates trade-offs in economy that produces only 2 goods

It shows max quantity of 1 good that can be produced for any given production of other

Question 6

Increasing Opportunity Cost

Answer 6

The fact that a society’s production possibility frontier is bowed out or concave to the origin of a graph demonstrates a law of - Increasing Opportunity Cost

Question 7

Comparative Advantage

Answer 7

Individual has a comparative advantage if the opportunity cost of the good is lower for him

• formed by David Ricardo
• 1817
• Explains Trade

Question 8

Absolute Advantage

Answer 8

Individual has absolute advantage if he/she can do activity better than others

Question 9

Positive Economics

Answer 9

Branch of economics that describes the way economy actually works

Question 10

Normative Economics

Answer 10

Makes prescriptions about the way economy should work

Question 11

Forecast

Answer 11

Simple prediction of future

Question 12

Economics can

Answer 12

Determine correct answers for positive questions but not for normative (involves value judgement)