Unit 2 (Thinking Like an Economist) Flashcards
What is the scientific method?
Addressing subjects using objectivity
Why do economists make assumption?
Assumptions simplify the complex world
Should an economic model describe reality exactly?
No, the realistic world is too complex to put into one model
What is the factor market?
where businesses invest in resources
What is the product market
where goods and services are sold
What is one economic interaction that is not covered by the circular flow diagram?
international trade
What happens if a point is outside the PPF
this is not possible (without trade)
What is happening when a point is on the PPF
The country is using all resources efficiently
What is happening when a point is below the PPF
Not enough resources are being used
Define macroeconomics
The study of economywide phenomena, including inflation, unemployment, and economic growth
Define microeconomics
The study of how households and firms make decisions and how they interact with the market
What is a positive statement?
They make claims on how the world is right now
What is a normative statement?
They make claims on how the world should be
Why should a country invest in capital goods instead of consumption goods for their future?
Capital goods in the long run will help produce more consumption goods in the future
What are factors of production?
Land, labor and capital