Midterm 1: Chapter 2 Flashcards
(23 cards)
What is Microeconomics?
Small parts and looking at one market or industry in the economy
What is Macroeconomics?
whole thing, economy wide
What is the Circular-Flow Diagram?
visual model of the economy, shows how dollars flow through markets among households and firms
Who are the two groups of decision makers?
Households and firms
What is the role of households?
- Own the factors of production, sell/rent them to firms for income
- Buy and consume goods and services
What is the role of firms?
- buy/hire factors of production, use them to produce goods and services
- sell goods and services
What are the two markets?
- goods and services
2. factors of production
What are factors of production?
the resources the economy uses to produce goods and services
What are the factors of production?
- labor
- land
- capital (building and machines)
In the market for goods and services who is the buyer and who is the seller?
seller = firms buyer = households
In the market for factors of production who is the buyer and who is the seller?
seller = households buyer = firms
What is the Production of Possibilities Frontier (PPF)?
A graph that shows the combinations of two goods the economy can possibly produce given the available resources and the available technology
What is given to create a PPF graph?
- max labor hours
- 2 items
- the hours the 2 take to produce
What is happening when there are points under (inside) the PPF?
The nation is not using all the available resources or is using inferior technology or both
Is it possible to operate under the PPF?
yes, but it is not efficient
When there is a point under the PPF can you increase what you are producing?
Yes you can increase both products at the same time
Is it possible to have a point above (outside) the PPF?
no because the economy only has so many labor hours and resources to produce products
What does it mean to have a point on the PPF?
this means you have enough resources and labor hours to produce at any point along this line
When there is a point on the PPF can you increase what you are producing?
yes, but to increase one you have to decrease the other in order to stay on the line
How does the PPF show trade-offs?
once we have reached a certain point on the frontier, the only way of producing more of one good is to produce less of the other
How does the PPF show opportunity cost?
when deciding on a trade off, the cost of one good is measured in terms of the other good
Example: If normally we produce 100 oranges and 200 strawberries, but then decide to produce 200 oranges and 100 strawberries, what is the opportunity cost of producing 100 more oranges?
100 strawberries
How does the PPF illustrate economic growth?
the PPF can shift due to something like a technological advancement which gives us the ability to produce more of both goods which shows economic growth.
