Principles of economics chapter 2

Question 1

What is a model

Answer 1

A model is a simplified representation of a real situation that is used to better understand real-life situations.

Question 2

What is the `other things equal assumption´

Answer 2

The other things equal assumption means that all other relevant factors remain unchanged.

Question 3

What does the production possibility frontier illustrate

Answer 3

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.

Question 4

What are factors of production

Answer 4

Factors of production are resources used to produce goods and services.

Question 5

What is technology

Answer 5

Technology is the technical means for producing goods and services.

Question 6

When does a country have comparative advantage

Answer 6

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.

Question 7

When does a country have absolute advantage

Answer 7

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.

Question 8

When does trade takes the form of barter

Answer 8

Trade takes the form of barter when people directly exchange goods or services that they have for goods or services that they want.

Question 9

What is the circular-flow diagram

Answer 9

The circular-flow diagram represents the transactions in an economy by flows around a circle.

Question 10

What is a household

Answer 10

A household is a person or a group of people that share their income.

Question 11

What is a firm

Answer 11

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.

Question 12

What is a economy´s income distribution

Answer 12

An economy’s income distribution is the way in which total income is divided among
the owners of the various factors of production.

Question 13

What are positive economics

Answer 13

Positive economics is the branch of economic analysis that describes the way the economy actually works.

Question 14

What are normative economics

Answer 14

Normative economics makes prescriptions about the way the economy should work.

Question 15

What is a forecast

Answer 15

A forecast is a simple prediction of the future.

Question 16

What is a variable

Answer 16

A quantity that can take on more than one value is called a variable.

Question 17

What are causal relationships, independent variables and dependent variables

Answer 17

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.

Question 18

What are curves, linear relationships and nonlinear relationships

Answer 18

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.

Question 19

When do two variables have a positive relationship

Answer 19

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.

Question 20

When do two variables have a negative relationship

Answer 20

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.

Question 21

What is a horizontal intercept

Answer 21

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.

Question 22

What is a vertical intercept

Answer 22

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.

Question 23

What is a slope

Answer 23

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.

Question 24

What is a nonlinear curve

Answer 24

A nonlinear curve is one in which the slope is not the same between every pair of points.

Question 25

What is a absolute value

Answer 25

The absolute value of a negative number is the value of the negative number without the minus sign.

Question 26

What is a tanget line

Answer 26

A tangent line is a straight line that just touches, or is tangent to, a nonlinear curve at a particular point. The slope of the tangent line is equal to the slope of the nonlinear
curve at that point.

Question 27

What is a time-series graph

Answer 27

A time-series graph has dates on the horizontal axis and values of a variable that occurred on those dates on the vertical axis.

Question 28

What is a scatter diagram

Answer 28

A scatter diagram shows points that correspond to actual observations of the x- and y- variables. A curve is usually fitted to the scatter of points.

Question 29

What does a pie chart show

Answer 29

A pie chart shows how some total is divided among its components, usually expressed in percentages.

Question 30

What does a bar graph use

Answer 30

A bar graph uses bars of varying heights or lengths to show the comparative sizes of different observations of a variable.

Question 31

When is a axis truncated

Answer 31

An axis is truncated when some of the values on the axis are omitted, usually to save space.

Question 32

What is a omitted variable

Answer 32

An omitted variable is an unobserved variable that, through its influence on other variables, creates the erroneous appearance of a direct causal relationship among those variables.