Flashcards
Chapter 2
Cards in this deck (14)
- 1Theory and observationSupporting or disregarding a theory based on investigating facts/observations.
- 2Assumptions in economicsUsing economic models:
Are made to simplify thinking, which helps us to understand it. - 3Circular flow diagramA visual model of the economy that shows how dollars flow through markets among households and firms - as attached.
- 4Production possibility frontier (PPF)A graph that shows the various combinations of output that the economy can possibly produce given the available factors of production and the availability of production technology.
- 5(PPF): A CurveThe curve or frontier shows maximum output activities and the available options in-between and their opportunity costs. New technologies may cause the curve to shift.
- 6(PPF): Demand CurveShows two variables. Traces the affect of a goods price on the quantity of the good consumers want to buy.
- 7(PPF): Inefficient - Efficient - Not feasible1. Inefficient: Anything within the curve. This point doesn't utalise all of the economies resources.
2. Efficient: Points on the curve, usually in the centre.
3. Not feasible: Point beyond the curve where the economy doesn't have the resources to produce. - 8(PPF): The AxisY: Vertical- usually cost/price.
X: Horizontal - usually quantity. - 9Economic scientist vs Policy advisorEconomic scientist: Explains the world.
Makes positive statements: A descriptive claim. e.g. Plants kill the reef. These can be challenged.
Policy adviser: Improves the world. Makes normative statements: Claims that attempt to describe what the world should be. e.g. Action should be taken to reduce wastage and improve the reef. - 10Absolute advantage(EXPORT)
The comparison among producers to find who is faster whilst maintaining quality. Productivity. - 11Comparative AdvantageThe comparison among producers of a good according to their opportunity cost.
e.g. When someone can produce something faster or cheaper but the quality is not nearly as good they have a comparative advantage. - 12Economic modelIn economics, a model is a theoretical construct representing economic processes by a set of variables and a set of logical and/or quantitative relationships between them. The economic model is a simplified framework designed to illustrate complex processes, often but not always using mathematical techniques.
- 13Standard of livingThe degree of wealth and material comfort available to a person or community.
Affected by scarcity. - 14The Phillips CurveThe trade-off between inflation and unemployment. inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services.