Microeconomics: Chapter 2

economic growth

This is the growing ability of the economy to produce goods and services and the production possibility frontier helps visualize it.

Normative economics

This makes prescriptions about the way the economy should work.

feasible

If a production point lies inside or on the frontier it is this.

one change at a time

Models are important because their simplicity allows economists to focus on the effects of only...

land, labor, capital, and human capital

The main factors of production are these resources.

comparative advantage

The second illustration of an economic model is particularly useful model of gains from trade--trade based on this.

production possibility frontier

To think about the trade-offs that face any economy, economists often use this model that shows the maximum quantity of one good that can be produced for any given quantity produced of the other.

reused

A factor of production can generally be...

circular-flow diagram

A model that represents the transactions in an economy by flows around a circle.

x

A more-flat line implies that the economy has a comparative advantage on the [x/y] axis.

y

A more-steep line implies that the economy has a comparative advantage on the [x/y] axis.

infeasible

A production point that lies outside the frontier is this.

choices people make

Economic growth means an increase in what the economy can produce--what the economy actually produces depends on these.

expansion of the economy's production possibilities

Economic growth means this: the economy can produce more of everything.

increasing

Economists believe that in reality opportunity costs are [increasing/constant/decreasing]

resource that is not used in production

Economists usually use the term factor of production to refer to a...

markets for goods and services

Firms sell goods and services that they produce to households in these.

efficiency in production and efficiency in allocation

For an economy as a whole to work, it must be both of these: an economy must produce as much of each good as it can given the production of other goods, and it must also produce the mix of goods that people want to consume.

ethicality

Normative economics deals with...

gains from trade

One of the most important insights in all of economics is that there are these even if one of the trading parties isn't especially good at anything.

real but simplified

One possibility to create a simplified representation of an economic situation is to find or create a this economy.

specialize

People are better off when they do this in what they are good at and trade.

facts

Positive economics deals with...

trade-offs

Resources are scarce and that, as a result, any economy faces these.

opportunity cost

The production possibility frontier is also useful as a reminder of the fundamental point that the true cost of any good is not just the amount of money it costs to buy, but everything else in addition to money that must be given up in order to get that good--the this.

horizontal axis in terms of the good measured on the vertical axi

The slope of a straight-line production possibility frontier is equal to the opportunity cost--specifically, the opportunity cost for the good measured on the....

factors of production and technology

These are the two sources for economic growth.

concave

This graph represents increasing opportunity cost.

household

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

international trade

This is a very good example of comparative advantage.

Firm

This is an organization that produces goods and services for sale.

positive economics

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

technology

This is the technical means for producing goods and services. It causes economic growth.

slope

This of a straight-line production possibility frontier is equal to the opportunity cost.

barter

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

capital market

When a corporation pays dividens to its stockholders, who are members of households, it is in effect paying them of the use of the machines and buildings that ultimately belong to those investors. In such a case, the transactions occurring in this, the market in which capital is bought and sold.

inefficient

When people are involuntarily unemployed: they want to work but are unable to find jobs. When such things happen, the economy is...

factor markets

firms buy the resources they need to produce goods and services in these.

labor market

A better word for the factor market, in which workers are paid for their time.

physical things and money

A circular-flow diagram displays these two types of transactions in an economy through flows.

efficiency, opportunity cost, economic growth

A production possibility frontier allows us to see these.

forecast

A simple prediction of the future.

"what ifs"

A simplified economy ignores these questions.

income distribution

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

As long as people have different opportunity costs, everyone has a comparative advantage in something, and everyone has a comparative disadvantage in something.

An important point that is overlooked in real-world arguments involving comparative advantage.

factors of production

An increase in an economy's this, the resources used to produce goods and service, lead to economic growth.

absolute advantage

An individual has a this in an activity if he or she can do it better than other people.

comparative advantage

An individual has this in producing a good or service if the opportunity cost of producing the good or service is lower for that individual than for other people.

higher than his/her opportunity cost

An individual will not trade for something if it is...

model

Any simplified representation of a reality that is used to better understand real-life situations.

rises

As more of a good is produced, its opportunity cost typically [rises/falls/stays constant] because well-suited inputs are used up and less adaptable inputs must be used instead.

outward

Economic growth pushes a PPF...

efficient in production

If an economy is producing at a point on its production possibility frontier, we say that the economy is...

efficient in allocation

If an economy uses its resources so that consumers are as well off as possible, then it is this. It produces the amount of goods that people want to consume.

efficiency

The production possibility frontier is a good way to illustrate the general economic of this.

values and economic modeling

Two different reasons why economists may come to disagreements.

straight line

Whenever we assume that the opportunity cost of an additional unit of a good doesn't change regardless of the output mix, the production possibility frontier is a this.