Econ Exam 1 Vocabulary

Economic model

A simplified version of some aspect of economic life used to analyze an economic issue.

What points on a PPC are located along and inside the frontier?

A) Attainable

Marginal

An additional or extra.

When countries are "benefiting through specialization and trade" they

Are achieving a greater measure of equality in consumption.

Productive efficiency is achieved when firms produce goods/services

At the lowest cost

Normative economics

Concerns with "what ought to be"/generic statements

Allocative efficiency is achieved when

Firms produce the goods and services that consumers value most.

Who makes the decision on what goods/services will be produced in a centrally planned economy?

Government officials

Equity

Occurs when Economic benefits are distributed fairly.

If the production possibilities frontier is linear, then

Opp. costs are constant as more of one good is produced.

A problem inherent in centrally planned economies

Production managers have a greater concern for satisfying govt. orders rather than consumer wants

Increasing opp. cost along a bowed out PPF occurs because:

Some FOP are not subsuitable in producing both goods and services.

**Opportunity cost

The HIGHEST valued alternative that must be given up to engage in an activity.

How does a market system prevent people from getting as many goods and services as they wish?

The market system allocates goods and services to people who are able to pay for those products and therefore income is a limiting factor.

The Production Possibilities Frontier shows

The max. attainable combinations of 2 products that may be produced in a particular time period w/ available resources.

Scarcity

The study of economics arises due to

Scarcity refers to the situation in which

Unlimited wants exceed limited resources

Positive economic analysis

Uses an economic model to estimate cost & benefits of different courses of action

Example of a Macroeconomics question:

What determines the unemployment rate?

Trade-offs force society to make choices when answering these 3 questions

What good/services to produce, how they will be produced & who gets them?

Economics models are

simplified versions of reality