Econ 202 Macroeconomics Exam 1

Production possibilities frontier

-A graph -Combinations of output that the economy can possibly produce -Given the available• Factors of production• Production technology

Assumptions

-Can simplify the complex world and make it easier to understand -The art in scientific thinking: deciding which assumptions to make

Scientific method

-Dispassionate development and testing of theories about how the world works -Observation, theory, more observation

Opportunity cost of producing one good

-Give up producing units of the other good -Slope of the production possibilities frontier

Technological advance

-Outward shift of the production possibilities frontier -Economic growth -Produce more of both goods

Households

-Own factors of production -Consume goods and services

Firms

-Produce goods and services -Use factors of production (inputs)

Circular-flow diagram

-Visual model of the economy -Shows how dollars flow through markets among households and firms

Inefficient levels of production

Points inside production possibilities frontier

Trade-off

an alternative that we sacrifice when we make a decision

In the circular-flow diagram, which of the following is not a factor of production? a. Land b. Labor c. Money d. Capital

c. Money

"Minimum wage laws result in unemployment" is a normative statement, while "the minimum wage should be higher" is a positive statement. a. True b. False

false

Markets for goods and services

firms sell goods and services that they produce to households

Markets for factors of production

households are sellers and firms are buyers

Macroeconomics

the study of economy-wide phenomena, including inflation, unemployment, and economic growth

Microeconomics

the study of how households and firms make decisions and how they interact in markets