Economy 150 Quiz 1 Chapters 1,2,3
Terms in this set (28)
the limited nature of society's resources
the study of how society allocates its scarce resources
the study of the
parts of the economy, looking at how people, firms and industries make decisions on consumption and (0r) production and how they interact in markets.
the study of
, such as aggregate employment, output, economic growth and inflation.
claims that attempt to
the world as it is, was or will be.
claims that attempt to
how the world should be; judgements as to what is good or bad.
Difference between positive and normative statements
We can collect and analyze data to verify or refute positive statements. Evaluating normative statements involves values as well as facts.
the value of the best alternative opportunity forgone.
The cost of something is what you give up to get it:
the best alternative you give ip if you have several opportunities.
economists devise theories motivated by their observations. They collect data and analyze data to verify or refute theories.
1) Economists make assumptions to simplify the complex world and make it easier to understand.
2) The art in scientific thinking is to decide what assumptions to make for different questions.
useful for learning how the economy works.
More on economic models
1) economic models are most often composed of diagrams and graphs.
2) Economic models might be unrealistic. They employ appropriate assumptions to omit many irrelevant details of the economy and emphasize features central to answering the questions we ask of them.
Production possibilities frontier (PPF)
A model that shows the combinations of output that an economy can possibly produce given the
available factors of production and the available production technology
On the PPF the economy is producing the most for given resources and technology; there is no way to produce more of one good without producing less of the other.
the economy cannot produce at points outside the PPF given resources and production technology.
point inside the PPF. The economy is producing less than it could due to unused or misallocated resources.
The PPF shows the tradeoff between
the productions of different goods at a given time.
The PPF can shift when
resource availability or technology changes.
the producer that needs fewer resources to produce a good has a
the producer who has a smaller opportunity cost of producing a good has a
It is possible for one person to have an ________ in both goods, but it is ________ for one person to have a _________ in both goods, because the opportunity cost of one good is the ______ of the opportunity cost of the other.
each people devote more time to producing the good in which he/she has a comparative advantage. This could increase total production of both goods.
For trade to take place, the price of each good cannot be higher than the buyer's opportunity cost and cannot be lower than the seller's opportunity cost.
______ people gain from specialization and trade
The principle of _______ applies to ______ as well as to ________
A country should specialize in producing the _____ in which it has a _____________ and exports those goods; it should _______ the goods in which it does not have a ______________ .
Through specialization and trade, all _______ can achieve _____ prosperity. This is why economists advocate ____ trade among countries.