Economics Chapter 2 Flashcards

Questions and Answers

What is one thing economists do to help them understand how the real world works?

make assumptions

When a production possibilities frontier is bowed outward, what happens to the opportunity cost of producing an additional unit of a good?

increases as more of the good is produced

Why are production possibilities frontiers usually bowed outward?

resources are specialized; that is, some are better at producing particular goods rather than other goods

What are the steps in the scientific method?

Revising Signup and view all the answers

What does a circular flow diagram show?

how dollars flow through markets among households and firms Signup and view all the answers

What does PPF stand for and what does it show?

PPF stands for Production Possibilities Frontier and it shows the combination of output that the economy can possibly produce given the available factors of production and the available production technology Signup and view all the answers

What does an efficient PPF signify?

is getting all it can from its resources (on arc) Signup and view all the answers

What does an inefficient PPF indicate?

does not use all resources (inside arc) Signup and view all the answers

What is a feasible combination in terms of PPF?

combination of inefficient and efficient PPF Signup and view all the answers

What is a positive statement?

claims that attempt to describe the world as it is Signup and view all the answers

What is a nominative statement?

claims that attempt to describe how the world should be Signup and view all the answers

Bow-shaped PPF: OC of one unit of good ___________ as more of good 1 is produced.

increases Signup and view all the answers

Study Notes

Economic Concepts

Economists make assumptions to better understand real-world functioning.
A production possibilities frontier (PPF) that is bowed outward indicates increasing opportunity costs for additional unit production.
Resources are often specialized, explaining the bowed shape of the PPF; certain resources are more efficient for specific goods.

Scientific Approach

The scientific method in economics involves observing phenomena, formulating theories, collecting and testing data, and revising theories based on findings.

Circular Flow Model

The circular flow diagram illustrates the movement of dollars through markets, highlighting the interactions between households and firms.

Production Possibilities Frontiers

The PPF illustrates the maximum output combinations an economy can produce given its resources and technology.
An efficient PPF shows that all resources are being fully utilized and is represented along the arc of the frontier.
An inefficient PPF indicates underuse of resources, depicted by points inside the arc.
Feasible combinations of production can exist both on and inside the PPF.

Types of Economic Statements

Positive statements attempt to describe the world as it is, focusing on factual claims.
Normative statements express how the world should be, involving value judgments.

Opportunity Cost in PPF

In a bow-shaped PPF, the opportunity cost of producing one more unit of a good increases as production of that good expands.

Description

Test your knowledge with flashcards from Economics Chapter 2. This quiz covers key concepts like production possibilities frontiers and opportunity costs, helping you to solidify your understanding of economic principles. Ideal for students looking to reinforce their learning.