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Micro: Chapter 2

Test 1

TermDefinition
x-intercept the extreme value of, usually, the quantity
y-intercept the extreme value of, usually, the price
other things equal assumption means that all other relevant factors remain unchanged;
production possibility frontier (PPF) illustrates trade-offs facing economy that produces 2 goods; shows max producible amount of A, given the level of production for B; choose how to allocate time btw 2 goods (ex: coffee and cappuccino); ratio tells you how much you give up of A for 1 more B
PPF and efficiency in allocation efficient = no way to make more of one good w/out giving up some of other feasible, inefficient = within PPF (could make more of both, wasted time) feasible, efficient = on PPF not feasible = outside PPF
efficiency in allocation efficiency also requires that the economy allocate its resources so that consumers are as well off as possible; points along the line are better than others due to what people actually want to buy
PPF and opportunity cost when functions are linear (max Y : max X) can then be simplified mathematically; divide each ratio to get amount fof one good iven up in terms of one unit of the other;
constant opportunity cost when PPF is a straight line; oc = slope of PPF
increasing opportunity cost curved line; moving resources from one good to other doesn't always have same ratio; as you move to either extreme, tradeoffs are more drastic; usually this way irl
economic growth growing ability of the economy to produce goods and services; results in outward shift of PPF; increasing factors of production (land, labor, physical capital (coffee grinder), human capital (workforce); tech advancement (produce + w/same amount of stuff)
factors of production resources used to produce goods and services; one of the two ways in shift out the PPF; includes land, labor (econ's pool of workers), physical capital (created resources: machines/buildings), & human capital (educational achievements/skills of workforce)
technology technical means for producing goods and services; way #2 to have an outward shift in the PPF
comparative advantage oc of producing a good is lower than other people's; what you have to give up of other good is less than the other person; everyone has comp adv and comp disadv in something
Why are there gains from trade w/comparative advantage? trade lets wife take advantage of Nick's lower oc in making coffee; trade lets Nick take advantage of wife's lower oc in making cappuccinos; allows each party to a lower oc you couldn't get on own; opp for both to benefit
How would you allocate goods production? each put more focus where they have lower oc; person w/lower oc in a specific good will produce it until they either run out of time (and person 2 takes over in production), or they reach allocated amount they want (and then switches over to other good)
absolute advantage someone (or country) has absolute adv if they can produce more of it than other people (or countries); HOW MUCH you can produce, has nothing to do w/o.c. (comp adv = oc of each unit produced); intercepts (who's further out on axis)
absolute advantage and trade can still be beneficial bc having absolute advantage in a good doesn't mean you have comparative advantage;
PPF total production possibilities of person/house/econ; ratio tells about oc; absolute adv (based on resources, can produce more in #) vs comp adv (deals w/slope; oc per unit); assumption = idle resources are bad (want as much as possible)
As long as there are different slopes btw 2 people's PPF.... ....one person will always have comparative advantage in one good
Is trade always good? Depends on goal of society; outsourcing bc othe countries have comp adv, but is it equitable?; models don't promise we share benefits of trade "fairly"
positive economics how the world really works, right and wrong answers; ex: average income in the US; it's a number, mathematically true and doesn't have opinion attached to it; ex: Does trade increase world's production? Yes.
normative economics questions about how the world should work, no right or wrong answer here; no right/wrong bc depends on ideology of person answering question; opinion based, based on end goal (varies on political leanings); ex: Trade makes everyone happier? Well...
forecast simple prediction of the future
Why do economists argue so much? argue normative questions; news presents "both sides of the story" equally, even if there is a massive favor in one direction or the other; also, economists aren't always legit economists w/PHDs and whatnot
Created by: nicook
 

 



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