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Micro: Chapter 2
Test 1
| Term | Definition |
|---|---|
| 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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