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Chapter 2 vocab

Model simplified representation of a real situation that is used to better understand real-life situations
Other things equal assumption means that all other relevant factors remain unchanged
Production Possibility Frontier (PPF) graph that illustrates the trade-offs facing an economy that produces only two goods; shows maximum quantity of one good that can be produced for any given quantity produced of the other
Factors of Production resources used to produce goods and services
Technology technical means for producing goods and services
Comparative advantage country/business has this in producing a good or service if its opportunity cost of producing the good or service is lower than in other countries/businesses
Absolute advantage country/business has this in producing a good or service if the country can produce more output per worker than other countries/businesses
Barter when people directly trade goods or services that they have for goods or services that they want
Circular-flow diagram represents the transactions in an economy by flows around a circle
Household a person or group of people that share their income
Firm organization that produces goods and services for sale
Markets for goods and services when households buy the goods and services they want from firms
Factor markets when firms buy the resources the need to produce goods and service
Income distribution way in which total income is divided among the owners of the various factors of production
Positive economics branch of economic analysis that describes the way the economy actually works
Normative economics branch of economic analysis that makes prescriptions about the way the economy should work
Forecast simple prediction of the future
Causal relationship relationship in which the value taken by one variable directly influences or determines the value taken by the other variable
Time-series graph graph that has dates on the horizontal axis and values of a variable that occurred on those dates on the horizontal axis
Truncated axis becomes this when some of the values on the axis are omitted, usually to save space
Omitted variable an unobserved variable that, through its influence on other variables, creates the erroneous appearance of a direct causal relationship among those variables
Reverse causality committed when the true direction of causality between two variables is reversed
Created by: David55900