The study of how households and firms makes decisions; and how they interact in markets
Decision Makers
Firms and households
Firms
Produce goods and services
Use factors of production / inputs
Households
Own factors of production
Consume goods and services
Circular-Flow Diagram
A visual model of the economy that shows how dollars flow through markets among households and firms
Efficient Levels Of Production
The economy is getting all it can
From the scarce resources available
Points on the production possibilities frontier
Trade-off:
The only way to produce more of one good
Is to produce less of the other good
Markets for inputs
Firms – buyers
Households - sellers
Positive Statements
Claims that attempt to describe the worlds as it is: for of a fact
Opportunity cost of producing one good
Give up producing the other good
Slope of the production possibilities frontier
