Econ 101 Mi Ch. 2

Front 1

households

Back 1

ultimately own all wealth and provide resources to firms or government in exchange for income with which to buy goods

Front 2

circular flow models

Back 2

models of interactions between households, business firms, and government

Front 3

comparative advantage

Back 3

a guide to efficient speicalization; you gain by specializing in production where your opportunity costs are lowest and trading your output for things other people can produce for lower opportunity cost

Front 4

production possibilities frontier (PPF)

Back 4

shows the maximum combination of goods that a society can produce. PPF curve assumes that resources are fixed, technology is constant, all scarce resources are fully and efficiently employed

Front 5

opportunity costs

Back 5

the values of outputs if resources were deployed in their next best alternatives. opportunity costs not constant because all resources not equally suited for all types of production

Front 6

diminishing returns

Back 6

as any activity is extended it becomes increasingly more difficult to pursue the activity further

Front 7

increasing opportunity costs

Back 7

repeatedly increasing output by some set proportion ultimately requires more than proportional in resources and, thus, higher costs

Front 8

point of negative returns

Back 8

correct use of concept when saying that one stops an activity due to reaching "a point of negative returns"

Front 9

economic growth
a) occurs when...
b) is reflected when...

Back 9

a) the value of potential output increases because technology advances or the amounts of resources available for production increase, or freer trade increases the value of national output in exchange
b) in outward shifts of the production possibilities frontier or the consumption possibilities curve; more of all goods can be produced or enjoyed

Front 10

How does saving and investment affect economic growth and PPF expansion?

Back 10

Lower saving and investment restricts economic growth and PPF expansion

Front 11

saving

Back 11

consuming less than we produce

Front 12

investment

Back 12

additions to the economy's real capital stock, that is, all final purchases of capital equipment (machinery, tools, etc.), all residential or commercial construction, and changes in inventories

Front 13

shapes of PPFs

Back 13

illustrate different countries' comparative advantages

Front 14

allocative mechanisms

Back 14

the market system, brute force, queuing, random selection, tradition, and government

Front 15

economic systems are classified by...

Back 15

who makes decisions about what is produced (centralized or decentralized) and who owns the resources (public v. private)

Front 16

socialism

Back 16

government acts as a trustee over the nonhuman resources jointly owned by all citizens