UA EC 110 - Micro econ ch. 2 (5 pages)

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Micro econ ch. 2



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Micro econ ch. 2

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Pages:
5
School:
University of Alabama
Course:
Ec 110 - Prin of Microeconomics

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Ellys Peeples Microeconomy Ch 2 9 1 11 Model a highly simplified representation of a more complicated reality Economists use models to study economic issues The Circular Flow Diagram a visual model of the economy shows how dollars flow through markets among households and firms Two types of actors households firms Two markets the market for goods and services the market for factors of production Factors of production the resources the economy uses to produce goods and services including labor land natural resources capital buildings and machines used in production p 25 figure 1 The Production Possibilities Frontier PPF a graph that shows the combinations of two goods the economy can possibly produce given the available resources and the available technology Recall the Opportunity cost of an item is what must be given up to obtain that item Moving along a PPF involves shifting resources labor from the production of one good to the other Society faces a tradeoff getting more of one good requires sacrificing some of the other The slope of the PPF tells you re the opportunity cost of one good in terms of the other o The PPF could be a straight line or bow shaped Depends on what happens to opportunity cost as economy shifts resources from one industry to the other If opp Cost remains constant PPF is a straight line If opp Cost of a good rises as the economy produces more of the good PPF is bowshaped Resources are not perfectly adaptable PPF is bow shaped when different workers have different skills different opportunity costs of producing one good in terms of the other The PPF would also be bow shaped when there is some other resource or mix of resources with varying opportunity costs different types of land As scientists economists make positive statements which attempt to describe the world as it is As policy advisors economists make normative statements which attempt to prescribe how the world should be It takes less resources to make computes so we move it to cars



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