Macroeconomics Chapter 2 Test

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Economics
Studies how we get the MOST out of our RESOURCES
Land Labor Capital Entrepreneurial Ability
Factors of production
Labor
Human Resources
Ex. Teachers
Land
Natural Resources
Ex. Fossil Fuels
Capital
Ex. Buildings and equipment
Scarcity
Purpose and fundamental problem of economics. Limited resources w/ which to meet unlimited wants.
Opportunity Cost
What you give up to get something. (The next best alternative)
Ex. SLEEP for school
Production Possibilities Curve
Represents the maximum possible combinations of production of two products or categories of products
Along the curve
This movement represents OPPORTUNITY COST, full employment of resources, and productive efficiency
Under the curve
This movement represents lack of full employment and/or productive inefficiency
Beyond the curve
This movement represents the unattainable with current resources
Economic growth
When the production possibilities curve is shifting outwards, this represents…
Factors affecting economic growth
More resources. Better quality resources. New technology. Trade (comparative advantage)
Productive Efficiency
Producing at least cost
Allocative Efficiency
Producing what’s MOST VALUED at least cost
Equals
Allocative efficiency is marginal benefit _______ marginal cost. (Represented be the meeting point on an X graph)
Pure market/capitalism
Where all the resources are controlled by individuals and businesses (private sectors) buying and selling in the market
Socialism
Aka the command system. The government owns most resources and industries. Central planners coordinate most economic activity and redistributes wealth.
Mixed economy
Private sectors along with the government control the resources in this economy
Closed economy
Without trade
3 economic questions
What’s produced how’s it produced and who’s going to get it.
Open economy
With trade
C+G+I+Xn
Y (GDP & National Income) =
Absolute advantage
Who is best at it or who can produce a certain output with the least inputs
Comparative
Who has the least opportunity cost
Macroeconomics
The big picture; the whole economy. Ex:GDP, IR, UR
Microeconomics
How individuals and businesses behave in the market
Categories: Macroeconomics