Final Review

Final Review - Final Review Chapter 1 Positive/negative...

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Final Review Chapter 1 Positive/negative statements o Positive: inflation rate in US in the year 2000 was 40% States a fact o Normative: Putting a flat tax will make the rich richer, and poor poorer States an opinion, what should have happened, what shouldn’t have happened Factor of production o Labor, capital, entrepreneurship o Money isn’t a factor Rational o We assume that people act rational o People compare costs and benefits of each action o We make an action when marginal benefit is higher or equal than the marginal cost Distinguish between macro/micro o Macro: aggregate value o Micro: has to do with the firms/households Chapter 2 Production possibility frontier o Gives us all the combinations of resources an economy can use to produce its goods and services having all sources and technology available o Technology makes it shift o Difference between a technology improvement in just one good An output combination is technically efficient o You cant move from one point to another without giving up something of the other o On the curve economy is using its maximum Shifts in PPF o Capital and technology o Employment doesn’t cause it to shift Absolute/comparative advantage
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o Abs: how much goods/services can a country produce with using the same resources/technology as another country o Comparative: directly related to opportunity cost Country with the lowest OC in producing a good has the comp adv will specialize in that good and export it Chapter 3 Demand is downward sloping, if we decrease prices quantity demanded will go up o Income effect: effect of a price change and the purchasing power of the consumer who buys the good If price goes down, quantity demanded will go up With the same income you will be able to buy more o Substitution effect: if price of the good goes down, you will buy more of that good o If we have a normal good and there is an increase in price quantity
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Final Review - Final Review Chapter 1 Positive/negative...

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