Review for Microeconomics Test #1

Review for Microeconomics Test #1 - Factors of Production...

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Review for Microeconomics Test #1 Chapter 2: Thinking like an Economist Economic Models - Composed of diagrams and equations - All models are built with assumptions Circular-Flow Diagram - The economy is simplified to include only two types of decision makers: households and firms - Firms: Produce goods and services using inputs labour, land (natural resources) and capital - Inputs like labour, land and capital are called factors of production - Households: own the factors of production consume goods and services produced by firms
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- Households and Firms interact in two types of markets o Markets for Goods and Services: households are buyers and firms are sellers o Markets for the
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Unformatted text preview: Factors of Production: households are sellers and firms are buyers Production Possibilities Frontier-A graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology-Points on the PPF are efficient-Point A = Efficient-Point B = Inefficient Positive Statments-Clainms that attempt to describe the world as it is-Example: Minimum-wage laws cause unemployment Normative Statements-Claims that attempt to prescribe how the world should be-Example: The government should raise minimum wage Chapter Three: Interdepence and The Gains from Trade...
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