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Unformatted text preview: EC111 Definitions: Economics: the study of low society manages its scarce resources. Opportunity Cost: whatever must be given up to obtain some item. 2 economic models: 1) The Circular-Flow Diagram: a visual model of the economy that shows how dollars flow through markets among households and firms. Firms: Produce and sell goods and services; buy and use factors of production Households: Buy and consume goods and services; own and sell factors of production 2) The Production Possibilities F rontier (PPF): a graph that shows the combinations of output that the economy can possibly produce and the available production technology. • Moving along the PPF involves shifting resources from the production of one good to the other • the slope of the PPF tells us the opportunity cost of one good in terms of the other • The PPF illustrates the concepts of trade-off and O.P.C, efficiency and inefficiency, employment and unemployment. Society faces a trade-off: Getting more of one good requires sacrificing some of the other. • Microeconomics: the study of how households and firms make decisions and how they interact in markets. • Macroeconomics: the study of economy wide phenomena, including inflation, unemployment, and economic growth. 2 ways to compare the ability of two people in producing a good: Absolute advantage: the ability to produce a good using fewer inputs than another producer. Comparative advantage: the ability to produce a good at a lower opportunity cost than another producer....
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This note was uploaded on 09/19/2010 for the course EC 111 taught by Professor Kent during the Fall '10 term at University of Alabama - Huntsville.
- Fall '10
- Opportunity Cost