sellrent them to firms for income Buy and consume goods services Households

Sellrent them to firms for income buy and consume

This preview shows page 8 - 17 out of 25 pages.

sell/rent them to firms for income Buy and consume goods & services Households Firms Firms : Buy/hire factors of production, use them to produce goods and services Sell goods & services
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THINKING LIKE AN ECONOMIST 9 FIGURE 1:    The Circular-Flow Diagram Markets for Factors of Production Households Firms Income Wages, rent, profit Factors of production Labor, land, capital Spending G & S bought G & S sold Revenue Markets for Goods & Services
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The Economist as a Scientist Our second model: The production  possibilities frontier Production possibilities frontier A graph Combinations of output that the economy  can possibly produce Given the available Factors of production Production technology 10
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Figure The production possibilities frontier 2 11 Quantity of Computers Produced Quantity of Cars Produced 0 300 600 700 1,000 3,000 A B C D E F 1,000 2,200 2,000 Production Possibilities Frontier
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The Economist as a Scientist Efficient levels of production Economy’s getting all it can From the scarce resources available Points on the production possibilities  frontier Trade-off: The only way to get more of one good Is to get less of the other good Inefficient levels of production Points inside production possibilities  frontier 12
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The Economist as a Scientist Opportunity cost of one good Give up the other good Bowed out production possibilities frontier Opportunity cost of a car – highest Economy - producing many cars and fewer  computers Opportunity cost of a car – lower Economy - producing fewer cars and many  computers Resource specialization 13
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The Economist as a Scientist Technological advance Outward shift of the production possibilities  frontier Economic growth Produce more of both goods 14
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Figure A shift in the production possibilities frontier 3 15 Quantity of Computers Produced Quantity of Cars Produced 0 600 650 1,000 3,000 A 2,200 2,300 4,000 G
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