Circular Flow Model
Who earns revenue?
Buisnesses
What factor decides who produces what?
comparative advantage (oc)
On a concave PPC where the y-axis is pizza and the x-axis is computers, what effect will stricter laws for immigration have on the PPC?
shift inwards (quantity dec)
What is an example of an inferior good?
something that you buy less of as you earn more income: McDonalds, shein, cheap substitute goods
Economic Investment is:
producing or buying capital
Who buys labor? What do they exchange for it?
businesses/firms : wage
What is absolute advantage?
producing a good faster/more compared too a competitor
What represents scarcity on the PPC?
The boundary
What happens to demand when the price of a substitute good goes up?
demand goes up
What needs to be examined when using rational decision making?
Whether the benefits outweigh the costs in both short and long term
What is the difference between wage and income?
Income is earned, wage is paid
The US OC for producing cars is 5 planes. Japan's OC for producing cars is 3 planes. Who should export cars and who should import cars?
Japan should export cars and US should import cars
What are the differences between the linear and concave PPC?
linear: OC is constant, interchangeable resources
concave: OC is increasing, resources not interchangable
What is a normal good?
a good that experiences an increase in demand due to an increase in a consumer's income
Something is considered scarce when:
1. it has a non zero price
2. it is limited
3. it is desirable
how many markets are in the Circular Flow Model?
How many flows?
2
What is the input method? (give the formula)
OC of x = x/y = ans (y)
What are the factors of growth? (PPC shifters)
1. trade
2. technology
3. quantity
4. quality
What are the shifters of demand? (5 things)
1) taste
2) income
3) prices expectations
4) price of related goods
5) number of buyers
Financial Investment is:
putting money away in a form that grows (stocks/bonds) for use in the future
In which market are TVs sold?
product market
What is the output method? (formula)
OC of x = y/x = ans (y)
What are the assumptions of the PPC?
1. 2 goods being produced
2. fixed resources
3. fixed technology
4. no trade
5. every point on the PPC is full efficiency and employment
What are the shifters of supply? (6 things)
1) resource prices
2) technology
3) government intervention (taxes/subsidies)
4) prices of other goods
5) price expectations
6) number of sellers
What is the difference between DMU (diminishing marginal utilities) and DMR (diminishing marginal returns)?
DMU: as consumers consume more, utility dec.
DMR: adding labor to fixed resources, returns dec