Econ AS

• What is the primary purpose of assumptions in economics?


  To simplify analysis and create models for understanding economic impacts
• What is the primary purpose of assumptions in economics?


  To simplify analysis and create models
• How does the production possibility frontier (PPF) illustrate economic concepts?


  It shows maximum productive potential, opportunity costs, and efficiencies
• What does it indicate if an economy operates outside the PPF curve?


  It is likely unable to maintain that capacity for a long period
• How do assumptions aid economists in their analysis?


  They help economists focus on specific variables without overwhelming complexity
• What does the ceteris paribus assumption allow economists to do?


  Focus on singular changes in the economy
• What does the production possibility frontier (PPF) illustrate?


  The maximum productive potential of an economy using two goods
• Why is the ceteris paribus assumption important for studying policy changes?


  It helps isolate the effects of specific changes on the economy
• Why might an economy struggle to maintain full capacity according to the PPF model?


  Because it may be operating outside the PPF curve
• How might low business confidence affect the impact of interest rate changes on aggregate demand?


  It may lead to a lower than expected increase in investment
• What does the ceteris paribus assumption allow economists to do?


  Focus on singular changes in the economy
• What is the Phillips curve used to explain?


  The relationship between employment and inflation
• How does ceteris paribus affect the analysis of interest rate changes on aggregate demand?


  It allows economists to consider only components of aggregate demand
• What distinguishes positive economic statements from normative economic statements?


  Positive statements are factual, while normative statements are opinions
• What might affect the overall impact of interest rate changes on aggregate demand?


  Existing business confidence levels
• What is an example of a positive economic statement?

  Inflation has increased by 1% in the last quarter
• What is the primary method economists use to establish relationships between variables?


  Through simplified models rather than scientific experiments
• What is a positive economic statement?


  A statement that is factual and can be tested
• How do value judgments influence economic decision-making?


  They shape the decisions made by governments based on their values and opinions
• How does a normative economic statement differ from a positive one?


  It is based on opinion and can be contested
• What is the economic problem of scarcity?


  Resources are finite while wants are unlimited
• How are goods and services typically rationed in an economy?


  Through the use of money
• What role do value judgments play in economic decision-making?


  They influence decisions based on personal values and opinions
• What defines renewable resources?


  Resources that are replaced at the same or faster rate than they are consumed
• What is the economic problem of scarcity?


  Resources are limited while wants are unlimited
• Give an example of a non-renewable resource.


  Oil
• How does economics help in addressing the problem of scarcity?


  It aids in making decisions about what, how, and for whom to produce
• What is opportunity cost?


  The cost of the next best alternative forgone
• How are renewable resources defined?


  Resources that are replaced at the same or faster rate than they are consumed
• How does opportunity cost affect government budget allocation?


  Increased spending on one area may reduce funds available for another
• What is an example of a non-renewable resource?


  Oil
• How does opportunity cost influence consumer decisions?


  Consumers weigh the benefits of one choice against the cost of the next best alternative
• Why is opportunity cost important to economic agents?


  It represents the cost of the next best alternative forgone
• What does the production possibility frontier (PPF) illustrate?


  Trade-offs and maximum productive potential of an economy
• What is an example of opportunity cost for a government allocating its budget?


  Increased spending on health may reduce funds for education
• What does pareto efficiency mean in the context of the PPF?


  It is the point where resources cannot be reallocated without reducing the production of another good
• How do consumers experience opportunity cost in their decisions?


  By forgoing the next best alternative when making a purchase
• If an economy wants to increase capital goods from 160 to 190, what must happen to consumer goods?


  Consumer goods must decrease from 135 to 90
• What is the production possibility frontier (PPF) used for?


  To analyze trade-offs in production
• What happens to opportunity cost as more resources are allocated to consumer goods?


  Opportunity cost increases as less suited factors of production are used