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Shifters of PPC
Factors that cause the production possibilities curve to shift, indicating changes in resource availability, technology advancements or workforce changes.
comparative advantage
producing a good or service at a lower opportunity cost than other people
absolute advantage
producing a good or service if he or she can make more of it within given amount of time and resources
output problems
we give up/if we make
input problems
if we make/we give up
Law of Demand
inverse relationship leading to downward sloping curve
Price Level Increases, Demand Decreases
Price Level Decreases, Demand Increases
Consumers buy more at low prices, and less at high prices
Real Wealth Effect
a change in the price level that changes purchasing power of assets, causing consumers to buy more (or less) of goods and services
Interest Rate Effect
change in price level changes amount of savings economy, affecting interest rate; leads to borrowing and investment
Exchange Rate Effect
changing price levels changes value of currency, changes amount people from other countries are willing and able to purchase
Neoclassical approach
“People always acted rationally”
Keynesian Approach
individual behavior and markets could be unpredictable; people made decisions based on emotion rather than reason
Behavioral Approach
believed people acted irrationally that influenced economic decisions
