Angelina Kumar (Student) - Student Copy of Unit 1 Basic Economic Concepts

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