Chapter: PPF, Opportunity Cost, Micro vs Macro, Positive vs Normative, Policy & Growth

A set of practice flashcards covering PPF, opportunity costs, growth, micro vs macro, positive vs normative analysis, policy institutions, and related real-world contexts from the lecture notes.

What does the Production Possibilities Frontier (PPF) illustrate?

The trade-offs between outputs of two goods at a given time and the opportunity costs of moving along the frontier.

In the example where moving from point a to point b costs 200 computers to gain 100 cars, what is the opportunity cost per car?

2 computers per car.

How is the opportunity cost per car related to the PPF slope in a two-good model (cars on the x-axis and computers on the y-axis)?

The slope equals ΔComputers/ΔCars and represents the opportunity cost per car; its magnitude shows the OC per car.

What is the slope of the PPF segment from a to b in the example, and what does it signify?

\-2 computers per car; the magnitude 2 is the opportunity cost per car.

Why is the PPF bowed outward (concave to the origin)?

Because of increasing opportunity costs as more of one good is produced due to resource specialization.

What happens to the opportunity cost of a car when the frontier is steep?

The OC is high; producing more cars requires sacrificing a large amount of computers.

What happens to the opportunity cost of a car when the frontier is flatter?

The OC is low; producing more cars sacrifices fewer computers.

What does economic growth do to the PPF?

Shifts the frontier outward, allowing more production of both goods for any given mix.

If growth occurs, what does an outward shift of the PPF imply for production possibilities?

The economy can produce more of both goods for the same resource mix.

What is an endpoint example used to illustrate growth on the PPF?

An endpoint may stay the same (e.g., no computers produced but 1,000 cars produced).

Differentiate microeconomics and macroeconomics.

Microeconomics studies households and firms in specific markets; macroeconomics studies the economy as a whole.

What is the circular flow diagram?

A simple model showing households and firms interacting in markets for goods/services and factors of production.

Define positive economics.

Descriptive claims about how the world works that can be tested with data.

Define normative economics.

Prescriptive claims about how the world ought to be; involve value judgments and cannot be proved true or false by data alone.

Give an example contrasting a positive and a normative statement about minimum wage.

Positive:\"Minimum wage laws cause unemployment.\" Normative:\"The government should raise the minimum wage.\"\n

What is the trade-offs principle in economics?

Policies often improve one dimension at the expense of another (e.g., efficiency vs. equality; future generations vs. current).

Name key policy institutions that inform policy.

Council of Economic Advisers (CEA), Office of Management and Budget (OMB), Department of the Treasury, Department of Labor, Department of Justice, Congressional Budget Office (CBO), Federal Reserve.

Who is Hal Varian and why is he mentioned?

Google’s chief economist; highlights the growing role of market design and economics in digital marketplaces and pricing.

Why might economists’ policy advice not be followed?

Policy decisions involve communications, political feasibility, public opinion, legislative constraints, and other non-technical considerations.

Why do economists disagree, and what are the two broad sources of disagreement?

Differences in scientific judgments about theories/models/parameters and differences in normative values about policy goals.

What is a common economist consensus about tariffs and rent control?

Tariffs/import quotas usually reduce welfare; rent controls reduce housing quantity/quality; about 93% agreement on each.

What role do data, experimentation, and market design play in tech economics?

They help analyze behavior, refine pricing and incentives, and design markets using data science and algorithms.

What did Keynes say about the influence of economists and philosophers on policy?

“The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood.”\n