Chapter 2 Microeconomics: Economic Models, Trade-Offs, and Trade

Vocabulary flashcards based on Chapter 2: Economic Models: Trade-Offs and Trade from Microeconomics by Paul Krugman, Robin Wells, Iris Au, and Jack Parkinson.

Model

A simplified representation of a real situation that is used to better understand real-life situations.

Other Things Equal Assumption

An assumption that allows economists to analyze the effect of a change in one factor by holding all other relevant factors unchanged.

Production Possibilities Frontier (PPF)

A model that illustrates the trade-offs facing an economy producing two goods by showing the maximum quantity of one good that can be produced for any given quantity of the other.

Increasing Opportunity Cost

The condition where producing additional units of a good requires giving up progressively larger quantities of another good, illustrated by a bowed-out PPF curve.

Economic Growth

The expansion of an economy's production possibilities resulting in an outward shift of the PPF, allowing the economy to produce more of everything.

Factors of Production

Resources such as land, labour, capital, and human capital—inputs used to produce goods and services that are not used up in production.

Technological Progress

An improvement in the technical means of producing goods and services, which serves as a major source of economic growth.

Positive Economics

The branch of economic analysis that describes the way the economy actually works, focusing on facts and questions of 'what is'.

Normative Economics

The branch of economic analysis that makes prescriptions about the way the economy should work, involving value judgments about 'what should be'.

International Monetary Fund (IMF)

An international organization headquartered in Washington, D.C., that provides advice and loans to countries experiencing economic difficulties.

World Bank

An international organization headquartered in Washington, D.C., that provides advice and loans to promote long-term economic development.