Productive efficiency. - answer✔Goods and services produced at lowest possible cost.
Allocative efficiency. - answer✔Production is consistent with consumers' preferences.
Market failures. - answer✔When market ceases to allocate resources efficiently.
Instances the government can improve market outcomes. - answer✔1. Gov't enforces property
rights (police, courts, etc.)
2. Subsidize and tax.
3. Equity (gov't steps in to make the outcomes fair).
Economic model. - answer✔Theory based on assumptions from which solutions to economic
problems ca be deduced. Highly simplified version of reality.
Key features of models. - answer✔1. Assumptions and Simplifications
2. Testable
3. Variables
Exogenous variables. - answer✔Determined outside the model (ex. income). Shifting the curve.
Endogenous variables. - answer✔Determined within the model (ex. price and quantity).
Moving along the curve.
Positive analysis. - answer✔Study of what is.
Can be tested against real world behavior.
Normative analysis. - answer✔Study of what ought to be.
Cannot be tested.
PPF. - answer✔Simple model showing maximum combinations of 2 goods/services that society
can produce given its limited resources and technology at a given point in time.
Assumptions under PPF. - answer✔1. 2 goods/services
2. Limited resources
3. Limited technology
4. One point in time.
Most common PPF graph shape. - answer✔
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