ECON 20A Chapter Notes - Chapter 2: Macroeconomics, Political Philosophy, Microeconomics
Document Summary
Circular-flow diagram - a visual model of the economy that shows how dollars flow through markets among households and firms. In this model, economy is simplified to include only two types of decision makers - firms and households. Firms produce goods and services using inputs, such as labor, land, and capital (buildings and machines) Households own the factors of production and consume all the goods and services that the firms produce. Production possibilities frontier - a graph that shows the combniatios of output that athe economy can possible produce given the available factors of production and the avaible prouciotn technology. Points outside the frontier are not feasible given the economy"s recources. The slope of the ppf measures the opportunity cost of a car interms of computers. Bow outwards, the opportunity cost of a car is highest when teh eonomy is producing many cars and few computers.
