ECON 101 Study Guide - Midterm Guide: Demand Curve, Economic Equilibrium, Absolute Advantage
Document Summary
Markets are usually a good way of coordinating trade. Govt can potentially improve market outcomes if there is a market failure or if the market outcome is inequitable. The principles of the economy as a whole are: Productivity is the ultimate source of living standards. Money growth is the ultimate source of inflation. Society faces a short-run tradeoff between inflation and unemployment. As scientists, economists try to explain the world using models with appropriate assumptions. Two simple models are the circular-flow diagram and the production possibilities. Microeconomics studies the behavior of consumers and firms, and their interactions in markets. As policy advisers, economists offer advice on how to improve the world. Interdependence and trade allow everyone to enjoy a greater quantity and variety of goods & services. Comparative advantage means being able to produce a good at a lower opportunity cost. Absolute advantage means being able to produce a good with fewer inputs.
