EC 120 Midterm: solution

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15 Feb 2016
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Tuesday, September 15, 2015
Title
ECON 120
Efficiency vs. equity
Correlation
why economists use graphs: visually express ideas more clearly than with equations or
words
“factors of production” in a circular flow model are used by firms to produce goods and
services.
PPF: get something and give something up (meanwhile)
the slope of the PPC -1/10, an opportunity cost of a car is 1/10 of a house
10 cars for a house
A PPF may be linear: no specialization (constant)
A PPF may be bow shaped: specialization
PPF inward: the more you produce, the cheaper you spend
The highest opportunity cost to produce cars, when all resource are used to produce
cars
PPF shifts outward when the population(labour) increased, but opportunity cost doesn't
change
unemployment doesn't cause the shift of the line (inefficient) inside the line
If people became better at building houses, PPF gets deeper
(the slope increases)
Equity is not illustrated by the PPF
If resources are not perfectly transferable, the PPF bowed outward
!1
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