ECON 201 Chapter 2: ECON201 – Chapter 2 Notes

• School: University of Maryland
• Department: Economics
• Course: ECON 201
• Professor: Naveen Sarna

Document Summary

Essentially, the economy is simplified to include only two types of decision makers firms and households capital (buildings and machines): firms produce goods and services using inputs, such as labor, land, and. These inputs are called the factors of production: households own the factors of production and consume all the goods and services that the firms produce. Households and firms interact in two types of markets; in the markets for goods and services, households are buyers, and firms are sellers: households buy the output of goods and services that firms produce. In the markets for the factors of production, households are sellers, and firms are buyers: households provide the inputs that firms use to produce goods and services. An outcome is said to be efficient if the economy is getting all it can from the scarce resources it has available. Points on (rather than inside) the production possibilities frontier represent efficient levels of production.