Macro Aplia Practice 2

An economic model is a simplified representation of some aspect of the economy. Because including every detailed, realistic aspect of an economy would result in something that isn't tractable and informative, economists use models to learn about the world. Just as an airplane model does not include all of the interior details of a plane, an economist's model does not include every feature of the economy.

B- households are sellers, and firms are buyers. The circular-flow diagram simplifies the economy by including only two types of decision makers: firms and households. Firms produce goods and services using inputs, such as labor, land, and capital. 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. Therefore, in the markets for the factors of production, households are sellers, and firms are buyers.

feasible, but not efficient

feasible, and efficient

move the economy along the production possibilities frontier. The production possibilities frontier is a graph that shows the various combinations of output that the economy can possibly produce given the available factors of production and production technology. In this case, the trade-off between producing hot dogs and hamburgers doesn't change, because resources remain the same. However, the consumption point along the production possibilities frontier has changed, because consumers now prefer to consume more hot dogs. This is represented by a movement along the production possibilities frontier to a point with more hot dog production and less hamburger production.

Microeconomics is the study of how households and firms make decisions and how they interact in specific markets. Macroeconomics is the study of economy-wide phenomena. Therefore, the influence of the government budget deficit on economic growth is a macroeconomic topic, while the others are all microeconomic topics.

A- Law X will reduce national income Positive statements are descriptive; they make a claim about how the world is. However, normative statements are prescriptive; they make a claim about how the world ought to be. Therefore, in this case, the only positive statement is law X will reduce national income because it states what will happen if something is done rather than what should be done.

firms earn revenue when HOUSEHOLDS purchase GOODS and SERVICES in product markets

In the circular-flow model of an economy, households own all the resources. Households earn their income when firms purchase or rent these resources to use them to produce goods and services. Firms, in turn, earn revenue when households buy goods and services.