Copyright 2011 Cengage Learning 2 Thinking Like an Economist.

22Thinking Like an Economist

Figure 1 The Circular Flow

Spending

Goods andservicesbought

Revenue

Goodsand servicessold

Labour, land,and capital

Income

= Flow of inputs and outputs

= Flow of euros

Factors ofproduction

Wages, rent,and profit

FIRMS•Produce and sellgoods and services

•Hire and use factorsof production

•Buy and consumegoods and services

•Own and sell factorsof production

HOUSEHOLDS

•Households sell•Firms buy

MARKETSFOR

FACTORS OF PRODUCTION

•Firms sell•Households buy

MARKETSFOR

GOODS AND SERVICES

Figure 2 The Production Possibilities Frontier

Productionpossibilitiesfrontier

Quantity ofcars produced

3000 700

Quantity ofcomputers

produced

Figure 3 A Shift in the Production Possibilities Frontier

Quantity ofcars produced

Quantity ofcomputers

produced

Table 1 Websites

Table 2 Ten Propositions about Which Most Economists Agree

Table 3 What Economists Know

Figure 2A.1 Types of Graph

Figure 2A.2 Using the Coordinate System

Table 2 Ten Propositions about Which Most Economists AgreeTable 2A.1 Novels Purchased by Pascale

Figure 2A.3 Demand Curve

Figure 2A.4 Shifting Demand Curves

Figure 2A.5 Calculating the Slope of a Line

Figure 2A.6 Graph With an Omitted Variable

Figure 2A.7 Graph Suggesting Reverse Causality

Copyright 2011 Cengage Learning 2 Thinking Like an Economist.

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