What is comparative advantage?
When a person or country can produce a good or service at a lower opportunity cost than others
Does not necessarily producing the goods cheaper
Creates comparative advantage for a country so they can enjoy a greater array of goods and services at a lower cost
What is the recardian theory of competitive advantage?
Even if a person or a nation produces all goods and services, it makes economic sense for that person or that nation to specialize in the production of a good or a service where it enjoys greater comparative advantage
What are basic assumptions of a two nation trade model?
1) Each country has a different resource mix
2) Each country has a different level of technological progress
3) Each country has a different level of labor productivity
4) Each country has the same size labor
5) Each country has constant costs
What is a straight line linear production possibilities curve
One country has an advantage in one product and a disadvantage in another
What is specialization based on comparative advantage?
When a country has a cost advantage in producing a good over another good
What must occur for trade to be mutually beneficial?
The terms of trade must be between each nation’s opportunity costs
What are 4 alternative expressions for the production possibility line?
1) Product transformation line
2) production possibility frontier
3) production possibility line
4) boundary line between attainable and non-attainable combinations of output
What are features of a production possibility frontier?
The line is concave in origin
It is a boundary line between attainable and unattainable
Any point below the PP line is attainable but inefficient
Any point above the PP line is unattainable
The curve is negatively sloped
Each point on the line shows full employment
Depicts the law of increasing opportunity cost
What makes a production possibility line shift and how does it shift?
Economic growth
- shifts the PP line outward from both axis
What 5 factors cause economic growth?
1) technological change
2) higher capital formation
3) discovery of new resources
4) improvement in the quality and quantity of factor input
5) Expansion in international grade
What is diminishing marginal utility?
As a person consumes more of an item or product, the satisfaction they derive from it diminishes
What is marginal value?
the value to a consumer of the last unit of consumption
What line does a graph have with a decreasing marginal value?
Curved Line plateauing on the right
What does a spot on a graph below the production possibilities frontier indicate?
Inefficient point of production
What does a spot above the production possibilities frontier curve mean?
Unattainable point of production given the resources available
- would need to attain more resources to achieve
What does a point directly on the production possibilities curve mean?
Efficient points of production
Necessary for businesses to run at this maximum efficiency
How does the impact of technology and increased resources affect the production possibilities curve?
It moves the curve outward on the graph
What is the circular flow model and what are the 4 elements of it?
A simplified picture of the economy involving “households” and “firms”
1) Households
2) markets for goods and services
3) Firms
4) Markets for factor of production
What is a “household”
Indicates people or a group of people who make joint decisions together
What is “Market”
Any institution where people come together to buy and sell goods
Facilitates the buying and selling of goods
2 broad types of markets
A) markets for factors of production
- typically involves firms
B) Markets for goods and services
- Typically involves households
What are the 3 main factors of production?
1) land
2) Labour
3) capital
What is capital?
Any goods that help us produce other goods
- not the $ used to finance production, refers to things such as factories, land, etc
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Chapter 119
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Chapter 223
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Chapter 3 Lecture 710
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Chapter 3 Lecute 812
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Chapter 3 lecture 9 Law Of Supply11
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Chapter 3 Lecture 10 Price Determination Under Perfect Competition5
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Chapter 3 Lecure 11 Five Predictions For Shifts In Demand And Supply Effecting Equilibrium Price And Quantity6
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Chapter 3 Lecture 13 Paradox Of Poverty In The Midst Of Plenty And Farmers Income Stabilization Policy14
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Module 4 Lecture 14 Consumer’s Surplus6
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Module 4 Lecture 15 Producers Surplus3
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Module 4 Lecture 16 Public Vs Private Goods6
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Module 5 Lecture 18 Demand Elasticity10
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Module 5 Lectue 19 Demand Elasticity Measurement7
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Module 5 Lecture 20 Incidence Of A Commodity Tax - The Relativity Of Demand Elasticity To Supply Elasticity14
