What does diminishing returns generate?
a concave production possibility frontier
This concept illustrates how increasing production of one good leads to progressively smaller increases in output.
What is your comparative advantage?
What you’re ‘more better’ or ‘less worse’ at doing
This principle underlies the benefits of specialization and trade.
Trade is beneficial to _______.
both countries
Comparative advantage allows countries to specialize and trade, leading to mutual benefits.
What is essential to realizing the gains from trade?
Factor redeployment
This involves reallocating resources to maximize efficiency and productivity.
The standard of living is the product of what three factors?
- Capacity
- Productivity
- Terms of trade
These factors collectively determine the economic well-being of a population.
When Jamaica exports bauxite and imports agricultural produce, the impact is different for _______.
the Jamaican bauxite producer and the Jamaican farmer
This differential impact raises debates in policy circles.
True or false: The country overall is better off with specialization and trade.
TRUE
Despite individual impacts, specialization and trade enhance overall economic welfare.
Who developed the principle of comparative advantage?
David Ricardo
He illustrated this principle using examples of trade between England and Portugal.
What is absolute advantage?
The ability to produce a good using fewer inputs than another producer
This concept differs from comparative advantage, which focuses on opportunity costs.
What is the Production Possibilities Frontier (PPF)?
A way of mapping feasible production combinations for an economy
It helps to visualize the trade-offs and opportunity costs in production.
What does the PPF allow you to separate?
The feasible from the infeasible
It indicates what combinations of goods can be produced given resources and technology.
What is the relationship between resources and productivity?
Resources × Productivity = Standard of Living
This equation highlights how resource availability and efficiency impact economic well-being.
What are the five fundamental ideas that shape economic thinking?
- People respond to incentives
- Resources are scarce
- Real values matter
- Prices reflect scarcity
- Returns eventually diminish
These principles guide economic analysis and decision-making.
What does trade expand in terms of economic possibilities?
The feasible set
Trade allows countries to consume beyond their own production capabilities.
What is the opportunity cost?
The cost of forgoing the next best alternative when making a decision
It is a crucial concept in understanding trade-offs in economics.
What determines an economy’s standard of living?
Productivity and resources
These factors are essential in assessing economic health and quality of life.
