2.7 Key Terms
- Absolute Advantage
- Circular Flow Diagram
- Comparative Advantage
- Economic Growth
- Economic Model
- Production Possibility Frontier (PPF)
- Specialization
- The law of increasing opportunity cost
In the production of crabs as he can produce a maximum of 20 crabs while you can produce a maximum of 15 crabs, and you have an absolute advantage in producing pineapples as you can grow a maximum of 30 pineapples while Jamie can produce a maximum of 15 only. The graph below (Fig 2.6) shows Jamie’s production possibilities. (2.5)
It pictures the economy as consisting of two groups—households and firms—that interact in two markets.
When one is able to produce a good at a lower opportunity cost than another, the person is said to be efficient or have a comparative advantage in producing that good. (2.5)
Allows countries, individuals, or firms to reach points outside their PPF. Factors that allow shifts in countries’ PPF resulting in a change in attainable output include: (2.4)
This is a simplified framework that is designed to illustrate complex processes. (2.1)
is a graph that shows all the different combinations of output of two goods that can be produced using available resources and technology. The PPF captures the concepts of scarcity, choice, and tradeoffs.
In production results in gains from trade, as each person or country, can focus on what it can produce at the lowest cost and trade it with its partner.(2.5)
Which holds that as the production of a good or service increases, the marginal opportunity cost of producing it increases as well.
