Chapter 2 Flashcards
Micro ppf
Compares production rates of 2 commodities that use the same fixed total of the factors of production
PPF
Production possiblilites frontier
Macro ppf
Compares production rates of two broad categories of output that use the same fixed total of factors of production
Ppf can demonstrate
Scarcity
Opportunity cost
Efficiency
Law of increasing opportunity cost
Each additional increment of one good requires the economy to give up successively larger increments of the other good
•resources not perfectly adaptable to other goods
Ppf and efficiency
On frontier-efficient 4-5% unemployment
Inside frontier-inefficient(recession) 8+% unemployment
Outside frontier-overextended 2-3% unemployment
Frontier can move out
Economy can grow-produce more goods •trade •new technology •new resources •increasing stock of capital goods •new labor •more productive labor
Frontier can move in
Economy produces less-recession
•natural disasters
•depletion of resources(supply shock)
•decrease In labor force(war)
Efficiency means
Some people will be unemployed
Does not mean 100% capacity
Efficient is 80-90%
Economic growth
Expansion if economy’s production possiblilites or ability to produce
Rules of the game
Formal and informal institutions that support the economy
Absolute advantage
Ability to make something using fewer resources than other producers require
Law of comparative advantage
Worker, firm, region, or country with the lowest opportunity cost of producing an output should specialize in that output
Specialization
Occurs when individual workers focus on single tasks, enabling each worker to become efficient and productive
Barter
System of exchange in which products are traded directly for other products
