Chapter 2 - Gains to Specialization and Exchange Flashcards
What are the resources used to produce goods?
Land, Labor, Capital
What is absolute advantage?
When someone can produce a good in less time or produce more in the same amount of time
What is comparative advantage?
Whoever can produce at lowest cost
What is the Production Possibility Frontier (PPF)?
“graph of maximum amount of output that can be produced by an individual or an economy.” - slides. “The boundary between production levels that can and cannot be achieved by an individual or an economy.” - book.
What does the production possibility curve not tell you?
What will be produced
What is production efficiency
When each good is produced at the lowest cost.
What does the slope of a PPF tell you?
marginal cost
What kind of slope do PPF’s have?
Negative slope
How can you tell who has comparative advantage by looking at a graph?
The person with a flatter line has comparative advantage
