Section 2

Question 1

What is the Production Possibility Frontier (PPF)?

Answer 1

shows the maximum quantity of one good that can be produced for any given production of the other.

Question 2

Which points in the PPF graph are efficient/feasible/not feasible?

Answer 2

• Feasible and not efficient: Anything below the line.
• Not Feasible: Anything above the line
• Feasible and efficient: Any point on the line

Question 3

Comparative Advantage

Answer 3

A producer who has a lower opportunity cost of producing a good is said to have a comparative advantage in producing that good.

Question 4

Absolute Advantage

Answer 4

A producer who is more productive in producing a good is said to have an absolute advantage in producing that good.

Question 5

In a world with just two goods, can a country have a comparative advantage for both goods?

Answer 5

No. Jet example with US and Brazil

Question 6

In a world with just two goods, can a country have a absolute advantage for both goods?

Answer 6

Yes. They produce both goods.

Question 7

What are consequences of people/countries having a comparative advantage?

Answer 7

It takes away jobs from one person and gives it to someone in another country. Outsourcing.

Question 8

Why and when can specialization and trade make everybody involved better off?

Answer 8

International trade benefits both countries. Each country can consume more than if it didn’t trade and remained self-sufficient.

Question 9

If specialization combined with trade is such a great thing, how come some people don’t like it?

Answer 9

It takes away jobs and sends them over seas.