Week 2 Flashcards
1
Q
Absolute Advantage
A
Ability of one party to produce more goods with the same amount of resources than the other party .
2
Q
Comparative Advantage
A
The advantage of having a lower marginal cost and opportunity than another party.
3
Q
Production Possibility Frontier (PPF)
A
Curve showing maximum attainable combination of 2 products that may be produced with available resources
4
Q
What is the opportunity cost equation
A
OC(product A)= Time to produce product A/ Time to produce product B
5
Q
The greater the difference in Opportunity Cost, the great the potential gain from trade?
A
True
6
Q
If OCs are identical, what will happen
A
No potential gain
7
Q
What causes a shift in PPF?
A
Change in:
- Resources
- Technology
- Capital
- Period of time
8
Q
Limitations of a PPF
A
- Modern economy consists of more than two goods
- PPF shows a range of trades but do not directly model PRICE DETERMINATION
- only limits to one market structure
9
Q
Price
A
How much money consumer is willing to give up for a product.
