Microecon Ch. 2

What is the basis for trade?

Comparative advantage

We can show economic efficiency

with points ON PPF

Whether carried out by a country or individual, PRODUCTION beyond PPF

not physically possible

Movement from A to B to C on the PPF illustrates

Increasing marginal opportunity costs

If the PPF is ______, then opportunity costs are constant as more of one good is produced

Linear

The basis for trade is comparative advantage, not absolute advantage

TRUE

What does increasing marginal opportunity cost?

Production of 1 good = larger and larger decreases of a second good (PPF shape bowed outward)

How can a country gain from specialization and trade?

Specialize in comparative advantage trade for other goods and services

for a person to have a comparative advantage in producing a product, she must be able to produce that product at a lower opportunity cost than her competitors

TRUE

It is possible to have a comparative advantage in producing a good or service without having an absolute advantage

TRUE A firm may be able to produce more of a good or service than its competitors, but that does not necessarily mean it can produce the good or service at a lower opportunity cost than its competitors

An inward shift of a nation's production possibilities frontier can occur due to

a natural disaster like a hurricane or bad earthquake

What is comparative advantage?

ability to produce good/service at a lower opportunity cost than other producers

What is absolute advantage?

ability to produce more of a good/service using same amount of resources

In the diagram of PPF, this shows

both labor force AND capital stock are increasing

Refering to figure 2-4, a movement from X to Y

could occur because of an influx of immigrant behavior

An outward shift of a nation's production possibilities frontier represents

economic growth

figure 2-4, a movement from Y to Z

is the result of advancements in plastic production technology

Specializing in the production of a good or service in which one has a comparative advantage enables a country to do all of the following EXCEPT

produce a combo of goods that lies outside its own PPF

With respect to consumption, individuals and countries can

thru trade, CONSUME beyond PPF

A PPF shows:

shows max attainable combo of 2 goods that may be produced with available resources

The principle of opportunity cost is that

the economic cost of using a factor of production is the alternative use of that factor that is given up

Without an increase in the supplies of factors of PRODUCTION, how can a nation achieve economic growth?

through technological advancement which enables more output with the same quantity of resources