MacroEcon 202 Chapter 2

Causes of economic growth

-an increase in factors of production -Better technology

Factors of Production

-land, labor, physical capital, human capital

absolute advantage

a country can produce more output per worker than other countries

the importance of an economic model

it allows us to focus on the effects of only one change at a time

Theory of comparative advantage

it makes sense to produce the things you're good at producing and buy from people the things you aren't as good at producing

Comparative advantage happens when..

its production for goods has the lowest opportunity cost

PPF diagram

shows the combinations of two goods that are possible for a society to produce at full employment

economists generally believe that a country should specialize in the production of a good or service if:

the country can produce the product while forgoing fewer alternative products than any other country