Ch 3

If Iowa's opportunity cost of corn is lower than Oklahoma's opportunity cost of corn, then

Iowa has a comparative advantage in the production of corn.

What must be given up to obtain an item is called

opportunity cost

Assume for the United States that the opportunity cost of each airplane is 50 cars. Which of these pairs of points could be on the United States' production possibilities frontier?

(200 airplanes, 12,500 cars) and (150 airplanes, 15,000 cars)

The most obvious benefit of specialization and trade is that they allow us to

consume more goods than we otherwise would be able to consume.

The producer that requires a smaller quantity of inputs to produce a certain amount of a good, relative to the quantities of inputs required by other producers to produce the same amount of that good,

has an absolute advantage in the production of that good.

Absolute advantage is found by comparing different producers

input requirements per unit of output

The production possibilities frontier illustrates

the combinations of output that an economy can produce.

A production possibilities frontier is bowed outward when

the rate of trade-off between the two goods being produced depends on how much of each good is being produced.