ch 2 Flashcards
what is a model
a simplification of a complex processes of something in the real world
why use models
they allow for us to create predictions that can show the pros of cons that certain decisions will create
ppf
production possibility frontier shows the possible quantities that can be produced of two products with the same finite recourses at full employment
opportunity cost
the cost of taking a opportunity or making a decision calculated by what is lost divided by what is gained
economic growth
improvements in tech or factors of production causing for a shift to the right of the ppf increasing the amount produced
comparative advantage
production might be lower than another company but the opportunity cost to produce that good is lower then the other company in trade the company with the comparative advantage is the one that will produce the good. we should specialize at our comparative advantages
absolute advantage
does not account for opportunity cost only factors what company can produce the most amount of that good more effecitantly when compared to other companies, does not mean that that company will produce
finding comparative advantage
calculate the opportunity cost then compare to the other companies opportunity cost whatever is the lower number is the comparative advantage
autarky
no trade
reason for trade
allows for the comparative advantage to produce a certain good then trade with another country for another good allowing for the country to reach a previously unachievable point past the ppf
efficiency
there are no missed opportunities requires effecieny in both allocation and production
efficiency of production
no missed opportunities and is on the ppf
efficiency in allocation
moves recourses so consumers are as well off as possible
increasing opportunity cost
the more a company produces of an item the more it costs to produce the additional item
specialization and trade
if two people specialize then they are better off since they can trade
