Chapter 2 Flashcards
Absolute advantage
One person has an absolute advantage over another if an hour spent in performing a task earns more than the other person can earn in an hour at the same task
Comparative advantage
One person has a comparative advantage over another in a task if his or her opportunity cost of performing a task is lower than the other person’s opportunity cost of performing the same task.
Production possibilities curve
The PPC is a graph that shows the relationship between the quantity of one good that can be produced for every possible level of production of another good
- Opportunity costs can be found on the line
- Can be both straight and curved
Identify points on the ppc
Attainable, unattainable, efficient, inefficient
Attainable point
Any combination of goods that can be produced using currently available resources
Unattainable point
Any combination of goods that cannot be produced using currently available resources
Efficient point
Any combination of goods for which currently available resources do not allow an increase in the production of one good without a reduction in the production of the other
Inefficient point
Any combination of goods for which currently available resources enable an increase in the production of one good without a reduction in the production of the other
Scarcity principle
Spending more time on one thing means spending less time on another
Principle of comparative advantage
Everyone does best when each person concentrates on the activities for which his or her opportunity cost is lowest
and
Produce more when doing it together, and each does what they have the lowest opportunity cost for
Sources of comparative advantage
- inborn talent
- result of education, training or experience
- may derive from differences in natural resources etc
