Chapter 2 Flashcards
define model
a simplified representation of a real situation that is used to better understand real-life situations
what are types of models in economics
production possibility frontier and comparative advantage model
what does a ppf illustrate
trade offs, efficiency, opportunity cost, economic growth
why would we use a ppf
shows what an economy can do (different combinations of the to goods that the economy can produce) with the available resources
how can we tell trade-off is represented in a ppf
a downward sloping curve, due to the fact that when we want something we have to give something else up.
what is the opportunity cost of wheat. For a ppf of wheat vs. canola
OCwheat = what we give up (canola) / what we get (wheat)
is the OC constant when the ppf is a straight line or bowed out
straight line
when do we have a bowed out ppf
resources are not perfectly suitable for different uses
what is the definition of efficiency when considering ppf
we cant make anybody better of without hurting somebody. ie we cant produce more of one thing without reducing production production of the other
if we have a ppf, and a point is in the middle of the area of the ppf, is the system efficient?
no, that system is inefficient. Efficiency can be increased so the point lies on the ppf curve/line.
when a point on a ppf diagram is attainable and efficient where would the point be
on the ppf curve/line
when would a point on a ppf be unattainable
when it lies outside the ppf curve/line
when would a point on the ppf be attainable but inefficient
when it is inside the ppf curve, not on the curve/line
economic growth: an economy expands it’s ___________
possibilities
when can we get economic growth
technological advancement.
economies resources, capital and labor. weather can impact production
what does a outward shift of the ppf indicate
economic growth
what does an inward shift of the ppf indicate
economic degradation
define efficient allocation
an economy is efficient in allocation if it allocates its resources so that consumers are as well off as possible
define efficient in productions
no missed opportunities in production. It’s efficient in production if it could not produce more of any one good without producing less of something else
efficiency requires both efficiency in ________ and efficiency in ________
production
allocation
what is the theory of comparative advantage
it makes sense to produce the things you’re especially good at producing and buy everything else from others
A country has a comparative advantage in producing a good or service if its opportunity cost of producing the good or service is _______ than for other countries.
lower
An individual has a comparative advantage in producing a good or service if his or her opportunity cost of producing the good or service is _______ than for other people
lower
Comparative advantage: through _________ and _______, both countries produce more and consume more than if they were self-sufficient
specialization and trade
