chapter 8 Flashcards
Production possibilities curve
Shows the relationship between the maximum production one good for a given level of production of another good
X axis-the number of web sites produced(completed)
Y axis number of computer programs produced(completed)
Tells us how much we can produce from existing resources
Any points on or below PPC represents production in a 8 hour day.
calculating opportunity cost
Opportunity cost of (X Or Y) = loss in X(Y)/ gain in Y(X)
Comparative Advantage
The ability of one economic agent to produce at lower opportunity cost than another
specialization
when each individual, firm, or country produces only what it has a comparative advantage in and relies on trade for the other goods and services it needs
Absolute Advantage
The ability of an economic agent to produce more output than another agent with the same resources.
Terms of Trade
The “price” of one good in terms of the other, the exchange rate between goods
which of the trading partners reaps the gains of trade.
a price in the middle is same gains from trade
Economy Wide PPC
a curve line
the general principle of increasing opportunity cost.
short run is PPC fixed production
Long run not fixed , increases in natural resources or changes in productivity due to population growth, changes in technology, and increases in education shift the PPC outwards.
Ex: new fertilizer technology , PPC shifts outwards because ability to produce more apples (X axis) and orange production (Y axis)
net importer
imports are worth more than exports over a given period of time
free trade
the ability to trade without hindrance to encouragement from the government
effects the equilibruim on to become a consumer or producer.
if domestic price is below the would price , then become an exporter
if domestic price is above the would price, then becomes an importer
world price
is the prevailing price of a good on the world market
countrys comparative advantage
natural resource
stocks of human made resources
technology
education, work habits, and experience of the labor
relative abundance of labor and physical capital
climate
National Security Concerns
Over-reliance on other countries for needed goods and services
ex: many modern economics depend on oil imports, many cite such reliance as a national sercuity concern
Environmental and resource concerns
Countries vary by how stringent their environmental policies are. Free trade can lead to greater pollution and resource depletion in those countries with lax standards because of the increase in demand
effects of globalization -
the shift toward interdependent economies - on demsic culture
Desire to protect culture from dilution or infringement of other values
Infant Industry Arguments
When industries are first getting started, they may need some government protection from free trade until they get established
