Cost and Demand Flashcards
Production possibility frontier
Shows the combinations of outputs that an economy can possibly produce
How to calculate the PPF?
On a comparative table, to find the PPF, times the possible number of hours, buy the products made in one hour.
Economics Of Scale
Producing more units of an item is often more cost effective than producing a smaller amount of goods.
Specialisation
One person or country does one of a large number of tasks necessary to complete a project or reach the same goal.
Comparative advantage
An economy’s ability to produce a particular good or service at a lower opportunity cost than its trading partners.
Opportunity cost
The loss of other alternatives when one alternative is chosen
How to calculate opportunity cost?
Cost/Gain
Terms of Trade
Expressed as a range between the amount that one economy is willing to trade one commodity with another.
Explain the benefits of specialisation
By countries specialising based off of comparative advantage, they produce commodities at a lower opportunity cost, maximising total output. This allows both countries to benefit from trade, and produce their products efficiently and receive products that they don’t produce as efficiently. Leads to increased total production .
Factors that could prevent full specialisation
Trade Barriers: Tariffs and regulations can restrict trade.
Transport Costs: High transport costs can limit trade efficiency.
Market Size: Limited domestic markets may not support full specialisation.
Political Issues: Conflicts can disrupt trade relations.
Net Benefit
Gain/value - Cost
Economic Cost
Lost time, or the lost money i.e price of a ticket, when deciding on doing something
Economic Rent
Net benefit from doing something- economic cost
Sensitivity analysis
Net benefit of the best option + the cost of the ticket
Reservation option
The next best alternative
