Gains from Trade

Question 1

What is a PPF?

Answer 1

Production Possibilities frontier which shows all possibilities of the variables on the curve. Inside the curve is wasteful cuz it’s not optimal and you could be doing more and outside the curve is impossible.

Question 2

True/False

Can a PPF change?

Answer 2

True!

A PPF can change if you have an investment or grow capital and that is known as economic growth.

Question 3

Draw a graph with intersecting MB & MC curves both with the same producer (berry & rabbit example)

Answer 3

Both have to be measured by the same thing Eg: both in terms of getting one more rabbit

Question 4

Define Optimization in relation to changing one’s PPF

Answer 4

Investing instead of pure consumption thus leading to economic growth.

Question 5

What is The Law of Diminishing Returns?

Answer 5

Basically as additional increments of a resource are added or bought or produced, the MB if that one more is less than the MB of the last

Question 6

What’s the formula for Opportunity Cost?

Answer 6

Give up

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Question 7

Explain the difference between Comparative Advantage and Absolute advantage

Answer 7

Comparative Advantage: when someone who has a Lower opportunity cost in producing something than the other person

Absolute Advantage: when someone can produce more of something in a market, they have the absolute Advantage

Question 8

Draw a graph showing Pattie and Charlie’s PPF if Charlie produces 30 plates & 0 cups
10 cups & 0 plates

And if Pattie produces
10 cups & 0 plates
30 plates & 0 cups

Answer 8

Look at the notebook

Question 9

What has to happen for everyone to accept Market Trading Price?

Answer 9

The market trading price has to be lower than both Opp Costs to keep everyone happy and willing to trade