Lecture #3

Question 1

Describe comparative advantage

Answer 1

A person has a comparative advantage in an activity if that person can perform the activity at a lower opportunity cost than anyone else.

Question 2

describe an absolute advantage

Answer 2

A person has an absolute advantage if that person is more productive than others

Question 3

Define economic growth

Answer 3

the expansion of production possibilities, an increase in the standard of living.

Question 4

What two key factors influence economic growth:

Answer 4

1. Technological change: development if new goods and better ways of production.
2. capital accumulation: growth of capital resources

Question 5

What is the cost of economic growth

Answer 5

• In order to produce new capital and use resources for research and development, production must decrease.
• the opportunity cost of economic growth is less current consumption*

Question 6

Economic institutions that coordinate decisions:

Answer 6

1. firm
2. a market
3. property rights
4. money