Module 2 Study Guide Flashcards
Describe the concept of a tradeoff using the PPF.
When production is efficient, meaning that we are operating at a point on the PPF, any movement on the curve to a different level of production involves a TRADEOFF.
On your graph, show a market combination that is inefficient, one that is efficient, and one that is unattainable.
Inefficient - under the curve
efficient - on the curve
unattainable - above the curve
Explain the difference between “Comparative Advantage” and “Absolute Advantage”
Comparative Advantage is the ability of a person to perform an activity or produce a good or service at a lower opportunity cost than someone else.
Absolute Advantage is the ability of a person to produce MORE of a good or service than someone else.
What is the difference in opportunity cost between a straight line PPF/PPC and a bowed out PPF/PPC?
When there’s a STRAIGHT LINE, there would be CONSTANT opportunity cost. This means that the inputs and labor used to produce the two goods are easily interchangeable and equally efficient in the production of both goods.
Movement along a “bowed-out” curve results in opportunity costs that increase as we tradeoff production of one good for more of the other.
In the beginning, inputs and labor moves easily from Product A to Product B production but as Product B production increases, it becomes harder and harder to continue to move inputs and labor to Product B production, thus increasing opportunity cost.
To recap, when a PPF is bowed outward, there will be increasing opportunity costs due to resources not being equally efficient in the production of both goods.
What factors cause economic growth?
Improvements in productive efficiency take time to discover and implement, and economic growth happens only gradually. So a society must choose between trade-offs in the present. For government, this process often involves trying to identify where additional spending could do the most good and where reductions in spending would do the least harm. At the individual and firm level, the market economy coordinates a process in which firms seek to produce goods and services in the quantity, quality, and price that people want. But for both the government and the market economy in the short term, increases in production of one good typically mean offsetting decreases somewhere else in the economy.
How is growth illustrated using the PPF/PPC?
An outward shift of a PPF means that an economy/company/etc. has increased its capacity to produce.
