Thinking like an Economist II Flashcards
Define Absolute Advantage
Ability of an individual, firm, or country to produce
more of a product or service than competitors using
the same amount of resources.
Alternatively, produce the same amount of product or
services as competitors with less resources.
Define Comparative Advantage
Ability of an individual, firm, or country to produce
a product or service at a lower opportunity cost
than other competitors (relates to who is more
efficient at producing something).
How does Opportunity cost relate to comparative advantage and absolute advantage?
Comp. advantage is the producer who has the lowest opportunity cost.
Absolute advantage is not used in deciding who’s more efficient at producing something.
What are some reasons for a comparative advantage?
Individuals: Talent education Training Experience
National:
Natural resources
Cultural institutions
How does OC, Specialisation and Exchange relate?
Cooperation in economics -> Forms basis of trade -> differing OC -> comparative advantage -> specialisation
Why is specialisation good?
Increases the total amount of goods and can allow for exchange and a better outcome for both parties.
Why does the globe not specialise and trade?
Item redundancy can destroy nation, taxes and quotas allow for country stability.
What is the Production Possibilities Curve?
A graphical representation describing the maximum
amount of one good that can be produced for every
possible level of production of another good.
What are the assumptions of the PPC?
i) only two goods are able to be produced (for
simplification) , bananas and blueberries.
ii) consider the PPC for a single worker only.
What is the attainable point in a PPC?
Anything on or under (left) of the line.
What is the unattainable point in a PPC?
All points lying above and to the right
of the PPC are unattainable.
What is an efficient point on a PPC?
Anything on the PPC line.
What is an inefficient point on a PPC?
Anything under the PPC line.
How do you calculate OC on a PPC?
Rise/run or Run/rise depending on what you’re finding the OC for use the top number as the item you’re finding the OC for.
Why would a PPC bow?
When there are a large number of workers. At top everyone is doing a task and then people with higher and higher OCs are recruited resulting in bowing.
