Trade-offs And Trade Flashcards
Other things equal assumption
All other relevant factors remain unchanged
Production possibility frontier
Illustrates the trade-offs facing an economy that produces only 2 goods, it shows the maximum quantity of one good that can be produced for any given quantity produced of the other
Efficient in production
If the economy as a whole could not produce any more of any good without producing less of something else
Efficient in allocation
If the economy allocates its resources so that consumes are as well of as possible
Factors of production
Resources used to produce goods and services
Technology
Technical means for producing goods and services
Comparative advantage
A country has this in producing a good/service if its opportunity cost of producing the good/service is lower than other countries
Absolute advantage
A country has this in producing a good/service if the country can produce more output per worker than other countries
Barter
Trade takes the form of barter when people directly exchange goods/services they have got goods/services they want
Circular-flow diagram
Represents the transactions in an economy by flows around a circle
Household
Person/group of people that share their income
Firm
Organisation that produces goods and services for sale
Markets for goods and services
Firms sell goods and services that they produce to households in these
Factor markets
Firms buy the resources they need to produce goods and services in there
Economy’s income distribution
The way in which total income is divided among the owners of various factors of production
