Flashcards
Opportunity Cost and Comparative Advantage
Cards in this deck (20)
- 1ModelA simplified version of reality
- 2Production Possibility Curve (Frontier)Maximum output possibility for 2+ goods given a set of inputs (resources) are used efficiently
- 3Build PPC steps1. define axis
2. extreme scenarios
3. plot the combinations
4. connect the dots - 4Efficient pointsPoints on PPC
All resources are used efficiently - 5Inefficient pointsPoints below the PPC
inputs (resources) are not used efficiently - 6Attainable PointsPoints on and below PPC
amount of goods that can be produced with the available resources - 7Unattainable PointsAll points over the PPC
Amount of goods that can't be produced with available resources - 8Absolute AdvantageSomeone who could produce a good with the less resources than everyone else
- 9Opportunity Costthe value of the next best alternative to an action
- 10Calculate opportunity cost from graphslope (gradient) of the PPC
- 11Comparative AdvantageThe one who has the least opportunity cost for an activity
- 12Principle of Comparative AdvantageEveryone is better off specializing in the activity they have a comparative advantage on
- 13Steps to draw economy-wide PPC1. Find the extreme scenarios
2. expand graph in order of comparative advantage
3. Only when first agent finishes resource, change to next agent - 14Increasing Opportunity CostFirst to go has lowest comparative advantage. Once that person finishes his/her resources change to next lowest CA
- 15Other name of Low Hanging Fruit PrincipleIncreasing Opportunity Cost
- 16Factors to shift out PPC1. increase in infrastructure (factories)
2. increase in population
3. advancement in knowledge and technology - 17Consumption Possibility Curveall combination of goods the economy can consume
- 18CPC on a closed economy isthe same as PPC
- 19The CPC in an open economy is usuallygreater than the PPC
- 20Why an economic wide PPC is gaped like a bowresources are scarce