# Opportunity Cost and Comparative Advantage

Flashcards by Natalia Djohari, updated more than 1 year ago
 Created by Natalia Djohari over 4 years ago
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### Description

Chapter 1 of ECON1101

## Resource summary

 Question Answer Model A simplified version of reality c4b5c261-bf17-4bd2-bd13-51bb21e1b893.png (image/png) Production Possibility Curve (Frontier) Maximum output possibility for 2+ goods given a set of inputs (resources) are used efficiently Build PPC steps 1. define axis 2. extreme scenarios 3. plot the combinations 4. connect the dots Efficient points Points on PPC All resources are used efficiently Inefficient points Points below the PPC inputs (resources) are not used efficiently Attainable Points Points on and below PPC amount of goods that can be produced with the available resources Unattainable Points All points over the PPC Amount of goods that can't be produced with available resources Absolute Advantage Someone who could produce a good with the less resources than everyone else Opportunity Cost the value of the next best alternative to an action Calculate opportunity cost from graph slope (gradient) of the PPC 2af49c2b-c290-4252-b6c7-b19424327ba6.png (image/png) Comparative Advantage The one who has the least opportunity cost for an activity Principle of Comparative Advantage Everyone is better off specializing in the activity they have a comparative advantage on f5e1ac59-75d9-4c02-a2c6-25c47bb38cb5.png (image/png) Steps to draw economy-wide PPC 1. Find the extreme scenarios 2. expand graph in order of comparative advantage 3. Only when first agent finishes resource, change to next agent Increasing Opportunity Cost First to go has lowest comparative advantage. Once that person finishes his/her resources change to next lowest CA Other name of Low Hanging Fruit Principle Increasing Opportunity Cost Factors to shift out PPC 1. increase in infrastructure (factories) 2. increase in population 3. advancement in knowledge and technology Consumption Possibility Curve all combination of goods the economy can consume CPC on a closed economy is the same as PPC The CPC in an open economy is usually greater than the PPC Why an economic wide PPC is gaped like a bow resources are scarce

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