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Description
Flashcards by Natalia Djohari, updated more than 1 year ago
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Created by Natalia Djohari
almost 9 years ago
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| Question | Answer |
| Model | A simplified version of reality |
| 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 |
| 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 |
| 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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