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Econ chapter 2
Key ideas review
| Question | Answer |
|---|---|
| What is a production possibilities frontier? | A curve on a graph that illustrates the possible quantities of two products that can be produced if both depend on the same finite resources for their manufacture |
| Points inside the frontier ___ | Are achievable but don't make full use of the resources |
| Points outside of the frontier___ | Are unachievable because there aren't enough resources |
| What would cause the PPF to shift outwards? | An increase in workers, increase of input, improved technology |
| What would cause the PPF to rotate outwards? | An improvement or increase in the production of only ONE of the goods |
| Define absolute advantage | When a producer can generate more output than others with a given amount of resources |
| Define comparative advantage | When a producer can make a good at a lower opportunity cost than other producers |
| What is the rule about comparative and absolute advantage? | You cannot have comparative advantage over everything, because then it would be absolute advantage |
| Define specialization | The practice of spending all your resources on a particular good |
| What happens when you focus on producing the good for which you have comparative advantage? | Total production increases (because all your resources are devoted to the production of just one good) |
| Define gains from trade | The outcome that occurs when specialized producers exchange goods and services (When specialized producers trade they will always end up with a surplus) |
Created by:
sarah.levitt7
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