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trade offs
having more of one thing potentially results in having less of another
efficient economy
no missed opportunities
PPC is useful for..
illustrating efficiency + showing gains in trade
productive efficiency
when economy is producing on the ppc line
allocative efficiency
when economy allocates scarce resources to ensure all consumers are as well off as possible
opportunity cost
most desirable alternative given up as the result of a decision
constant opportunity cost has a..
linear slope
the constant opportunity cost produces and gives up
the same magnitude of resources
increasing opportunity cost has a..
exponential slope
the increasing opportunity cost produces and gives up
at an changing rate of resources
law of increasing opportunity cost
how opportunity costs increase as resources are applied
economic growth
leads to ppc shifting to the right
causes of economic growth are..
investment in capital, inward migration of younger & more skilled workers, discovery of new natural resources, and improved education/training/healthcare
economic decay
leads to ppc shifting to the left
causes of economic decay are..
decline in input goods, failure to invest, natural disasters or plagues
trade leads to..
a better way of living
trade allows..
a division of tasks between people, specialization
specialization
different people engaging in different tasks
benefits of specialization are..
the reason why people typically focus on productive of only one type of good/service
comparative advantage
producing at lower opportunity cost than others
absolute advantage
producing more of a given product using a given amount of resources
terms of trade
rate one good/service can be exchanged for another
Note
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